Weekend Update

Highlights from a historic week. .

Jan 14, 2024

The following is a sampling of Cannabis Confidential content—random paragraph grabs, charts and notes, interesting happenings and other stuff— from last week.

You can click through the title to access any article; most stock stuff is behind the firewall + you can access a free trial by clicking below. Thank you for your support.

More Eyes on Canna

The animal spirits have started to stir.

January 8th, 2024

Higher Learning

Colleges in states where adult-use cannabis became legal over the past decade saw a significant but short-term boost in applications from top-notch students—and they also got more applications overall.

Those were the key findings of a new study that was recently published in the peer-reviewed journal Contemporary Economic Policy.

Eyes of the World

MSOS was $8 bid this morning after being the #1 ticker on Reddit over the weekend and while there’s plenty of healthy skepticism still surrounding the space, there’s some fresh animal spirits, as well.

It wasn’t just Shardi and her crypto cronies, either; MSOS was highlighted in several trading rooms and the ticker is certainly more active on X.

Perhaps this is what some of then are smelling:

Technically: MSOS broke out on massive volume, retested on much lighter volume (double bottom) and the subsequent sprint put all of the moving averages underfoot.

The resulting pennant (flag) formation was textbook and that broke out last week—through the Dec, highs—before back-testing the Dec. high several times today.

We sensed fundamentals troughed prior to the August headline that sparked the first run (pricing stabilized and yes, exposure to the right states is a big driver).

Most U.S. operators also entered this year lean, mean and optimized, albeit cash-poor.

SI => SIII would trigger the ultimate structural shift—understanding that the removal of 280E will benefit Tier-1’s more (bigger footprint→ bigger tax break) and retail more so than cultivation—while a Garland Memo, which we expect as a companion, should help fit it all these new pieces and treatments together.

^ Tier2s/3s, many of which are more illiquid and were left for dead, should see higher relative beta and when they lift, we'll likely see a steady stream of beefy capital raises, which would be most welcome after five years of the Hunger Games.

[note: there’s more to the structural discussion as it pertains to custody]

Finally, in terms of psychology, we talked to the ‘denial, migration, panic’ continuum last week, which continues to play out across every cycle/ duration, but that’s more of a context that a condition as it can persist a lot longer than most might expect.

What’s the rub, you ask?

The most opaque of all ingredients is the timing, with some watchers punching their glove daily and others convinced this’ll drag to and through the election.

We're in the sooner camp so it’s said, which doesn’t make it right, but it does make us ready.

Show Me!

Canna investors wanna see real movement.

January 9th, 2024

Take Me Home…

West Virginia’s Republican Senate president says that legalizing marijuana could help ease the state’s crush of fatal fentanyl overdoses, predicting that the policy change will come “sooner than later” but probably not in the new legislative session.

“My gut tells me it might not happen this year but you’re going to see it sooner than later, because that is a way to combat the issue.”

Country Road

A new study aimed at comparing medical marijuana and opioids for chronic non-cancer pain found that cannabis “may be similarly effective and result in fewer discontinuations than opioids,” potentially offering comparable relief with a lower likelihood of adverse effects.

“Our findings suggest that both opioids and cannabis for medical use may provide benefits for a minority of chronic pain patients. Furthermore, cannabis doesn’t cause respiratory depression which can result from opioids and lead to a fatal overdose.”

Choose Wisely

When the DEA news hits, a rising tide will lift all boats, at least for a bit, but we know that all canna companies aren’t created equally.

To that end, outside of the ETF, which will likely serve as the go-to (it has the widest custodian net as an NYSE-listed security), other potential vehicles include:

ETF: MSOS (we are an advisor)

VRNOF GTBIF TSNDF (among the cleanest/ safest + 280E)

CURLF CRLBF CBSTF TCNNF (among biggest 280E bang for buck)

FFNTF CXXIF AAWH MRMD JUSHF (among highest backend beta bets)

AYRWF (most torque with OH FL + 280E)

There are others, of course—this isn’t an exhaustive list—but now is the time to do the work on names to rent vs. names you wanna own such that our marching orders are clear when the ~~next~~ first phase of migration arrives.

Nice Trade

The subtext of yesterday’s 4Front equitization news is that the senior secured lenders swapped their pole position on getting 'paid back' into common stock to 'get paid.'

Kenneth “Zed” Griffin

Meanwhile, new money in the space gotta be like “WTF” as they step into our little fucked-up corner of the universe. They have no idea.

Back Test

U.S cannabis retests technical levels.

January 10th, 2024

Yuppie Salad

On the one-year anniversary of the opening of the adult-use marijuana market in Connecticut, state officials announced today that the Constitution State sold more than $274M in recreational and medical cannabis in 2023.

Roth Capital:

“2024 is shaping up as a momentous year ahead of federal regulatory catalysts, with likely rescheduling in the near term. U.S. cannabis remains a compelling value on fundamentals w significant upside on federal regulations.”

The ~~Crying~~ Waiting Game

With a fresh crop of new eyes having joined our echo chamber in eager anticipation of the next federal headline…

…our space began this week much the way it did last week, with several sessions of softness and a fresh dollop of anxiety as the U.S canna sector, seemingly oblivious to the risk-on behavior that surrounds it daily, wanders around in a world all it’s own.

Such was life again today, as the exhale that followed last week’s ‘news’ continued for the most of the session before picking up steam in the last hour. We didn’t see any news or levels of note but 2.4M MSOS traded on a whoosh lower at 3:20 PM.

When the dust settled, 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.

IDK what tomorrow will bring but I do know that until these underlying stocks are held in the right hands and traded on legitimate exchanges, they’ll continue to get bullied by anyone with an agenda.

The Pot Piñata

Investors wanna know what's inside.

January 11th, 2024

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.

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.”

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.”

The Moot Flute

U.S. canna readies for a big week.

January 12th, 2024

The U.S. Department of Justice confirmed that the HHS will release it’s full letter and enclosures from August that detailed it’s cannabis rescheduling recommendation “in their entirety” in response to a FOIA lawsuit and motion for summary judgment filed by attorney Matthew Zorn.

Here’s the rub: the deadline for the HHS to respond is January 18, or this Thursday.

Markets, of course, will be closed on Monday in honor of Martin Luther King Jr.

“Your motion for summary judgment will be moot once the agency makes this release.”
U.S Department of Justice

Bakers’ Dozen

A coalition of 12 Democratic state attorneys general is urging the Drug Enforcement Administration (DEA) to move forward with federal marijuana rescheduling, calling the policy change a “public safety imperative.”

“We encourage the DEA to implement a final rule rescheduling cannabis to Schedule III based on the Federal Drug Administration’s scientific and medical conclusions. We see this as a public safety imperative and write in support of this policy change.”

Sweet Home Chicago

Illinois pot shops sold more than $1.6 billion worth of adult-use cannabis in 2023, the latest record year for the state’s budding industry.

That’s a 5% increase from legal adult-use cannabis sales in 2022 as Illinoisans bought more joints, gummies, flower and other weed products overall—42,124,741 of them, to be exact—which was a 15% jump from the previous year.

Market Makers & Price Takers

We’ve talked about the set-up this week and suffice to say our space held where it had to and yesterday’s late-breaking news hit at just the right time.

Insofar as this sector composition is (what’s left of) retail, fast-money types and algos (until institutions onboard on the other side of custody), the only thing we do know is that our forward path will be choppy and sloppy as the new-to-the-space money uses MSOS as their Trojan Horse until the sticky-icky money can custody at large banks.

[note: TSX-listed TerrAscend + Curaleaf are already exempt from custody restrictions]

Today: big call buyers early—mostly Jan paper, some month-end—MSOS +5% before lunch, +2.5% after lunch; volume came in 2PM, MSOS spiked +10% before the dealers tried to contain $8; the ETF closed on the highs, and is higher after-hours, like me.

What’s It All Mean? Click here.

Feds Release Marijuana Documents, Confirming Schedule III Recommendation Based On ‘Accepted Medical Use’

Next step: DEA will publish their proposed rule.