Weekend Update
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.
Simmer Down
Watched pot never boils.
November 27th, 2023
As U.S politicians ready for the 2024 elections, the growing support for cannabis may create an opportunity for the Democrats, who are traditionally more liberal on drug laws, to tap support for legalization among a coalition of voters that extends beyond their typical base.
Much like abortion, voting patterns suggest the Democratic party’s cannabis stance appeals to a broader range of the electorate than their actual candidates do, has the potential to drive higher voter turnout, and could help reshape the electoral map.
Congressman Earl Blumenauer (D-OR), a longtime champion of America’s adult-use cannabis industry, is trying to retire on a high note with bipartisan legislation that would level the playing field and rectify the financial burdens of IRC 280E.
“The Small Business Tax Equity Act is a pivotal change. It seeks to amend Section 280E, enabling vital deductions and alleviating the undue burden that has stifled growth and innovation."
The receiver in charge of failed Canadian hedge fund Traynor Ridge Capital Inc. is looking to hire an investment advisor to help sell its assets. Ernst & Young posted a notice Thursday calling for investment firms to apply for the job by Nov. 30 with “a high level strategy and work plan for the disposition” of Traynor’s securities.
[^ we believe but cannot confirm there is a sizable MSOS short position vs. select long exposure; subsequent updates suggest a February target but the situation is fluid]
ATB on FLA
Top five operators represented 74% of total volumes sold in Q323, from 84% in Q121: Trulieve 38% (-6% y/y) Curaleaf 11% (-3% y/y) Verano 10% (+1.4% y/y) AYR 9% (+1.3% y/y), Parallel 6% (-1.0% y/y).
New York Canna Cometh
A timeline emerges for the Empire State.
November 28th, 2023
Proposed settlement terms for the legal dispute that has exemplified disrupted the New York cannabis market were released today and while they won’t be final until they’re formally accepted by the NY Supreme Court, the stage is now set for state-licensed MSOs to sell adult-use cannabis in the next few weeks.
A recent study revealed that the average change in a pharma company's market value for each time a state legalized either medical or adult-use cannabis was $63M and that the cumulative impact on the pharmaceutical industry is roughly $9.8 billion.
"This implies a change in annual sales across all drug-makers of $3B per state-level legalization event," reported the study's authors. They also noted that the level of sales decrease is 129% greater for adult-use legalization versus medical programs.
We’ve highlighted the double bottom on lighter volume (since the HHS news), as well as the subsequent recapture of most of the 200-DMAs. Many of the individual stocks mimic the ETF in that they’re now basing above newfound support.
AGP on U.S. Cannabis Fundamentals and the DEA timeline:
Pennsylvania Station
The Keystone State is surrounded by Green.
November 29th, 2023
24 states have now approved adult-use marijuana and while Pennsylvania isn’t one of them, residents will have plenty of options right across state lines. With Ohio green, the commonwealth is surrounded by canna-crazed states, including New York, New Jersey, Delaware and Maryland.
As the state loses ground to its neighbors in the race to capitalize on legalization, two politicians are stepping up. State Sens. Dan Laughlin, a Republican from Erie, and Sharif Street, a Dem from Philly, have introduced a bipartisan regulatory framework aimed at sparking fatties conversations around legalization.
‘Cannabis legalization is inevitable,’ or so says a group of policy analysts, and we’ll walk through the current shots on goal across all three branches of the U.S. gov’t. “It’s inevitable,” says Jaret Seiberg, an analyst at TD Cowen, “It’s just a question of how bumpy the next several years are going to be.”
Freddy Benson Gomes at ATB initiates Green Thumb
December Cometh
U.S. canna bulls look for happier holidays
November 30th, 2023
Industry stakeholders at MJBizCon expressed optimism the Biden administration will reschedule cannabis as a less dangerous drug in the months ahead, a move that would allow cannabis businesses to escape the steep taxes levied under IRC Section 280E.
The results of a UNF poll found that 62% of registered voters would vote “yes” to a proposal that prevents state law from limiting abortion access (29% no, 9% unsure). When it comes to legalizing the personal use of recreational cannabis, 67% of those polled said “yes,” 28% said “no” and 5% evidently forgot to respond.
2023 was meaningful for the cannabis industry. Operators optimized the snot out of their businesses as the post-COVID excesses faded, doors shut and prices firmed.
The HHS recommended SIII and while it’s more a steppingstone than destination, it would be an important step closer to the eventual goal of descheduling + states' rights, while providing immediate relief from the single biggest bane of our existence: 280E.
SAFE Banking, after several frustrating delays, passed through the Senate Finance Committee for the first time ever and continues to take shape ahead of an expected Q1 Senate vote, or that’s what we’ve heard from those closer to the situation.
We got Mizzou, which put up $1.5B since February, Minnesota (slated to launch next year) and the Buckeye Nation, which pushed the U.S. over the tipping point in terms of the percentage of our population living in a 420-friendly state.
We saw a federal lawsuit initiated to sue the U.S. gov’t over the constitutionality of 280E, with the potential to recover some of the onerous federal taxes previously paid, while several states passed laws that addressed the state-level tax treatments.
New York finally reached a settlement that should allow the industry to move forward, a newly elected Virginia legislature may soon facilitate a retail framework and Florida took a necessary/ important step toward a proposed voter-referendum in November.
And the legal framework is still servicing only 30% of the overall market demand.
Perspective is my point; we've come a long way.
And we’re almost at the starting gate.
BTIG on U.S. cannabis rescheduling:
Shoots & Ladders
Cannaland dances into December.
December 1st, 2023
New states implemented the legalization of adult-use cannabis and federal agencies continued considering a massive overhaul of the Controlled Substances Act in 2023, marking a monumental yet underappreciated year for the cannabis industry.
The U.S. Department of Health and Human Services (HHS) is up against an imminent deadline to provide Congress with a report on the therapeutic potential of marijuana and barriers to research under a cannabis bill that President Joe Biden signed into law last year.
The New York Supreme Court has officially lifted an injunction that’s barred state marijuana regulators from processing hundreds of new retailer licenses, clearing the path to significantly expand the state’s cannabis market.
Forbes: A Look At Cannabis In 2023
‘Tis the season and despite the palpable frustration that’s completely warranted after the DC dither seemingly cost U.S. canna another year of functional reform, I stand by what I wrote yesterday regarding how meaningful 2023 has been.
And it's not bc Forbes just wrote the same thing, before landing with:
Looking ahead to 2024, the upcoming election provides voters with a fresh opportunity to change the policy landscape for the cannabis industry. There’s already talk of Florida–our nation’s third most populous state–conducting its own cannabis ballot measure. With a presidential election around the corner, candidates might also make new promises about adult-use. If 2023 is any indication, a year is plenty of time for major policy shifts.
We’d be wise to remember that we're in a business that's measured at the end of each session while attempting to navigate the unwind of a system that's been in place for the better part of a century. Let me tell you something, traditional duration risk has nothing on that motherfucker.
It's an imperfect process because it's an imperfect solution and there would still be a massive disconnect between federal and state law under SIII, and memos can change depending on the mood of the next administration.
Still, "States are meant to be nimble and the federal government is designed to move slow," or so said a senior DC staffer in the Spring before adding, “things move slowly in this town—until they don’t.”
Maybe 2024 is the year that they finally don't.
There’s always a bull market somewhere
The way to look for pin risk is when the open interest (OI) of the strike of an option is outsized relative to average daily volume of the underlying. In other words, we'll need some news if U.S. cannabis ETF MSOS is to push through these levels—but should we get a push through these levels, it could get quite interesting.
Not Boring Company
Regardless of your views on the man, the Elon Musk-Andrew Ross Sorkin interview at the NYT DealBook Summit was some of the more fascinating 90-minutes that I spent this week, which may or may not be saying all that much.
IDK how much of his Israel trip was a sincere desire to learn vs. PR/ damage control or if that even matters as he pivots to the right side of history for all to see. His views on AI, X, EVs, space travel and the rest of it are must-see TV.
New York Lawmakers Send Governor Bill To Allow Hemp Seeds In Food For Pets, Horses And Llamas
Enjoy your weekend, be safe and please enjoy responsibly.
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CB1 has positions in / advises some of the companies mentioned and nothing contained herein should be considered advice.