Weekend Update
Tidbits from the week that was.
The following is a sampling of the Cannabis Confidential content—paragraph grabs, charts that stood out, interesting happenings and other stuff— from last week. You can click on the title to access any article; most stock stuff is behind the firewall and you can access a free trial by clicking below. Thank you for your support.
Demand Curve
Consumers continue to crave the kind bud.
November 13th, 2023
Cannabis is the most widely used medicine illicit substance in the world, with about 219 million partaking, as of 2021. This prevalence is notably high in the United States, where 52M people self-identify as consumers, including both teens and grandparents.
A surge in adolescent cannabis use, however, isn’t implied by the data. Results from the National Survey on Drug Use and Health show that rates of past-month cannabis use among teens aged 12-17 in the U.S. actually declined in the past 20 years, from 8% in 2002 to less than 5% in 2021.
Sales of legal marijuana in Michigan contributed $266.2 million in tax revenue to the government during the most recent fiscal year, according to a new report from the legislature’s House Fiscal Agency. That’s more than the state made from the sale of beer, wine and liquor combined.
Glass House Earnings + Call Notes
California cannabis leader talks through Q323.
November 13th, 2023
The World According to G.A.R.P
U.S cannabis: growth at a reasonable price?
The eleven U.S. plant-touching cannabis companies with BBG revenue estimates have $12.65B in aggregate enterprise value against ~$8B in est. ‘24 revenues and ~$9B in est. ‘25 revenues. This comes, of course, after most of the industry reigned in their capital expenditures to generate the free cash flow necessary to navigate the status quo.
Obviously, there are extenuating circumstances surrounding U.S cannabis investing including but not limited to eye-gouging onerous taxation and the inability to custody stocks, both of which remain frustratingly in place as we continue along this journey.
Insofar as there is real change afoot, however, the time to pay attention is now, which is why we spend so much time highlighting companies that are in the arena fighting for their life place on the right side of history.
While not every U.S. canna company put up 24% sequential growth like TerrAscend just did—more on that below—we expect Growth at A Reasonable Price (G.A.R.P) to emerge as a familiar rallying cry on the other side of normalization.
Jefferies’ Owen Bennett on TerrAscend:
The Biden Campaign Needs to Pivot to Marijuana
Cresco Labs Earnings + Call Notes
U.S. cannabis leader shares Q323 results.
November 15th, 2023
Rubicon Organics Earnings + Call Notes
Canadian premium cannabis leader shares Q323 results.
November 15th, 2023
Dems Order A Code Red
Treasury urged to revise "out-of-date" guidance.
Democrats are urging the Treasury Department to revise “out-of-date guidance” related to state-legal marijuana businesses and the Bank Secrecy Act, according to a letter obtained by Punchbowl News. Democrats argue that guidelines published in 2014 predate “action by many states to legalize marijuana possession and sales” and must therefore be updated.
“The updated guidance should clarify that if a marijuana-related act has been expunged, pardoned, is no longer illegal under state law, or is not disqualifying for obtaining a state marijuana license or permit,” lawmakers wrote, “then financial institutions should not consider that offense a ‘red flag’ when conducting customer due diligence of marijuana businesses.”
Red Dog one to Red Dog Squadron!
I asked my pal Scott “RedDog” Redler to take a sniff of MSOS:
AYR Wellness Earnings + Call Notes
Extending the runway to capture growth catalysts.
Waiting in Vain
U.S. canna awaits it's level playing field.
November 16th, 2023
AYR announced Q323 results this morning. This has been a balance sheet story for the last year or so and that part now has a two-plus year lease on oodles of optionality.
Most folks missed this but shareholders (old and new) on the effective date (a few days before the debt deal closes) will receive warrants as part of the anti-dilutive part of the debt deal. The warrants will be publicly tradeable; those eligible (accredited investor or non-US person) can convert them at strike and those that aren't can sell them.
[only 15 of 88 stores are AU so far, giving AYR tremendous torque on AU conversion]
[currently trades 4.1x ‘24E EV/EBITDA vs. 6.5x avg. for the peer group, per CGF]
Framing the Year-End Bender
U.S cannabis is anything but boring.
November 17th, 2023
With earnings behind us and year-end ahead, cannabis investors find themselves in a familiar place: wondering how and when the playing field will tip at the federal level.
In 2020, the industry was riding high on the false optics of a blue wave but by the end of 2021, we were desperate for federal reform—and Congress came up painfully short.
Cannabis stocks, of course, took it on the chin and a year later, it was even worse.
By now, we know the drill:
When we get movement at the federal level—DEA announcement, SAFE banking, the Garland Memo, as has been promised by the DOJ and which will presumably fill in the blanks between Schedule III, state-level adult-use and the rest of it—the U.S. cannabis equation will finally exhale.
If and as these catalysts push into the new year, and they well might, it could invoke yet another wave of frustration but importantly, it wouldn’t make any of these events any less impactful or exciting. We have waited a long time for U.S. cannabis to arrive as an asset class, and we have never been closer.
Is this Weird?
When I enjoy/ sample/ smoke various cannabis, I think of management. JW when its Kind Tree or Gage; George on the Swift Lifts, Ben during my incredibles fix, Graham when I’m out west and lucky enough to score some Glass House, etc.
Viridian on U.S. cannabis:
Random Thought
The price action AYR since earnings/ given run makes me think this earnings cycle maybe a mulligan vs. looming federal reform but maybe seeing what I wanna see.
Quote of the Week:
“Whether you like marijuana or don’t like marijuana, our Constitution says that what happens intrastate is up to that state to decide. States’ rights’ is not just a political slogan. It is something that reflects the culture of this country, which is to allow individuals at the state level to make decisions about the quality of their lives.”
David Boies, the attorney who helped make same-sex marriage a constitutional right and is now trying to put an end to the war on cannabis.
Enjoy your weekend, be safe and please enjoy responsibly.
/end
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CB1 has positions in / advises some of the companies mentioned and nothing contained herein should be considered advice.