Weekend Update Unlocked
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.
Drip Dry 👈
The thirst for liquidity continues.
June 10, 2024
Florida Gov. Ron DeSantis vetoed a bill that would have banned intoxicating hemp-derived cannabinoids in the state yet he continues to steadfastly campaign against the upcoming adult-use cannabis ballot initiative in November.
His veto happened one day after Fox News released a poll that found that two in three Florida voters, including a majority of Republicans, support the legalization initiative, which makes it more popular among voters than DeSantis himself.
Greatest American Heroes
Bipartisan congressional lawmakers demanded that the U.S. Department of Veterans Affairs rescind a directive preventing doctors from recommending medical cannabis to veterans in legal states, arguing the recent rescheduling move amplifies the need to withdraw the “antiquated marijuana restrictions rooted in the racist drug policy.”
“This disrupts veterans’ continuity of care and unfairly bars veterans from accessing treatment their states have legalized.”
Enter Sandman
New York Gov. Kathy Hochul announced a trio of new appointments to lead the state Office of Cannabis Management after the resignation of the former Executive Director Chris Alexander, whose last day on the job was Friday.
The appointments come exactly a month after Hochul released a scathing state audit regarding New York’s adult-use cannabis rollout during a press conference, at which she also announced Alexander would not be reappointed to lead the OCM.
Achtung Baby
Two months after Germany partially legalized adult-use cannabis, the Bundestag has introduced a maximum limit for drivers. Following the recommendation of an expert panel commissioned by the Transport Ministry, the maximal level of THC in the blood of drivers is to be set at 3.5 nanograms per milliliter.
This is deemed to represent the equivalent risk of 20 milligrams of alcohol per 100 milliliters of blood, which is legal in Germany.
Pregame (written at 7:30 AM)
MSOS continues to churn under its 200day SMA ($8), a level that the bulls really wanna reclaim sooner rather than later as they otherwise do their best to keep the March lows ($7.30) at bay.
In individual names, AYR, Cresco and Cura continue to test their primary trendlines, which is also their respective 200day MAs, as we count the days until the comment period ends—41—and openly wonder what we'll hear between now and then.
AGP on U.S. Cannabis
One thing we continue to remain constructive as ever on is CPG categories (such as alcohol & tobacco) are more than aware of today’s change in consumption trends of youth having a multi-decade impact on category growth opportunities. The when still remains in question & we believe risks to the company’s US exchange listings remain the biggest hurdles & complications around share structure if unable consolidate P&L.
The reclassification of cannabis to Schedule III + incremental reform, such as the SAFER/Garland memo, may be enough for uplisting & beginning CPG’s entrance into US cannabis on a greater scale. In the interim, we continue to look for GTI & other MSOs to find ways to win in the market today (profitability & clean BS) while positioning themselves for tomorrow (brand building) that can be translated to various market/distribution structures in a federal permissible market).
Running to Stand Still 👈
Cannaland watches, and waits.
June 11, 2024
For the first time ever, more Americans are using marijuana daily than those who drink alcohol every day, per the Society for the Study of Addiction. One group that sharply increased its cannabis use is senior citizens over the age of 65, and many are using it for ailments in place of prescription drugs.
"There’s very real psychopharmacology associated with cannabis that I hadn't learned anything about in medical school. As I started to learn more, I realized that it can be used very safely as medication in the geriatric population." Dr. Zach Palace
Shots Fired
A GOP-led House committee put forward a large-scale spending bill that contains language that would effectively ban most consumable hemp-derived cannabinoid products, including delta-8 THC and CBD items containing “quantifiable” THC.
The House Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration posted the text of the legislation on Monday—just one day before a scheduled vote. If enacted, cannabinoids “synthesized or manufactured outside of the plant” would no longer meet the definition of legal hemp.
Wellness Check
Data published in the Journal of Studies on Alcohol and Drugs found that adults are more than six times more likely to acknowledge having experienced secondhand harms because of someone else’s drinking than facing similar harms as a result of other people’s cannabis use.
“It’s well established that cannabis’ public health effects are far less than those with the use of alcohol,” per NORML’s Paul Armentano. Specifically, polling data compiled in April reported that just under two-thirds of adults said that the regular use of alcohol and tobacco is “more harmful to a person’s health” than cannabis use.
Hoos Clues
Virginia law enforcement leaders say the vast majority of drug-related crime is tied to marijuana—while legalization advocates counter that the situation could be remedied by regulating cannabis, which is currently legal to possess but remains a crime to sell.
“Young men are losing their lives over 200 dollars’ worth of marijuana, which drives a lot of my shooting violence, drives a lot of my robbery violence, and drives a lot of my homicide violence. 90% of the city’s illegal drug crime is fueled by cannabis.”
Overheard on Pablo’s podcast:
‘So far only 2 lawsuits regards to rescheduling, one request is for definition of THC; Dentons' [attorney] thinks that one goes forward but other lawsuit request doesn't go forward; cutoff for lawsuit request is June 20th. hearings could happen while public comment period is open, but more likely post july 22nd. Cresco's [govt ops] would be shocked if they didnt get final decision before November’
Uninvited 👈
Canna skips the market party.
June 12, 2024
Thirty-eight states (+D.C.) allow the medical use of cannabis and 24 (+D.C.) allows for adult-use and, while it is still illegal under federal law, 74% of Americans now live in a state where marijuana is legal in some way, shape or form.
Nebraska is one of only three states where cannabis is fully illegal (Idaho, Kansas) but if signature petitions are successful by July 3rd, they will join Florida and South Dakota in asking voters this fall whether to legalize cannabis use.
Pregame (written at 7:00 AM)
We hike to the Hump as the cool kids get set for a double-dose of economic catalysts (CPI 8:30AM FOMC 2PM) and the canna crowd kicks it in the pay-no-mind club.
As we've seen since the end of April, the perception of our space has been fluid as a function of time and price as we entered into (what many expect would be a) dead zone during the comment period, it hasn't taken much to move these stocks.
As the bears flipped former support into resistance in the ETF and individual names, sentiment has shifted in kind. Traders buying MSOS > $11 for the breakout no longer wanted it under $8; $16-buyers of GTI lost their appetite under $12; and so it goes.
^ this feast-or-famine has persisted since last summer.
Trader types will continue to key off the levels discussed while investors, to the extent they're willing and able, will look to use price to their advantage into what promises to be an active back-half of 2024 through the election cycle.
Narrative Follows Price (concerns we’ve heard)
DEA: “The DEA has not yet made a determination as to its views of the appropriate schedule for marijuana,” per the rescheduling order signed by AG Merrick Garland. How this will be resolved—and when—has been a source of great debate and has implications for both the viability and timing of the final rule.
Hemp: Will the Farm Bill loophole close and if so, to what extent? We know that big booze is lobbying hard to (at least) keep the low-dose cannabinoid beverage market open and the hemp industry, without the burden of 280e, is throwing money at the politicians, as well, as we’ve seen in…
Florida: Gov. Ron DeSantis launched a new political action committee to campaign against cannabis legalization the day after he vetoed a bipartisan bill that would have banned intoxicating hemp-derived cannabinoids. The latest poll finds 66% support for the Nov. ballot legal cannabis initiative but that battle has only just begun.
Election: While Trump has been silent on the issue to date, we don’t expect a second term, if there is one, to be as onerous for cannabis as the first. A lot has changed since 2018, including the popularity in swing states such as Ohio, Florida and Pennsylvania, and states’ rights provided him with political cover for abortion, a logic that extends to cannabis (which is polling at similarly elevated levels).
Other: Will we get a Garland Memo? What will it say? Will it be enough (with S3) to solve for custody and list on U.S. exchanges? What about SAFE Banking? Is that even a thing anymore? And we see Cali and Colorado: is that what we have to look forward to? Or are their issues particular to their in-state models?
Explore, but don’t get lost. This is the exciting stuff 👇
Broken Arrow 👈
Technical pressures hit Cannaland.
June 13, 2024
The American Medical Association formally endorsed drug decriminalization today, adopting the policy position at its annual meeting and calling for the “elimination of criminal penalties for drug possession as part of a larger set of related public health and legal reforms designed to improve carefully selected outcomes.”
That’s a bolder move than what was initially included in the AMA Board of Trustees report, which said the organization should “continue to monitor the legal and public health effects of state and federal policies to reclassify criminal offenses.”
Whine & Spirits
As beverages containing intoxicating hemp-derived cannabinoids continue to land on shelves throughout the country, a national advocacy group for the alcohol industry is urging Congress to address its concerns in the 2024 Farm Bill reauthorization.
Wine & Spirits Wholesalers of America wrote a letter to the ranking members of the U.S. House and Senate committees on Agriculture recommending that they address a “public health crisis” associated with products containing intoxicating hemp-derived cannabinoids like delta-8 THC.
Fenway Parked
Massachusetts lawmakers are stressing urgency in dealing with intoxicating hemp-based products but have said that they’re unlikely to do anything before the next legislative session begins next year.
“We have a situation where intoxicating hemp products are being produced from hemp that isn’t grown in Massachusetts, in labs with no supervision, in packages that have no age requirements and they’re competing with lawful cannabis retailers.”
Pregame (written at 8:00 AM) 👈
Good morning and welcome back to the outside, looking in, as the markets enjoy a historic rally. There sure are a lot of bright and shiny objects floating around: crypto, tech… heck, even the S&P and NASDAQ are at all-time highs.
You know who didn't get an invite? Cannabis, which was the hottest sector in the market the first four months of the year before being ostracized from the optimism.
The great Larry Williams once said, "fundamentals drive markets and technicals time markets" and those words have repeated in my mind as we watched multiple levels violate over these last five weeks.
Apathy (it's 8AM and MSOS has yet to trade), anxiety (on S3, hemp loophole, Florida, GOP), technical degradation (in the ETF and underlying names) and structural fleas have all combined to shave one-third of the ETF’s value in less than six weeks...
...and while the space will remain vulnerable until levels are recaptured—we still have 39 days in the comment period—the fundamentals remain steady under the surface as the bifurcation (between the haves and have not’s) crystallizes.
ATB has a good note (below) regarding how S3 and Florida have yet to price-in, which certainly beats the alternative, as our space, along with most of the former and future investors, all chant, together as one: show me.
ATB on Florida, Schedule III
With the election five months away, there is no clear favorable or unfavorable trend from different poll results, which indicates a noisy scenario that could keep investors at bay until the vote actually happens. Accordingly, we believe Florida legalization is not baked into street estimates (it’s not included into ours) and isn’t being priced into valuations (similar to rescheduling) as investors remain in show-me story mode.
Consider that Trulieve’s 2025e consensus numbers indicate sales of $1,244.6mm (reflecting y/y growth of 5.3%); if Florida legalizes and adult-use sales start in May 2025e, Trulieve could see much higher top-line growth than what’s currently implied.
With MSOs trading at a 2024e EV/EBITDA multiple of 8.3x vs our base-case valuation of 11.8x, we think rescheduling and Florida are not being priced in at any reasonable probability, creating a buying opportunity ahead of the potential materialization of these two catalysts in H2/24e.
Pay-to-Play 👈
Cannabis outmuscled in D.C.
June 14, 2024
House Republicans nixed an amendment aimed at protecting banks from cannabis crackdowns from a government funding bill after there was blowback from fellow GOP lawmakers. They also voted to maintain a federal ban blocking Washington, D.C. from creating a system of regulated adult-use marijuana sales.
Rep. David Joyce (R-Ohio), chairman of the subcommittee that crafted the funding bill, noted that some of his colleagues had “taken issue” with the banking legislation but he vowed to continue his efforts to pass this commonsense legislation.
“I will not abandon this effort in Congress and will continue to work with my colleagues in good faith to ensure they become law.” Dave Joyce (R-OH)
This much is clear: when it comes to lobbying our U.S. elected officials, the cannabis industry has been the odd man out. Crypto—and hemp—have done a superb job and it shows, both in terms of attention received and political progress achieved.
Army Training Sir.
The U.S. House of Representatives approved a large-scale defense bill that includes a section to prevent military branches from testing recruits for marijuana as a condition of enlistment has been left intact, despite opposition from the White House.
While the House Rules Committee blocked a number of pro- and anti-cannabis amendments from floor consideration, the full chamber’s approval suggests the military marijuana screening section is advancing.
Common Wealth
Pennsylvania lawmakers are stepping up their push to pass a marijuana legalization bill, emphasizing the need for bipartisan and bicameral collaboration to enact the reform with a focus on social justice.
“We are here today because there was a time when this plant was associated with people who were marginalized and victimized to benefit other industries who are afraid of cannabis.” Rep. Chris Rabb (D)
Old Hampshire
New Hampshire’s House of Representatives voted narrowly to table a Senate-passed bill that would have legalized and regulated cannabis in the state, effectively killing the prospects of the reform this year and potentially for the foreseeable future.
Separately, lawmakers agreed on two bills to expand the state’s MMJ program. One would allow doctors to recommend canna for any condition, and the other to expand the pool of healthcare professionals who can recommend the drug.
Pregame (written at 7:30AM) 👈
Consistent with past summer Fridays, I planned to spend as much time as possible away from social media today but given the recent price action, technical levels and implications in play, that didn't feel entirely right.
So, a few random thoughts:
The cannabis industry has dug-in to fund their Florida fight—and their opposition is well-funded—while the hemp industry, aka the farmers, aren’t paying 280e on what is essentially the same product (minus, in many cases, product safeguards).
That frees up cash flow for things like, you know, lobbying. Ditto crypto; you think Donald Trump endorsed crypto because he’s a memecoin guy? Doubtful; as the saying goes, “you need money to make money.”
Market-wise, "fundamentals drive markets, technicals time markets" and as such, there are many active market participants who will likely wait until technical levels are recaptured (or clarity emerges) before they're motivated to re-engage.
A weekly close > MSOS $7.30 would be a kick-save of ginormous proportions—but it would be the first time the bulls were able to reclaim a major in six weeks.
There are reasons for optimism: S3 remains on track, as does the Garland Memo, and the Florida ballot has the potential to change the game. Legislation (SAFER) has been written off by most, which is better than having great expectations, but it still has a puncher's chance at getting done in the lame duck; and fundamentals among the “have’s” remain firm. Verano, for example, is trading 14x current cash flow (status quo), and that would drop to 5x with S3 + Florida.
Somebody Sees It
Nearly All Patients Report Improvements After Using Medical Cannabis
Have a safe weekend 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