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.
Where the Hell is Garland? 👈
The AG promised canna guidance 697 days ago.
May 13, 2024
On April 30, the DOJ announced it is recommending a new status for cannabis under federal law. The AG sign-off all but ensures that the drug will be moved in the coming months to the less restrictive Schedule III of the Controlled Substances Act (CSA).
While the announcement is a “historic step forward,” as Senate Majority Leader Chuck Schumer said, it feels like too little, too late for those of us waiting on common sense national drug policies given most of the U.S. population lives in 420-friendly states.
Attorney General Merrick Garland already told the American public that we can expect to hear canna guidance “in the days ahead.” Thing is, he told us that two years ago.
Columbus Circle
An Ohio legislative panel approved a regulatory framework for the state’s cannabis market that pushes up the implementation timeline, creating a licensing scheme that could allow adult-use sales to launch next month in current medical dispensaries.
That’s good news for Buckeye fans—and those of us with kids there for college.
Study Hall
The U.S. pot sector could see an influx of medical research funding from healthcare investors amid renewed interest from pharmaceutical firms, should a proposal to reclassify cannabis as a lower-risk substance be approved, industry experts said.
"For years, pharma and biotech companies have viewed cannabis as a market with enormous potential; with rescheduling, investment firms that previously had clauses precluding them from investing may reconsider their stance."
Baby Reindeer 👈
Cannaland awaits it's fate.
May 14, 2024
Even as the DOJ moves to reclassify cannabis as a lower-risk drug, bipartisan banking legislation that’s yet to face a full Senate vote is still desperately needed given the robberies and deaths that continue to plague this state-legal and all-cash industry.
It’s fate in the 118th Congress remains uncertain. Advocates hope SAFER Banking will be attached to another legislative vehicle but that depends on Senate Majority Leader Chuck Schumer, who has emerged as the single biggest disappointment on a long list of faux political canna champs.
Imagine That
Recent scientific advancements have shown that a lesser-known compound from the cannabis plant, cannabinol, may hold promise for treating neurological disorders such as Alzheimer’s and Parkinson’s disease.
Researchers at the Salk Institute discovered CBN protect brain cells from age-related damage, and its chemically modified versions could be more effective. These findings suggest a new frontier in the treatment of traumatic brain injuries (TBI) and other neurodegenerative diseases.
Skol!
Minnesota officials expunged more than 57,000 records for marijuana convictions under the state’s legalization law, the Department of Public Safety Bureau of Criminal Apprehension (BCA) announced.
“We are pleased to be able to deliver on this legislative priority. Minnesotans will see changes to their records immediately and as additional expungements are made in the months and years ahead.”
Glass House Earnings + Call Notes 👈
California cannabis leader reports Q124.
May 14, 2024
AYR Wellness Earnings + Call Notes 👈
Leveraged to states transitioning to adult use.
May 15, 2024
Cresco Labs Earnings + Call Notes 👈
U.S. cannabis leader shares Q124 results
May 15, 2024
Hall Pass
No Jury Duty.
May 15, 2024
Hemp advocates, canna companies, state regulators, prohibitionists and congressional lawmakers are all vying to have their priorities represented in the forthcoming Farm Bill—and while there are shared interests among stakeholders, competing agendas have created tensions and in some cases, unlikely allies.
The hemp industry, for example, is at odds with select cannabis companies that are aligned with prohibitionists, with the strange bedfellows in agreement on proposed restrictions on intoxicating hemp-derived cannabinoids such as delta-8 THC.
Stop & Frisky
It’s been six weeks since the Florida Supreme Court ruled Amendment 3 could be on the November ballot. Six weeks later, there’s been crickets from two of the largest organizations representing Sheriffs and police chiefs in the Sunshine State.
The Florida Sheriffs Association and the Florida Police Chiefs Association have issued no statements indicating whether they support, oppose, or will remain neutral on the proposal to legalize recreational marijuana.
Beacon on AYR Wellness:
Trading at 25% Discount to Peer Group – AYR trades at just 5.5x our FY25 adj EBITDA forecast. This represents a 25% discount to the 7.4x average amongst US operators. Potential company-specific catalysts include progress on the tax refunds, buildout updates, the Q2 results in August and M&A activity.
Rubicon Earnings + Call Notes 👈
Canadian premium cannabis leader shares results.
May 16, 2024
Biden Makes Historic Marijuana Rescheduling Announcement
DOJ to publish proposed rule.
May 16, 2024
Poetic Justice 👈
DOJ shines as Jury Duty grinds.
President Joe Biden today announced that his administration is officially moving to reschedule cannabis under federal law, applauding the “monumental” action that follows an extensive administrative review that was directed on his behalf.
“Today my administration took a major step to reclassify marijuana from a Schedule I to a Schedule III drug, an important move towards reversing longstanding inequities.”
The particulars are more nuanced and involved, but we’ll get into that below.
Billions
U.S states with cannabis legalization policies generated more than $20 billion in canna tax revenues since Colorado + Washington launched the country’s first legal adult-use markets in 2014, and 2023 was the biggest year yet with $4.2B in adult-use tax revs.
Among individual states, California earned the most last year at $1.08 billion, followed by Illinois ($552M) Washington ($533M) and Michigan ($473m).
Mr. Tax Man
Publicly traded cannabis companies are looking to their tax returns to save tens of million of dollars this year—and possibly recoup taxes paid in previous years (!).
U.S. multistate operators have begun to amend their federal tax returns given the ongoing cannabis rescheduling process, as well as the pending legal case headed by uber-attorney David Boies, where oral arguments set to begin May. 22.
About, Face
Cannabis testing will no longer be required as a condition for enlisting in the armed forces or for becoming a newly-commissioned military officer, according to language added to the House's version of the National Defense Authorization Act.
"The Secretary of the military department concerned may not require an individual to submit to a test for cannabis as a condition of enlistment of such individual as a member, or the commission of such individual as an officer, of an Armed Force.”
A Room With No View
Before I left home this morning , I sent the following to X-subs, which, while factually true, was also somewhat tongue-in-cheek.
At 10:05AM, I got called, so I packed up my portable turret and filed into Room 4 with the rest of the cattle. Just then, I got this slack…
…and knowing tomorrow is May expiration, I figured the fix pin fix was in as I listened to the judge detail proper civic duty decorum. You know what happened next.
At 12:41 PM Politico scooped that the DOJ was about to publish their proposed rule, followed by POTUS proclaiming same (he even pinned it to his X profile) and to top it off, the DOJ released a memo from the OLC that answered questions related to S3.
I’ll admit to not being entirely focused when we were summoned to return to the courtroom at 2PM— but can you blame me? This was big stuff. Still, before I got up to walk back in, with the MSOS flying high ($10.50, +9%), I paused to share:
BIG money will try to whack-a-mole $10 into expiration.
Here’s the punchline:
“The CSA vests the Attorney General with the authority to schedule, reschedule, or decontrol drugs. 21 U.S.C. 811(a). The Attorney General has delegated that authority to the DEA Administrator, see 28 CFR 0.100, but also retains the authority to schedule drugs under the CSA in the first instance, see 28 U.S.C. 509, 510.
The HHS Assistant Secretary for Health has provided a recommendation for transferring marijuana to schedule III. In light of that recommendation, the Attorney General is exercising the Attorney General’s authority under 21 U.S.C. 811(a) to initiate a rulemaking that proposes the placement of marijuana in schedule III.”
4Front Earnings + Call Notes 👈
High quality, low-cost producer sets sights on Illinois.
May 17, 2024
Lurch
U.S. canna takes a giant step.
May 17, 2024
The Justice Department formally started the process of classifying marijuana as a less dangerous substance, moving toward a historic change in US drug policy.
The agency submitted a rulemaking notice to shift cannabis’ legal status to Schedule III from Schedule I. A 60-day public comment period will now begin, after which the DEA and DOJ will make a decision on how and when to stick the final landing.
Read the Room
Nearly 7 out of every 10 voters, including a majority of Republicans, support legalizing cannabis, according to a Fox News poll that found that 69% of registered voters in the U.S. want to end prohibition altogether (45% of which “strongly” favor the reform).
There’s support across the political and demographic spectrum, too. Dems are most likely to back the policy at 81% but 55% of GOP voters and 65% of independents are also on board.
Eurovision
Medical cannabis is taking over Europe as well, with efforts to decriminalize cannabis in numerous countries at local levels. Similar to what took place in the U.S., European nations are legalizing medical or adult-use cannabis through a patchwork of new laws.
Of the 27 EU countries—Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden—only six (Bulgaria, Hungary, Latvia, Lithuania, Slovakia and Sweden) remain affixed on their prohibitionist roots.
Research Assistant
If marijuana is rescheduled to a Schedule III substance, it won’t change laws regulating cannabis research but the demand for research of the plant and cannabis for research purposes will grow, legal experts and marijuana producers say.
“It’ll make researchers within universities or hospitals and private companies better armed to say, ‘We should be doing this, and we can be doing this.’”
We believe they’ll be absolutely amazed at what they find. 👈
The Washington Monument
Yesterday’s DOJ news was “monumental,” to quote President Biden, but it was still an imperfect catalyst for a few reasons:
It was already out there. We talked about how the White House had postured publicly and privately that SIII was fait accompli and two weeks ago we got that short-lived spike on reports this was coming. In other words, there was stock for sale on the news, on top of the stock people didn’t get off on the last spike.
Equilibriums remain vulnerable until the structural impediments are addressed, custody is solved + real order books, market makers and exchanges are in place; it’s one thing to have a voluntary buyer’s strike, which we do, to a certain extent, but another to have an involuntary strike via system-wide custody restrictions.
Markets like clarity and as detailed last night with a little help from our friends at ATB, there were remaining questions re: the DEA’s final position even though there is clear language delegating the authority to the DOJ, particularly as they have an OLC opinion in their back pocket.
MSOS is +39% YTD and 76% YoY. Yes, it has a long way to go on this arduous road to redemption but it’s not like the ol’ college try ain’t there—but I don’t sense respect or appreciation on X, that’s for sure, and while I get the frustrated fret, I also believe:
Biden wants this done before the election so they can run on 2.0: finishing the job. Yesterday’s announcement + several procedural moves designed to expedite the process now validate this intention and while it won’t be a particularly smooth path, we should see steady progress from here to there.
The bears will not go quietly. The know the structural impediments are the soft underbelly of the bulls that can be gutted by applying the right pressure at the right time, be in the face of good news, while attempting a technical breakout, or heavy pressure and/ or odd-lot prints on the bid into the close.
Mechanics are FUBAR: A NYSE-listed ETF with 25 stocks all listed on lower-tiered exchanges where compliance/ security protocols are (cough) lacking and, without order books/ real market makers/ enforcement on naked shorting, let’s just say they’ve had their way with this structurally bastardized gimp for some time.
Riddle me this: if a derivative is a financial contract whose value is dependent on an underlying asset, what happens when that derivative becomes outsized vs. the asset?
Beyond the exchange listing dichotomy, there’s ~500,000 MSOS calls and 150K MSOS puts on the board for the remainder of this year; add the 100X multiplier and you tell me how many of those fleas are wagging the tail that’s driving this dog?
The last two bullets are the primary reasons why we feel these markets are structurally managed. When large funds/dealers are caught on the wrong side of a bet (say, short vol), they have the muscle to overwhelm the “market” until they effect the prices they want/ need (say, to pin strikes on expiration).
I would go so far as to argue there’s a structural short in place, but I digress.
I’ll end this stream with the upside of anger: On Toby’s Spaces last night, Cura chair Boris Jordan mentioned HF advisors are bearish on policy given historical precedent, which is aggravating but also bullish as it means the buyers are still in front of us.
/end
Enjoy your weekend, stay safe, mazel tov Rubes 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.