Weekend Update
Tidbits from the week that was.
The following is a sampling of Cannabis Confidential content—random paragraph grabs, charts and notes, interesting happenings and other stuff— from last week.
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Inspecting Volatility
A wild day deserves a deeper look.
December 4th, 2023
A coalition of military veterans is pushing President Biden to ensure that the ongoing administrative review into the scheduling status of cannabis is completed in a timely manner + steps are taken to counter misinformation when pursuing broader reform.
Overseas, a final vote on a bill to legalize marijuana in Germany that was planned for this week will be postponed until next year—but as long as the measure advances by the end of January, the delay shouldn’t impact the schedule for legalization.
The real action today was under the hood, where the a midmorning flurry of activity sparked a wild ride for cannabis stocks and those who still own them. We sniff at a few of the potential explanations as to why volume—and price—thrust higher.
U.S. canna ETF MSOS spiked 10% higher in five minutes before spending the rest of the session looking for the reason. We have two thoughts on what may have happened and I’m leaning toward the latter…
Door #1
Last Monday, we shared the following news and views…
E&Y seeks adviser to help liquidate failed hedge fund Traynor Ridge
We’ve no idea how big the Traynor Ridge unwind is but if I were a betting man, there's fair number of MSOS shares short as part of the mix.
^ depending on the timing of the unwind/ corresponding news/ composition of that book, the notional risk could grow, perhaps significantly, from here to there.
…which I thought about this morning as we reviewed a note from an analyst last week who believes TR has a $100M short position outstanding which, to our understanding, is currently frozen and would remain so until February.
Leaving a sizable U.S cannabis short open, if that’s the position, is the definition of silly given where we are in the rescheduling cycle. If we were advising E&Y, our first, second and third emphasis would be to mitigate that risk before $100M→ $500M+.
Door #2
The other lucid speculation: a big factor trade unwind was triggered, which fits given a significant rotation (from the large cap to small caps/ heavily shorted names) hit the tape around the same time today.
I did some digging on the historical correlation between the ETF and heavily-shorted names, using the GS most-short rolling basket, and well, you tell me…
History Rhymes
Alcohol prohibition ended 90 years ago today.
December 5th, 2023
On December 5, 1933, three states voted to repeal Prohibition, putting the ratification of the 21st Amendment into place. The ratification marked the end of federal laws to bar the manufacture, transportation, and sale of liquor and returned control of liquor laws back to the states.
Here are five interesting facts I found online from the National Constitution Center:
1. Two states—North and South Carolina—rejected the 21st Amendment before December 5, so the vote wasn’t unanimous.
2. Another eight states didn’t meet before December 5 and didn’t even act to vote one way or the other on the 21st Amendment: Georgia, Kansas, Louisiana, Mississippi, Nebraska, North Dakota, Oklahoma, and South Dakota.
3. One state didn’t end its version of Prohibition until 1966. Mississippi decided to keep its Prohibition laws for another three decades and as of 2004, half of Mississippi’s counties were dry. Today, 17 states don’t allow any of their counties to be dry.
4. It was never illegal to drink during Prohibition. The 18th Amendment didn’t bar the consumption of alcohol, you just couldn’t make, sell or ship it for mass production and consumption.
5. The Cullen-Harrison Act (no relation), signed about 10 months before the 21st Amendment was ratified, allowed people to drink low-alcohol content beer and wine.
^incoming President Franklin D. Roosevelt amended the Volstead Act in April 1933 to allow people to have a beer or two while they waited for the 21st Amendment.
^ the first team of Budweiser Clydesdales was sent to the White House with a case of beer for President Roosevelt.
The Absurdity of it All
24 States. 54% of the U.S. population. Centuries of use without a single reported overdose death (bc we have sparse endocannabinoid receptors on our brainstem, which controls breathing; lotsa opioid receptors on the brainstem…but I digress).
There’s nothing that I can say about the War on Drugs that hasn’t already been said—it is a dark stain on our nation’s history and a relic of a racist past. The opportunity cost as measured by human lives will be one of the saddest untold stories of our time.
The inside-out state-led legalization has laid a foundation of change but the moneyed-interests that control the political processes have effectively if not functionally broken our government. Thankfully, we now have shots on goal across all three branches.
Option premiums and P&Ls aside, we are all witnessing history, lumbering as it is but history nonetheless. We can’t change the past but we can build a better future. Odds are that if you’re reading this, you believe that cannabis is a part of the solution.
Regardless of how this year ends, with or w/o news, higher or lower on the charts, our nation took a giant step forward in 2023 and everything we see, hear and read has us thinking that it’ll be remembered as the appetizer for the main course of 2024.
Mirror Image
Bulls try to reverse the December curse.
Daily Recap
The governors of six U.S. states sent a letter to President Joe Biden (D) on Tuesday urging the administration to reschedule marijuana to Schedule III of the Controlled Substances Act by the end of this year.
The move, they say, will provide economic and tax benefits for cannabis businesses, protect public health and more closely align government policy with public opinion.
“Economists estimate this will save $1.8 billion per year by shifting cannabis companies to a standard federal corporate rate of 21% vs the up-to-80% effective tax rate they face now.”
Lapped by an Elephant
Republican Representative David Joyce says he will file a bill “imminently” that, if passed, would amend the CSA to remove state-legal marijuana as a Schedule I drug.
Marijuana grown or produced outside of the licensed market would remain illegal at the federal level, allowing the sad states that don’t wanna legalize this magnificent plant the ability to keep prohibition in place.
“In theory, this has everything that a Republican should want, while moving away from the nonsensical stance the federal government has had on cannabis.”
Japannabis
Japan’s parliament enacted legislation on Wednesday to revise the cannabis control law to lift a ban on the use of medicines containing cannabis-derived substances. The change comes as calls have been growing in Japan to enable the use of a medicine for treatment of intractable epilepsy that contains the cannabinoid CBD.
A picture is worth 1000 words so rather than write about the double bottom on lower volume that reclaimed all of the technically-relevant moving averages, I would rather just show you:
Zooming out and understanding that past performance is no guarantor of future price, it’s worth noting MSOS traded at $10 after the sprint that followed HHS and $15—or 2X where it is now—a year ago yesterday before the crash that crushed 1000 dreams.
While Schedule III will be magnitudes greater than SAFE in terms of importance—as you might imagine going from a 75% effective tax rate to a normal tax regime—it’s no panacea and as discussed, it likely arrives with a few unintended consequences.
Still, and understanding that 1. a lot will depend on the Garland Memo for the rules of the go-forward road and 2. it’ll be a memo, not law, hence imperfect, it’ll set the stage for the clearest pathway for the U.S. cannabis industry since before Jeff Sessions.
Humility < Hubris as we find our way.
The Buck Stops Here
Ohio is officially 420-friendly.
December 7th, 2023
In a stunning reversal, Ohio’s GOP-controlled Senate passed a revised bill that expanded the voter-approved marijuana legalization law that went into effect today.
Adults would be able to buy kind bud from existing medical dispensaries in as little as 90 days, home cultivation rights were maintained and the automatic expungements of prior convictions will be in full effect, among other changes.
“Over the last three or four days, a lot of the public has reached out to probably every single one of our senators with thousands of emails and hundreds and hundreds and hundreds of calls. I think the people have
smokenspoken.”
Bill-a-Bong
Representative Dave Joyce (R-OH) introduced a revamped version of a bill to end the federal prohibition of cannabis in legal states, legalize interstate cannabis commerce, normalize Internal Revenue Service (IRS) policy and contemplate a federal tax-and-regulatory framework for the industry.
It’s being cosponsored by Reps. Lori Chavez-DeRemer (R-OR), Brian Mast (R-FL), Earl Blumenauer (D-OR), and Troy Carter (D-LA).
“The STATES Act does what every federal bill should do: help all 50 states succeed. This bill respects the will of the states that legalized cannabis in some form and allows them to implement policies without fear of repercussion from the federal government.”
D.C Comics
House Oversight Committee Chair James Comer (R-Ky.) told reporters yesterday that he would support allowing Washington D.C. to tax and regulate legalized marijuana "if that is what the city wants.”
The rhetoric is significant as Republicans have insisted on a rider to spending bills in recent years that barred the city from legalizing recreational cannabis sales.
Green Means Go!
Multistate Operators enter New York.
December 8th, 2023
More than three months after the news leaked that HSS was recommending that marijuana be moved to Schedule III under the federal CSA, the agency has finally released a tranche of documents related to its recommendation.
While most of the information was redacted, the documents noted that new scientific information emerged after an earlier denial of a rescheduling petition a few years ago, which the HHS suggests might now necessitate rescheduling cannabis.
“The current review is largely focused on modern scientific considerations on whether marijuana has a currently accepted medical use… in the years since the 2015 HHS evaluation under the CSA’s eight-factor analysis.”
Bright Lights, Big City
New York marijuana regulators on Friday gave the formal thumbs up to six of the state’s 10 licensed medical marijuana companies, most of which are large multistate operators, to begin adult-use cannabis sales on Dec. 29th.
“As NY works to turn the tide in shutting down the illicit market, the most effective tool to do so is with a robust legal market where New Yorkers can securely purchase safe, tested, and well-regulated cannabis products and that is what this ratified agreement ensures.”
Georgia Peach
During a Senate hearing, Sen. Raphael Warnock (D-GA) pressed the CEOs of major financial institutions on their commitments to cannabis banking and social equity.
Warnock said he’s willing to support the removal of barriers to cannabis banking but wants to ensure it doesn’t obscure the need for justice after decades of prohibition.
“I want to be clear that I am open to SAFER Banking and more regulatory clarity around cannabis, but my fear is that if we pass this bill now, your banks and other powerful voices will be MIA when it comes time to address the broader harms of the war on drugs.”
Looking pa nub
Notable U.S. canna YTD laggards:
$CURLF -3%
$JUSHF -12%
$MRMD -15%
$TCNNF -20%
$CBSTF -40%
$FFNTF -44%
BONUS: Solid piece by Shane Pennington on the looming DEA decision ICYMI
Enjoy your weekend, be safe and please enjoy responsibly.
/end 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.