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.
Spies Like Us
Cannaland is sniffing for guidance.
April 29, 2024
Sen. Majority Leader Chuck Schumer is hoping to add stablecoin and SAFER banking to the FAA reauthorization bill despite GOP resistance, per Politico. While neither bill was part of base text that was unveiled today, they could be included in a substitute amendment that would get a procedural vote later this week.
The effort faces long odds given Senate Minority Leader Mitch McConnell's pushback against the cannabis banking bill, as well as the fact that as of now, the stablecoin bill has yet to even be finalized.
French Kiss
Rep. French Hill, a senior Republican on the Fin. Services Committee, said he’d support combination legislation tying marijuana banking to stablecoin regs if negotiators can reach a deal. Hill said lawmakers are close to reaching a bipartisan agreement, which jibes with comments made last week by top Rep. Maxine Waters (D-CA).
“I would vote for it if it were coupled. I’ve supported SAFE for nine years in Congress and it’s a lot easier to catch bad actors and illegal activity if those companies are participating in the banking system.” -Rep. Hill, Chair, subcommittee on digital assets.
Box of Reign
New Mexico Gov. Michelle Lujan Grisham criticized DHS Secretary Mayorkas’ response to cannabis seizures by border patrol agents in the state during a recent phone call, saying she feels “boxed in” by the federal government’s crackdown on New Mexico’s state-legal cannabis industry.
“The Secretary said to me, just so you know: ‘Who cares? They make a lot of money,’” she tells the official, referring to the secretary’s comment about the state’s licensed cannabis industry. “I thought that was really inappropriate.”
Setting the Table (written at 8:00 AM)
After getting Passed Over by the risk rally to start the stretch, a sharp downside stab Thursday (perhaps on chatter that SAFE was said to be out of the FAA) followed by an unexpected bounce on Friday (as that unconfirmed chatter was amplified) made for a fair amount of angst and a two-penny week-over-week gain.
There are multiple processes in play across our three branches of government:
Legislative: SAFER Banking is the low-hanging— perhaps most frustrating—fruit as it relies on Congress, which is controlled by special interests. We continue to hear that banking is attainable this session but that it may not happen until the Lame Duck.
Judicial: We got word on Friday that Boies in the Hood will begin searching for our cheeseburger on May 22, when oral arguments are set to begin—and the prosecution was likely pleased to stumble upon the recent audio tape of the NM Gov referencing DHS treatment of state-legal cannabis companies, as well.
Administrative: the scheduling review continues along it's structured process, as the DEA communicated in their latest respose to senators prodding for an update. They also noted there will be a review period, which suggests a proposed (vs. final) rule will arrive sooner (vs. later).
There are currently two schools of thought on that last bit, so we see both sides:
1) the DEA is pushing back on the HHS recommendation and the WH has lost control of the timing/ process, OR
2) this is all orchestrated, akin to Kabuki Theater, and the continued breadcrumbs of information will culminate in rescheduling to SIII ahead of the election to seed their 2.0 narrative of "finishing the job."
Upstate Canna Crawl
Verilife lights up New York.
April 30, 2024
One of the unexpected benefits of traveling to upstate New York this past weekend to watch our son’s Binghamton lacrosse team take on the Great Danes was realizing that PharmaCann’s flagship Verilife store was five minutes from the SUNY-Albany campus.
BREAKING: DEA to reclassify marijuana in historic shift
Move confirmed by five people familiar with matter: AP
April 30, 2024
Thank Hank!
The DEA moves to reschedule cannabis.
April 30, 2024
The Drug Enforcement Administration reportedly made a historic decision, agreeing with the top federal health agency today and moving marijuana from Schedule I to Schedule III under the Controlled Substances Act (CSA).
The decision comes more than 50 years after cannabis was first listed among the most strictly prohibited drugs, on par with heroin and defined as having no known medical value and significant abuse potential.
The next step is for the White House Office of Management and Budget to review the rule and when approved, a public comment period would precede the final ruling.
Sex, Drugs and Rock & Roll
Florida Democrats are hoping that young voters will be driven to the polls by ballot amendments legalizing cannabis and enshrining abortion rights, in part to help blunt a state-wide active voter registration edge of 900,000 Republicans, which has turned the Sunshine State from a jump ball in past cycles to reliably red in recent years.
About 6 in 10 Florida voters in the 2022 elections favored legalizing the recreational use of marijuana nationwide; among voters under 45, that was 76%. Still, it remains unclear how important that issue is for younger voters compared with other issues.
Numble
This was a good day, historic even, but I know enough to know that the work has just begun and the headlines—be them lawsuits, cap raises, or the inevitible YIKES—are still on the horizon, and that’s before we move on to the macro/ broader tape.
Barry Sanders, in my view + with due respect to Jim Brown, was the greatest running back to ever lace ‘em up but there was something else about #20 that was entirely more redeeming: no matter how phenomenally he ran, he never, ever spiked the ball.
I’m no Barry, I know, but tonight, and going forward, I wanna Be Barry.
AGP on timing of next steps:
Getting on Higher Exchanges
Additional color on today's reported DEA news.
April 30, 2024
Victory Slap
Cannaland digests the news.
May 1st, 2024
The DEA has indeed made a historic decision to concur with the top federal health agency in proposing that cannabis move from Schedule I to Schedule III under the Controlled Substances Act (CSA), a spokesman confirmed late Tuesday.
“Today, the Attorney General circulated a proposal to reclassify marijuana from Schedule I to Schedule III. Once published by the Federal Register, it will initiate a formal rulemaking process as prescribed by Congress in the Controlled Substances Act.” —Justice Dept. Director of Public Affairs Xochitl Hinojosa
Of course, now the real work begins. The Office of Management and Budget (OMB) is reviewing the DEA’s decision ahead of publication in the Federal Register, a notice and comment period and a bevy of potential opposition lawsuits.
What to Expect
This was the first time that the DEA recognized the medical value and relatively low abuse potential of cannabis since prohibition was codified more than 50 years ago.
The move would eliminate research barriers and allow state-legal cannabis businesses take federal tax deductions. No changes are anticipated to state MMJ programs that are now licensed in 38 states or the legal adult-use markets operating in 24 states.
Industry stakeholders will now shift their attention to AG Merrick Garland and his long-awaited memo as this process continues to evolve.
Vice and Virtue Signaling
Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR), Sen. Cory Booker (D-NJ) and a coalition of other Dem senators have officially reintroduced their bill to federally legalize marijuana.
While time is running out on the 118th Congress, they maintained they’re continuing their push to enact narrower legislation focused on allowing the cannabis companies access to banking services, which is an absurb conversation to be having at this point.
“Congress must do everything we can to end the federal prohibition on cannabis and address the longstanding harms of the War on Drugs.” (←not laying down is a start)
Public Service Announcement (written at 8:18 AM)
We discussed the composition of volume as a massive variable for the forward price action as institutions remain gated and there are more traders than investors, which I’m able to quasi-verify based on who lit me up late yesterday.
While there are exceptions (Cura, TerrAscend on the TSX), MSOS is a NYSE-listed ETF that (I don’t wanna say it but I have to say it) is The Trojan Horse into U.S. cannabis.
Insofar as it’ll likely take, in a best-case scenario, several months to rustproof the pipes (unwind custody restrictions) to allow for liquidity (as investors are able to buy stock), MSOS, as a proxy and for many, the only game in town, promises to be quite whippy.
We’ll continue to monitor retail side as we edge through this process; just try to stay lucid. IDK about you but whenever I enter a session feeling particularly good, I'm often let down and when I expect to get gutted (Fri, Mon), pleasantly surprised.
Slip & Slide
The space slipped as tried to climb over the midweek hump and kissed $9.65 (-15%) as it tried to pick itself up. As we awaited Schumer’s 12:30 presser, I shared a handful of potential reasons for the weakness:
'sell the news' +
duration concerns +
structural deficiencies (quants dominating retail w/o custody/ institutions) +
unknowns surrounding the rules + regs (Garland will help here)
working off short-term overbought/ sentiment. (got giddy last night)
[note: Farm Bill/ hemp treatment also nipping at the corners of my mind]
Pscyh Ops
you ever hear the story about how one of our helicopters got shot down in battle but it was reported as a mechanical failure to demoralize the enemy? that's what today has felt like thus far—psychological warfare.
ATB:
"We think re-scheduling is far from being fully priced in. MSOs in our coverage still trade at an avg 2024e EV/EBITDA of 9.3x (21.3% discount to sector valuation of 11.8x, which does not consider rescheduling or other catalysts, such as Florida."
Viridian:
The Impact on Cash Flows from 280E is Massive. In January we affirmed our belief that rescheduling would happen and estimated that the top 10 companies alone would save over $700M annually from eliminating 280e and that the industry at large would save more than twice that amount.
Inspector Gadget
Making sense of the nonsensical.
May 2, 2024
Former U.S. Deputy Attorney General James Cole, who famously authored the Cole Memorandum in 2013 and guided the federal government to not intervene in state-legal cannabis programs, said yesterday, “The DOJ proposal to move cannabis to Schedule III is of tremendous importance and substance and should be applauded.”
Former FDA Deputy Commissioner Howard Sklamberg also weighed in, sharing, “The FDA and HHS analysis is solid,” and he would be “very surprised” if a final rule was not issued this year “before the administration ends, and probably before November.”
Who’s Schuming Who?
Senate Majority Leader Chuck Schumer (D-NY) has signaled that he hasn’t given up on attaching SAFER Banking to the upcoming must-pass FAA legislation despite the opposition from Republican leaders in both chambers.
Senate Minority Leader Mitch McConnell (R-KY) has made it clear that he’s opposed to that option and anti-cannabis House Speaker Mike Johnson (R-LA) said that he’s against adding any unrelated measures to the FAA legislation.
“There are lots of people who have different amendments that aren’t relevant to the FAA that want to get them on—I’m one of those, but we have to get this done in a bipartisan way and we’ll figure out the best way to get it done.” Sen. Chuck Schumer
He Said, She Said
John Thune, the No. 2 Senate Republican, said that chances are “very strong” Congress passes cannabis banking reforms before the end of the year.
vs.
John Thune, the No. 2 Senate Republican, said that adding [SAFER Banking] to the FAA legislation is "a non-starter" and called Republican opposition "very strong." There’s some hope, though, it could become law later this year.
👆 Bloomberg in the same article, after a thisquick correction.
Which Exit?
As the New Jersey Cannabis Regulatory Commission marks its second anniversary, the agency is taking stock of its efforts to advance the state’s legalized cannabis market.
Among the notable factoids:
More than 130 dispensaries are open in 20 of the state’s 21 counties.
Sales are expected to eclipse the $1 billion mark this year.
NJ dispensaries netted $12.5M in sales over the 4/20 weekend.
Ancillary services supporting the industry will net $1.5-$2B in tax revs.
Between 2022-2023, AU sales grew from $329M to $676M.
Edibles are 14% of the market share (third behind flower, vapes).
Synthesis:
given how opaque the process is (leaks, sources, OMB yet to receive; no proposed rule filed) maybe it's more about investors wanting clarity/ timing on a final ruling before committing capital to the space. (←would also explain the vol crush this week)
The more I thought on it, the more that make sense. We already knew MSOS would need to be the Trojan Horse that jumps the shark (to custody) but insofar as there’s a decent pool of capital that can buy but is thrice-shy, getting clarity on the timing and end-game may be needed.
We can look at this one of two ways:
it’s a bummer bc we didn’t get our ‘moon’ as the kids say, or
Additional capital will get more comfortable (re-) entering the space with each step forward. We don’t and won’t know when those whales swim into Canna Cove but that’s what makes this sushi spicy.
Dusty Roads
Cannaland searches for clarity.
May 3, 2024
Even as President Joe Biden’s administration is reconsidering the criminal classification of marijuana—an epic policy shift—they continue to drag their feet on a much simpler and potentially seismic endeavor: researching the medical impact of cannabis.
“It’s embarrassing—I’ve seen no evidence that they’re at work to make this research go more smoothly. I mean, this not low-hanging fruit—this is picking it up off the ground. It just mystifies me.” - Rep. Earl Blumenauer (D-Ore.)
Common Wealth
The federal move to ease restrictions on cannabis is supported by Pennsylvania Gov. Josh Shapiro, who has previously expressed the need for his state to fully legalize the substance for recreational use.
The Gov underscored his desire to get to work on adult-use cannabis, saying that he wanted a legislators to put a legalization bill on his desk. That efort is expected to generate upwards of $250M in annual revenues.
"Governor Shapiro has made clear that we need to catch up — practically every one of our neighbors has legalized marijuana and is benefiting from hundreds of millions of dollars in economic activity and revenue — and this important step by the federal government only adds support to the Governor’s proposal.”
Common Sense
A strong majority of Americans—64%—agree that passing a marijuana banking bill would improve public safety, according to a new poll commissioned by Independent Community Bankers of America (ICBA).
The polling is consistent with findings from a separate American Bankers Association (ABA) survey released last month that found 63% of Americans back cannabis banking access, compared to just 17% who are brain-dead opposed.
Achtung, Baby!
Germany’s government is moving forward with the second phase of canna legalization to create a pilot program for commercial sales through an administrative process—as opposed to further legislation, as was initially expected, per reports.
While it’s long been assumed that legislators would need to first introduce and then pass complemenary sales legislation to fulfill the second pillar, the federal government is apparently taking a rulemaking approach that would speed up implementation.
Space Cowboy
There was an X Spaces yesterday with Shane Pennington of Porter Wright, a subject-matter expert, who provided a step-by-step lens on the re-scheduling process and timelines. Please note: his views are not personal predictions but rather based on conversations with former senior officials and others close to the situation.
Step 1: OMB is currently reviewing the DEA proposa. They have a maximum of 90 days to analyze but consensus appears OMB that will approve w/in next 2 weeks.
Step 2: Once approved, the DEA would publish proposal on the federal register. At this point, a 60-day comment period would begin.
Step 3: After the comment period, the DEA would evaluate the comments. There's a chance the DEA could schedule hearings with Administrative Law Judges but these hearings usually occur rapidly.
Step 4: DEA would publish its final ruling on the federal register. It’d take 30 days for re-scheduling to become effective after it pubs. It's during this 30-day period that judicial challenges could to delay the process but this is not a common occurrence.
Note: if you, like me, would like to demostrate your support for the tireless pro-bono efforts of Shane Pennington, you can do so by supporting his wife here.
Enjoy your weekend, stay safe and please enjoy responsibly.
If you’d like to help Mission [Green] change federal cannabis policies, please click here.
CB1 has positions in / advises some of the companies mentioned and nothing contained herein should be considered advice.