The Pot Piñata
Investors wanna know what's inside.
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Daily Recap
A month after a Virginia Senator declared that he was confident a marijuana sales bill could pass the legislature and reach the governor’s desk this year, lawmakers officially filed legislation to make that happen.
Governor Glenn Youngkin (R) responded that he doesn’t have “any interest in pressing forward with marijuana legalization” but if he vetoes the bill, Virginia will only suffer—and lose tax dollars—as the illicit market continues to grow.
Garden Party
New Jersey lawmakers are gearing up for a busy year, having filed more than a dozen cannabis policy bills ranging from interstate commerce, home grow and banking. The Garden State is projected to sell more than $1 billion in canna sales in 2024.
Desert Storm
After three years, Arizona’s cannabis markets have seemingly found a balance as adult-use is repeatedly ringing up twice as many sales as the more heavily regulated medical market. October was the third straight month adult-use sales were ~$85M, as MMJ sales dipped to ~$25M.
Stocks & Stuff
Following yesterday’s yoga routine, we entered today’s session braced for impact as the mood once again soured across the street. Thankfully, while most of the Street was obsessing about Bitcoin ETFs, there was enough residual interest to defend the levels we discussed last night.
Below, we’ll chew through today’s price action, sniff at some possible explanations for the recent volatility, quantify the benefits of removing 280E (spoiler alert: it’s massive) and share some credible bread crumbs that suggest a DEA headline is on it’s way.
All that and more, just slow scroll down.
SPY 0.00%↑ QQQ 0.00%↑ IWM 0.00%↑ MSOS 0.00%↑ PT Notional: $56M
Top Stories
Adult-use marijuana sales growth in 2023 varied by market age
Arizona's cannabis sales begin to settle into pattern
More Teens Using Cannabis are Suffering from Psychosis
New Ontario cannabis retail rules: will they make a difference?
Why Barcelona Authorities Plan to Close All Cannabis Clubs
Stocks
We awoke this morning to a WSJ front-page article on potent pot hurting kids (teen psychosis) and my first thought was, “I wonder who got a hold of that story bc that may have been the trigger for yesterday’s late-day flush.”
[second thought: must be close if the opposition (big pharma) is pulling this shit]
[another theory: funds were raising dough for bitcoin ETFs]
Either way, we knew bulls needed to make a stand this morning given the set-up…
U.S. cannabis ETF MSOS:
Retraced one-third of the move off the double bottom low ($5 → $8 → $7)
Pulled back toward the 100-day ($6.86) + 200-day EMA ($6.79)
Is back-testing the pennant formation breakout.
Is retesting the late December uptrend.
Is +16% over the last six months.
…and they did, at least thus far. While volume trends remained scattered on dawn's highway bleeding and ghosts crowded our fragile eggshell minds, we managed to skip the usual lunch crunch/ midday press, which was a welcome enough tone change.
MSOS finished the session +5%, which protected/ respected the levels and opened the door once more for the animal spirits, elusive as they may be. The chart, of course, is one thing—technicals matter—but at the end of the day, we know what matters most.
DEA DEA DEA DEA DEA DEA DEA DEA DEA!
IDK if we get a headline this month, next month, or March—nobody does—but we do know it's coming—and while the ‘any day’ narrative may actually be true, it’s added a steady dose of anxiety to each passing session that nothing is done.
On the bright side, SAFE Banking expectations are close to nil so that would be a nice upside surprise if Chuck wants to earn his “h” back. We’re still in the camp that SIII, Garland + SAFE are the three intended amigos < the election but as always, we'll see.
[note: Lobbyist Don Murphy shared his thoughts on SAFE Banking after the close, expressing a high degree of confidence that it’ll pass into law this Congress]
Meanwhile… in today's Senate session on fentanyl, cannabis was left off the chart that they used for federal mandatory minimum sentencing for Schedule I&II drugs…
…and then there’s this from the sharp + relentless minds at the must-read, OnDrugs:
Shane P. from shared this follow-up on X…
“The release of the unredacted HHS recco/evaluation (all parts of it) is coming imminently; if that occurs as part of DEA publishing it's proposed rule in the federal register, then the proposed rule is also coming imminently. We don't know at the moment which it is.”
And Tom picked up the story with about ten minutes left in the trading day.
Boston Whaler
Putnam Global Health Care ($1.5B fund) exited Green Thumb (284,400 shares), added Verano (122,759 shares) and peeled 221K TerrAscend (they still hold 5.76M shares).
Land of Lincoln
Illinois December adult-use cannabis sales totaled $154M, up 11% m/m from $139M and up 7% y/y from $144M in December 2022. Given that December had one more shopping day than November, Beacon notes that sales per day increased 7% m/m.
Echelon on U.S. Cannabis
“"We estimate an average 110% increase to our 2024 unlevered FCF estimates if the 280E tax was removed for a $660M benefit across our 11 US coverage names.”
Bloomberg Intelligence on U.S. Cannabis
“We believe rescheduling has a 70% chance this year and could usher in both tax relief and increased sales for producers and retailers.”
2024 U.S cannabis YTD finds Jushi (+28%) as the early rabbit:
Stems & Seeds
Time for a Weed-Free January? How cannabis users could benefit from a ‘dry’ month
Enjoy your night, be safe and please enjoy responsibly.
If you’d like to help Mission [Green] change federal cannabis policies, please click here.
CB1 has positions in / advises some of the companies mentioned and nothing contained herein should be considered advice.