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.
The Siege 👈
Cannaland continues to defend itself.
June 3, 2024
The White House drug czar is continuing to tout the Biden administration’s move to reschedule cannabis, criticizing the failed policies of prohibition that have “destroyed lives,” while touting the research potential to develop cannabis-based medications.
“We’ve had, when it comes to marijuana, failed policies for more than half a century, because of which way too many lives have been upended.” Rahul Gupta, director of the Office of National Drug Control Policy (ONDCP)
House Divided
When a U.S. House committee approved an amendment to a large-scale agriculture bill last week that would effectively ban most consumable hemp products, it was met with a mixed response from the cannabis industry.
Supporters described it as a fix to an unintended loophole in the 2018 Farm Bill that legalized intoxicating hemp constituents. Others recognize the need to reign in the hemp cannabinoid market but argue re-prohibiting cannabinoids is not the solution.
Aussie Rules
A push to legalize adult use cannabis on a national scale in Oz has been knocked back after “experts” expressed concerns it would lead to more use among young people.
An Australian Senate committee rejected a bill which would have permitted cannabis possession and personal use in Australia, as well as the establishment of a national agency to regulate the industry.
Pregame (written at 8:00 AM) 👈
I’m sure I’m not alone in welcoming a new month after how brutal the May days were but other than the calendar page and a compelling “One-Third Off Summer Sale,” I’m not sure what changed other than time and price.
Conventional wisdom suggests that we've entered a dead zone for U.S. cannabis as the comment period evolves, and that the only news we could get is negative. With other catalysts pending or slated for later this year, the bears have feasted since the DOJ decision was leaked on April 30th.
The fact that we still have three weeks until summer is likely triggering some PTSD after the thin and illiquid summers past, coupled with the fact that pipes (custody) precede flows* which means that absent news, liquidity will be challenged, at best.
[*industry wide; MSOS, Curaleaf and TerrAscend don’t have the same restrictions]
Residual Grist
Pros: fundamentals improving into next year (new states, evolution of existing states), math w/o 280e (with clarity of timing), sentiment at/ near all-time lows, pre-election push with swing states adopting, looming catalysts at state and federal level; CPG and institutions still in front of us.
Cons: technical deterioration (subject to change) self-fulfilling sentiment (same), structural impediments (gated buyers/ institutions + 🤖), uncertainty (S3, Trump*, GOP, legislation, FL, PA, Garland), financial fatigue.
AGP on Ohio
Ohio is set to begin adult-use this month as the state-by-state momentum continues in cannabis. We see the state similar to MD and look for a modest lift to retail sales (incremental $5-10M per store, on avg) and wholesale. Near-term, we look for the market to at least double compared to the $500M medical market today. Longer-term, we look for OH to represent a $2.5B total market. All MSOs under coverage are vertically integrated, with GTI having the highest share (6%) with most others 3-4%.
Beer Bong? 👈
Green Thumb flirts with Boston Beer.
June 4, 2024
Cannabis producer Green Thumb Industries expressed interest in merging with Boston Beer, the maker of Sam Adams lager. GTI CEO Ben Kovler sent a letter to Boston Beer Chairman Jim Koch on Sunday seeking to discuss the potential combination, per WSJ.
Kovler outlined the benefits of a potential union, which would include the ability for Green Thumb to be listed on a major U.S. exchange, adding that young people are drinking less alcohol as the U.S. cannabis market continues to balloon.
"As we look at a future where this consumer trend continues to gain traction, I believe we have to be proactive versus reactive."
Veteran Affairs 🫡
The U.S. House of Representatives approved amendments to a large-scale spending bill that would authorize U.S. Department of Veterans Affairs (VA) doctors to issue medical marijuana recommendations to military veterans and support psychedelics research and access.
“Beyond the veteran population, the nation is turning the page on how we think about cannabis. It’s become a key part of the medical system in more than 30 states and offers law-abiding Americans a low-cost and safe option.”
Sorta SAFER
A GOP House committee unveiled a large-scale spending bill with new protections for banks that work with state-legal cannabis businesses and it omits a longstanding rider blocking Washington, D.C. from legalizing recreational marijuana sales and separately.
The notable canna-related changes came from the panel’s new leadership. Rep. Dave Joyce (R-OH), co-chair of the Congressional Cannabis Caucus, who’s the lead sponsor of standalone bipartisan marijuana banking legislation, chairs the subcommittee.
Dakota Fawning
South Dakota activists collected enough signatures to put a cannabis legalization initiative on the November ballot, the secretary of state’s office announced.
It’s been unclear if the grassroots efforts would be able reach the signature threshold for ballot placement, as national industry and philanthropic financial support has been negligible this cycle, but the campaign persevered and the people will decide.
Jefferies on Green Thumb - Boston Beer
"Would provide a pathway for GTI to list on a major exchange... while also allowing SAM 0.00%↑ to capitalize on the growing shift from alcohol to cannabis."
Higher Education 👈
Legal canna boosts college enrollments.
June 5, 2024
A new study of college enrollment data found states’ adoption of adult-use cannabis legalization “increases enrollments up to 9%, without impacting degree completion or graduation rate.”
Increases in out-of-state enrollments further suggest the policy shift “boosts college competitiveness by offering a positive amenity,” the report says, with “no evidence that adult-use legalization affects college prices, quality, or in-state enrollment.”
Slurring the Lines
A major alcohol industry association is calling on congressional leaders to create a regulatory framework for hemp-based intoxicating cannabinoids, rather than impose an outright ban as is proposed under a large-scale agriculture bill that’s advancing in the House.
“We strongly advocate for clear federal rules and regulations that define intoxicating hemp compounds and to grant states the authority to regulate these products within their borders.”
California Screaming
Legal marijuana sales in California have fallen sharply over the last three years, coming in at just over $1.2B for the first three months of 2024, according to state data.
That’s the weakest three-month period for licensed canna since Q220, when legal sales reached $1.B for the first time, and is down from a $1.5 billion peak in Q221.
“There’s no denying the legal market in Cali is on the verge of collapse. The reason I use that phrase intentionally is because there’s an effort from regulators and others to suggest things are rosier than they are.” Hirsh Jain
Buck Up
In a surprise move, dual-licensing applications were published on the Ohio Division of Cannabis Control’s website Tuesday afternoon. Dispensaries will have to submit their applications on the DCC’s website on Friday as the June adult-use launch takes root.
“They had what they needed to publish the documents ahead of schedule so people could gather what they needed and prepare.”
Random Thoughts
We know what the bulls are looking at (fragile levels + future catalysts) while bears know the vulnerable structural underbelly that they've masterfully and repeatedly gutted remains in place as the battle to reclaim the 200day sma continues.
I sense we'll see the M&A cycle pick up soon as there is motivation to make deals. The strong wanna pick off cheap assets+ collect human capital and shift to growth mode, while others are very much in a position of need. Meanwhile, volumes are anemic.
As I read this National Law Review article, I was reminded that this too, shall pass.
“moving canna to S3 will mean an insurance company’s risk of violation of the Bank Secrecy Act and anti–money laundering statutes will effectively end. The Dept of the Treasury, via FinCEN, will almost certainly issue new guidelines that clarify this after rules are approved. In that event, new insurance companies, underwriters and brokers will likely enter the space and the potential for reputational risk will erode further.
Hemp Wars 👈
The battle of botanical cousins.
June 6, 2024
All eyes are on Florida, but this time as it pertains to the hemp industry instead of the constitutional amendment to legalize adult-use cannabis in the November election.
Senate Bill 1698, which would, among other things, prohibit the sale of synthetic and intoxicating cannabinoids, was passed by the Senate (39-0) and House (64-48) and is headed for Gov. Ron DeSantis’ desk for his signature—or maybe it’s not.
DeSantis, who’s a vocal opponent of the upcoming legal cannabis ballot initiative, has threatened to veto the hemp bill, drawing fire for his stunning hypocrisy and exposing an inconvenient truth about the motivations of our elected officials.
Mass Holes
Two Massachusetts agencies have declared that intoxicating hemp-based products cannot be sold outside of licensed dispensaries, and they’ve tasked the local boards of health to enforce what they say is federal law.
The Department of Public Health and Department of Agricultural Resources released a notice to address the influx of hemp-based products such as drinks and gummies that have the same active ingredient as canna products. The notice made explicit that the “addition of CBD and/or THC to food manufactured or sold in Massachusetts is illegal.”
Validation Station
The DEA has only been accepting submissions for two weeks but it has received more than 11,000 submissions thus far, and counting—and if the public comments are any indication, the proposal to reschedule cannabis is well on its way to being approved.
Recent analysis from cannabis data firm Headset found that 97% of the comments submitted through May 29 were in favor of the proposed regulation.
New England Garnish
Lawmakers from New Hampshire’s Senate and House of Representatives have reached a deal on a long-debated piece of legislation that would legalize marijuana for adults, advancing a compromise bill out of a bicameral conference committee Thursday and returning the amended measure to both chambers for final up-or-down votes.
Random Thoughts
If we were dropped by a time machine into June 6th, 2024, with OH onboarding, the Florida ballot six months away and the U.S. govt on track to reschedule cannabis to remove the punitive tax structure and potentially pave the way for real cap tables/ exchanges—with MSOS 86% off the highs and a few handles off the low—we’d likely be psyched but there’s so much PTSD after the five years of constant disappointment and opportunity cost, nobody wants to hear it.
There’s real conversations happening at the highest level on both sides of the political aisle, with more coming from the Biden camp, or that's their intent. I gotta think we’ll hear from the Trump campaign too, which we hope/ expect will support states' rights, if not more, given the polling in OH FL PA and the wiggle room to bogart the issue.
As shitty as the last month has been and as terrible as any bull feels, remember this: IF these levels somehow hold, we'll look back at the tests of the Cura, Cresco, Green Thumb and Trulieve 200day moving averages—on top of a false breakdown in the ETF— and say, "the most violent corrections occur in the context of a bull market."
Botanical Battle
The inside-out cannibalization of U.S. canna that was enabled by the loophole in the 2018 Farm Bill is one of the more profound storylines in the repeal of Prohibition 2.0.
Our view is simple: there should be one regulatory regime for cannabinoids, but that just hasn’t happened. Instead, it seems, the GOP weaponized the loophole to punish the legal cannabis industry, while blocking things like oxygen banking along the way.
Case in point, Ron DeSantis, who is one of the most vocal anti-cannabis governors in the country despite the many economic, employment and wellness benefits to date.
The fact that he’s threatening to veto the hemp bill, which allows for unregulated and untested products and (in some cases) is marketing to children, tells us all we need to know about the role of politics in this great American debate.
One would think an even playing field—either way—would benefit existing state-legal operators. If the Farm Bill loophole closes, they’ll pick up the incremental share and if it doesn't, they’ll likely expand into that category, which is a funnel for future cannabis consumers (vs. a replacement for alcohol).
We’re talking about big numbers, too. Depending on who you ask, the current hemp market is generating upward of $30 billion in annual revenues and that’s with no 280e taxes and without being constrained by silly things like state borders.
While the alcohol lobby is pushing for a carve out for low-dose hemp beverages (with the rest of the loophole closed), one thing appears to be clear: change is coming one way or another but this green genie isn’t going back in the bottle.
Enjoy your weekend, stay 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