Weekend Update

Reviewing the cannabis landscape.

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 the title to access any article; most stock stuff and analysis is behind the paywall and you can access a free trial by clicking below; thanks for your support.

Twisted Roots 👈

The War on Drugs was based on lies.

Sept. 16, 2024

Donald Trump may be a teetotaler but he’s hoping that another intoxicating product will give his campaign a boost in a tight election. The former president announced his support for a number of pro-cannabis policies on social media over the last few weeks, including adult-use legalization in his home state of Florida.

While Trump hinted at pro-cannabis positions in the past, like backing states’ rights and working with criminal justice reform activists like Weldon Angelos, this was the first time that he embraced specific policies to liberalize marijuana laws.

“For any candidate that wants to be the responsible common sense candidate that can appeal to people across the divide, this is an easy issue to pick up.” Rep. Nancy Mace (R-S.C.)

False Pretense

Two years after former President Richard M. Nixon launched a war on drugs in 1971, calling substance use the nation’s “public enemy No. 1,” he made a startling admission during a meeting in the Oval Office.

Speaking to a small group of aides and advisers at the White House in March 1973, Nixon said he knew that marijuana was “not particularly dangerous.”

Nixon openly questioned whether cannabis was more harmful than other substances like alcohol, cigarettes and even coffee. He said he was open to loosening penalties for drug crimes but, as he perceived the government was “starting to win the war on drugs,” he ignored health panel recommendations and kept cannabis as Schedule I.

Emergency Sesh

A Democratic congressman is calling on House Speaker Mike Johnson (R-LA) to bring cannabis legislation to the floor in light of former President Donald Trump’s recent endorsement of state and federal reform, as well as newly unearthed audio capturing former President Richard Nixon conceding cannabis wasn’t “particularly dangerous.”

Congressional Cannabis Caucus co-chair Rep. Earl Blumenauer (D-OR) sent Johnson a letter today and said the comments from Nixon, whose administration codified federal marijuana criminalization, represent “a devastating public admission of a devastating public policy.”

“For 50 years, the Schedule I classification of cannabis has inflicted generational harm on Black and Brown communities who have suffered from the deliberate and disproportionate enforcement of criminalization. It confirms what we have known for years, but we’ve never heard it in Nixon’s own words before.” Rep. Earl Blumenauer

Taxi Station

States that have legalized canna have reported more than $8.7 billion in cannabis tax revenues to the federal government since tracking began in mid-2021. Cali reported the biggest slice of that tax revenue at more than $2 billion, followed by Washington State ($1.3 billion), Colorado ($898 million) and Michigan ($698 million).

Green Thumb Industries Announces $50M Share Buyback Program 👇

Whispering Angels

Trading volume has been nonexistent in Cannaland as continued custody restrictions—one of the many impediments resulting from those 20th Century lies—have relegated the underlying stocks to the pay-no-mind club. MSOS is on the NYSE, of course, but it’s constituents might as well be in huddled in a Siberian Gulag.

We’re 49 days away from an election that’ll shape the fate of the great state of Florida and usher in a new administration. While conventional wisdom still suggests that the Dems would be better for the cannabis industry, the reality is that the right has seen the light, and the past is no longer a precursor to future Republican performance.

Of course, a lot will depend on where the 119th Congress will land and a line of sight on that will likely lead to a lot more wrangling in the Lame Duck. Expectations are low anything will get accomplished but some, like BTIG below, have it in play 👇

Moneyball 👈

State programs are making bank.

Sept. 17, 2024

Eleven states are on pace to top the $1 billion benchmark in total retail sales at licensed cannabis dispensaries in 2024—including a pair of medical-only markets.

California, which was the fifth largest economy in the world in 2023, is projected to remain the world’s largest canna-conomy with more than $4.7 billion in adult-use and medical sales in 2024, according to monthly sales figures.

Sixth Sense

Representatives in the sixth largest U.S. market—the medical market of Pennsylvania—filed legislation on Sept. 13 to legalize adult-use cannabis for those 21 years and older.

The Commonwealth has more than 441,000 active patients who have spent more than $6.5 billion since the legal medical market first launched in February 2018.

Apple Orchard

New York cannabis retailers reported $430 million in revenue from January through August, a month that saw weekly sales surpass $20 million for the first time.

At this pace, with an estimated 200 licensed retailers ready to open by the end of September, a top regulator believes that finishing 2024 with more than $1 billion in regulated cannabis sales is “within the realm of plausibility.”

Feed the People

As the November election approaches, two new polls show strong majority support for marijuana legalization, federal rescheduling and cannabis banking reform among likely voters in the key presidential battleground states of Arizona and Nevada.

In Arizona, there was majority support for medical cannabis legalization (86%), adult-use legalization (69%) and banking reform (78%).

Low Key Positive

The DEA recognition of the two-part test that was used to determine a substance’s accepted medical use was a bullish read-through tucked within a relatively obscure footnote on a notice about an unrelated move on synthetic opioids.

That news removes one more arrow from the quivers of the prohibitionists who aim to derail the rescheduling process. Sugar Shane Pennington, an attorney who specializes in federal administrative law and knows more than most on the topic, weighed in:

“It means that they recognize that they’re bound by a higher authority and must accept the two-part review; it’s something, it’s not nothing. To me, it was significant because it’s the first time they’ve acknowledged that test.”

Conference Calls 👈

The ATB canna confab hits NYC.

Sept. 19, 2024

New research says state-level medical marijuana legalization may significantly reduce health insurance costs. In states with legal MMJ, companies paid 3.4% less for health insurance premiums compared to illegal states, an annual savings of $238/ employee.

If all states were to implement medical cannabis programs, the study says, the country could save an estimated $29 billion in health insurance costs annually.

Penn Quaking

Among Pennsylvania’s six border states, all but West Virginia have legalized cannabis, allowing its sale and use for medical and recreational use. Pennsylvania has legalized cannabis for medical use, but continues to impose criminal penalties for possession of pot without a medical marijuana card.

Governor Josh Shapiro (D) said on Tuesday that he believes that legalizing adult-use cannabis makes sense from an economic perspective.

“There are Pennsylvanians who may be traveling out of state to purchase cannabis, and that’s something we want to be focused on doing here in our commonwealth.”

Cali Shaking

A scandal over California’s failure to keep pesticides out of legal cannabis is causing turmoil across the industry, with a whistleblower retaliation lawsuit, the departure of a top cannabis official, the state hiring a private investigator, and a race in the private sector to form a shadow regulatory system in the face of crumbling confidence.

Industry leaders fear those revelations give consumers another reason to opt out of the higher-priced, highly taxed $5-billion legal market in favor of the unregulated illicit market. Licensed sales in the Golden State hit a four-year low in September.

Georgia Peach

Nearly a year after the Drug Enforcement Administration sent letters to dozens of Georgia pharmacies warning them against dispensing MMJ in accordance with state law, at least one pharmacist—Vic Johnson, in Augusta—is telling them to Go Fish.

“It’s a new frontier and I really think pharmacies are an ideal outlet for dispensing medical cannabis, because if you come to my pharmacy already, we can talk about what medications you already are taking.”

Freddy Benson Gomes top-lines the NYC ATB Canna Confab:

I spent the time between the panels in one-on-one meetings and walking the halls, as I do. Outside of the familiar faces, there were a handful of new analysts and investors kicking the tires. The mood was as one might expect four years into a bear market.

Most of the company specific conversations we had/heard was focused on the source of forward growth, with some (VRNO, AYR) pointing to sequential state rollouts (OH FL PA VA) and others (TSND) noting the opportunities to expand at the right price.

There was some positive chatter on New York and the shared view that tourism could amp Florida’s AU multiple from the land of 2X (MD, OH) toward the land of 3X ($5-6B).

Heard on the Street Reddit

IDK if this rumored hemp bill will have legislative legs but we’ve heard that it would task [one of a myriad of gov’t agencies/ acronyms] to regulate (tax) cannabinoids similar to how the TTB currently works with and respects state laws for alcohol.

Insofar that 'A' players want to be graded and 'C' players do not, one would think that rules and regs driving market participation would be a net positive for legal operators who've been doing it right this whole time.

^ would provide regulatory clarity + open new markets.

^ told it would ban TCH-A by defining what THC is.

^ told it’ll focus on categories such as beverages and gummies.

^ would explain why the NJ + CA governors took their anti-hemp steps last week.

All of this is conjecture ofc as nobody has seen a final bill + we dk if it’ll move.

[a deeper discussion on the topic can be found here]

Roth on AYR Wellness

David's luxury retail background led to improving retail and supply chain efficiencies and has been instrumental in deploying a more regional state-by-state structure, but overall operations have been spotty, especially on the production side…

With a new COO (George DeNardo) in place to oversee production improvements in FL and scaling up in OH, we believe the cultivation operations should run more smoothly without hiccups moving forward…

In no way do we think the stepping down of the CEO constitutes a tough 3Q beyond the muted guidance they indicated. Maintain our Buy rating and $3.50 PT, as Ayr presents upside torque with FL legalization and rescheduling.

D.C. Comics 👈

Cannaland waits as lawmakers dither.

Sept. 20, 2024

Finger pointing is in full-swing in Washington D.C. as the left is blaming Republicans for the inability to move SAFER banking through the Senate and the right places the blame squarely on the shoulders of Senate Majority Leader Chuck Schumer (D-NY).

TDR took their cameras to the Beltway for a must-see collection of interviews with the politicians who are charged with facilitating the will of the people. While reports have circulated that the Senate has enough votes in hand, it remains to be seen if this is the lame duck session that’ll reverse the curse, as some in D.C. have suggested.

One thing for certain: investors will believe it when they see it.

Cattle Prod

Ever since Texas legalized the growing of hemp and the production of hemp-derived products with the signing of the Farm Bill in 2019, canna products have spread across the state like wildfire.

Lt. Gov. Patrick recently instructed senators to investigate intoxicating hemp products, stoking fears that he favors a ban, and AG Ken Paxton, no friend to the plant, has filed lawsuits against five Texas cities that have decriminalized marijuana.

These moves signal a clear trajectory: when the legislative session begins in January, a few powerful Republican lawmakers will have canna in the crosshairs.

Let’s be Blunt

Rescheduling wouldn’t allow canna to be legally added to “food, dietary supplements, tobacco products, or cosmetics,” a federal report confirmed, but hemp-derived CBD might be permitted as a tobacco additive.

Hemp “may be incorporated into tobacco products without running afoul of the CSA,” stated a Congressional Research Service report, adding that products still would need to obtain marketing authorization from the Food and Drug Administration.

Gem State Update

Marijuana activists in Idaho formally submitted paperwork to the secretary of state as part of an effort to qualify a noncommercial legalization initiative for the 2026 ballot.

“You should not need permission from the state for basic self-care,” the campaign email says. “You shouldn’t get in trouble over a plant.” 👈

ATB: BUY Florida Operators now ahead of Nov 5th

While sentiment around the space is low and it continues to be a 'show me story", Florida Operators have a REAL near term catalyst where Adult use legalization is polling at 65% and above to pass the 60% threshold in the November election.

We have an Actual REAL date where we will find out this answer. TRUL would be the one that I'd buy on fundamentals as they continue to dominate FL market share. It is believed that they will at a minimum 3x their revenue overnight if AU passed in FL.

Trump Gap

MSOS closed at $6.41 the Friday prior to the Trump tweet—you know, the one where he derisked S3 and endorsed SAFE Banking—which is at the bottom of the gap to the right below. The gap on the left, recall, was the news of the scheduled DEA hearing.

Traders will trade, investors will invest but either way, in the absence of clarity, the first thing people do when assessing risk is to pull up a chart. Most won’t know about the structural fuckery and many won’t care. Charts, while subject to change, matter.

I’ll also note that I spoke with two special situation funds following the ATB event and they're weren’t looking at the charts, they were looking at the forward catalysts.

Smell of weed is not probable cause to search vehicle: Illinois Supreme Court

Have a safe journey 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.