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 of the insight and analysis is behind the paywall and you can access a free trial by clicking below; thanks for your support.
Feast or Famine
U.S. canna is hungry to grow.
March 4th, 2024
According to a new study, cannabis use is associated with lower odds of subjective cognitive decline (SCD) and people who consume cannabis reported less confusion and memory loss compared to non-users.
The study—which showed that recreational cannabis use is “significantly” linked to lower SCD—is especially notable given that past research has connected subjective decline to the development of dementia later in life.
“Compared to non-users, non-medical cannabis use was significantly associated with 96% decreased odds of SCD.”
Freddy Benson Gomes of ATB sums up what we’ve seen from earnings:
Sammy J found this succinct summation of U.S. cannabis forward catalysts:
The Opposite
The circle smirk turns upside down.
March 5th, 2024
The N.J. governor’s office is celebrating the opening of more than 100 cannabis stores in the state, and regulated cannabis sales are expected to exceed $1 billion this year.
“Reaching 100 cannabis dispensaries is a huge milestone that shows we are headed in the right direction.” Gov. Phil Murphy (D)
Blue Grass Special
Mitch McConnell (R-KY) announced he's stepping down as the Senate GOP leader in November after serving almost two decades in that role and the medical cannabis industry will officially launch in January. The irony is almost poetic.
“In the coming weeks and months, the Cabinet will promulgate additional regulations on how patients and caregivers can become cardholders and how individuals and businesses can apply for a medical cannabis business license.”
Red State Weed
Over the last several years, there has been a dramatic increase in retail + online sales of products containing hemp-derived cannabinoids.
An increasing number of states are poised to take legislative action to regulate these novel products as this burgeoning segment of the canna industry looks to build share without interstate commerce restrictions or the burden of IRC 280E.
Zero hour, 4 a.m.
I was awake at 4:00 this morning as the rain fell on the north shore of Long Island. I hugged our dogs, kissed my wife, got a cup of coffee and chewed through charts to find Green Thumb + Trulieve as the only T1s still above their respective Sept. highs.
The volatility this year has been insane and that comes from a place of knowing after 34 years of staring at screens. I traded the banks + biotechs when I began my career at Morgan Stanley equity derivatives in ‘91, an odd pair but I took what I could get.
I learned right quick about the binary nature of phase III clinical trial results, which is the closest analogy I can think of to the current U.S. cannabis set-up.
Thing is, that dynamic relied on an open and free market to allow for the process of price discovery which in this case would be an eventual result of a positive readout.
So if this space feels kinda backward to you, that's because it sorta is.
Farm Systems
Hat tip AE on spying this recent disclosure by Green Thumb…
“Although currently not a material part of our business, we have begun producing, or licensing third parties to produce, Farm Bill compliant hemp products.”
…which is consistent with several discussions we’ve had with legal-market framework types regarding the proliferation of hemp-derived cannabinoids.
We’ve touched on this topic—while that space exists via a loophole in the Farm Bill, it is not bound by interstate commerce restrictions or subject to IRC 280E.
To date, many state-legal operators figured that loophole would simply close, which makes sense on several levels, including taxation, testing, and marketing to children.
It might—from the inside out or otherwise—but after so many years of wasted efforts trying to pass common sense cannabis legislation like SAFE Banking, nobody would be shocked if our politicians continue to dither.
For what it’s worth, we figure the feds will come down on flower (+ labels and claims) but that a market will emerge for other form factors, such as gummies + beverages.
Through that lens, as the MSOs continue to evolve and look to capture share, if not hedge a few bets, it makes sense for them to look to hemp and hug it, not hate it.
Timex Social Club
Rumors drive Cannaland mad.
March 6th, 2024
In 2023, global legal cannabis spending grew to $36B and BDSA forecasts sales to grow at a compounded annual growth rate of 10% from 2023 to 2028, resulting in a $58B market by 2028. The growth of legal cannabis sales has been largely driven by U.S. markets, and particularly fueled by the adult-use channel.
“Looking ahead to 2028, emerging adult-use states, particularly those on the East Coast and in the Midwest, are expected to contribute the strongest increase to total U.S. and global sales.”
Wowie
Hawaii’s Senate passed legislation to legalize and regulate adult-use marijuana in the state, sending the proposal to the House of Representatives. The legislation would allow adults to possess up to an ounce of marijuana and up to five grams of cannabis concentrates and would establish a framework for licensed sales.
Plant Medicine
Demand for medical cannabis is increasing globally to treat a wide range of illnesses and conditions despite patients facing continued barriers and strict regulations in most countries. Below, we continue our exploration of the medical potential, the stages of development for countries and regions, and the access to solutions.
What Hump?
As I hit send on last night’s missive, the cannabis chatter began to cross X.
First was Green market report journalist John Schroyer:
“Latest intel out of D.C. is cannabis rescheduling not going to happen this month, but maybe in April. Word is DEA simply being cautious, moving slowly.
"This is not coming before April," source told me and emphasized, "We still feel very good that it’s going to get there."
That prompted NYT’s reporter Ashley Shouthall to respond,
I had a similar conversation today with a source who described the process as being slowed by administrative process and not ideological or political difference; they were a bit more cautious and estimated a "first half" timeline.
As noted yesterday:
If this week ends without a proposed ruling from the DEA, people will be grumpy and the bears could get grizzly—but the story would remain untold and the headlines still on the horizon; the math would still be the math.
The specter of seismic federal change a month or so out with the delays purportedly a function of government bureaucracy vs. genuine friction struck me as constructive as the opening bell rang today—but we know that the mindset of today’s market is what have you done for me lately? and by lately I mean, now.
Still, I would rather have more confidence in the outcome and have it require a bit more patience than get an immediate outcome that is undesirable.
Freddy Benson Gomes of ATB on Canada:
“We think lower excise taxes would be a definite game-changer for LPs.”
The growing uses of medicinal cannabis
Curaleaf Earnings + Call Notes
U.S. cannabis leader shares Q423 results.
March 6th, 2024
Oliver Twists
Our FOMO orphan is hungry to eat.
A bipartisan marijuana banking bill remains a “very high priority” for the Senate and members are having “very productive” bicameral talks to reach the final agreement, Senate Majority Leader Chuck Schumer (D-NY) told Marijuana Moment.
The Democratic Senate sponsor of the SAFER Banking Act, Sen. Jeff Merkley (D-OR), also told Marijuana Moment that the legislation is “gaining momentum” as lawmakers work to bring it to the Senate floor and pass it “this year.”
Schumer Says Senate Will ‘Work Very Hard’ To Pass Marijuana Banking Bill Before November Election
The market’s response?
The lack of reaction to those twin headlines spoke to how disenfranchised investors have become with our elected leaders. We already knew that investors view the U.S. canna sector as a binary read on federal reform but rhetoric doesn’t cut it anymore.
The good news?
Potential catalysts—SIII + Garland + SAFER at the federal level; FL? + PA? + VA? at the state level—are still ahead of us and presumably before the election.
Q423 reports have been solid thus far—given the operating environment they are forced to endure, of course; we even saw analysts raise numbers/ price targets.
Positions/ expectations have been unwound; prices have come in and overbought levels have been worked off.
Technical uptrends are still intact (ex. MSOS, VRNO)
Top-tier operators are making money despite a FUBAR landscape.
The bad news?
Lack of clarity on timing/ results of catalysts.
Lack of faith in career politicians.
Opportunity cost as historic rallies abound across asset classes.
Structural/ custody/ capital/ listing impediments remain in place.
Technical deterioration as a function of price (ex. VRNO, GTI < Sept. highs).
The ‘back half’ of the MSOS totem pole reports next week and for most (not all) of them, federal reform is a ‘need to have’ not a ‘nice to have.’
Promises, Promises
POTUS Pitches Pot at SOTU
March 8th, 2024.
For the first time in history, the President of the United States used part of his State of the Union address to promote cannabis reform, touting the mass pardons he’s issued, affirming his position that nobody should be incarcerated over possession and noting the review into cannabis’s scheduling status that he initiated.
Red Dawn
Rep. Dave Joyce (R-OH), co-chair of the Congressional Cannabis Caucus, is applauding the House passage of an appropriations package that includes report language urging the Justice Department and other agencies to study state regulatory frameworks for marijuana in anticipation of federal legalization.
With “nearly every state adopting its own set of cannabis reforms, it is time for the federal government to respect the will of our voters and begin a much-needed conversation on what post-cannabis prohibition America looks like.”
Greatest American Heroes
During joint U.S. House and Senate committee meetings this week, veterans service organizations pressed members of Congress to more urgently pursue the potential benefits of psychedelic-assisted therapy and medical marijuana.
“Whether it’s cannabis or psychedelics, the data makes clear that our generation of veterans is ready to try more alternative therapies. We just need our elected leaders to help make it possible.”
To put the option influences over the last few days into perspective, I’ll offer this take from one of our better option peeps, who shared this early this morning:
with ~300k MSOS open interest in March, capitulation on no ‘rule proposal’ ahead of the SOTU lead to ~7m delta to sell + the drop in spot created another ~5m of supply from gamma + delta decay; that is more than a full day of average daily volume of supply over 2 sessions.
SOTU Observation (h/t JS)
The reaction tracker on WH.gov noted that the cannabis comment received the 2nd most reactions (~55k at 1:32) vs. women's health (~60k at 1hr 6min). Recall, these are the two hot social issues that drove massive voter turnout in select states.
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.