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.

Subscribe now

Let the Sun Shine!

Adult-use canna makes the Florida ballot.

April 1, 2024

As federal agencies work to complete a marijuana scheduling review, President Joe Biden is touting his role in directing that process, as well as cannabis pardons he’s issued, as part of his proclamation declaring April to be “Second Chance Month.”

The mention of scheduling in his proclamation is notable as Biden has stuck to promoting his clemency actions when discussing cannabis reform in the past.

People over Politics

Florida’s Supreme Court ruled against the state attorney general and will allow a cannabis legalization initiative to appear before voters on the November ballot.

While AG Ashley Moodier (R) asked the court to invalidate the measure, the justices sided with advocates and affirmed its constitutionality after the market close today.

Politics Over People

Virginia Gov. Glenn Youngkin (R) formally vetoed legal cannabis sales legislation that was sent to him by lawmakers about a month ago, saying “the proposed legalization of retail marijuana in the Commonwealth endangers Virginians’ health and safety.”

What he should have said, but was too much of a wuss to say, was:

“I won’t let politics take priority over the good people of the Commonwealth. As U.S. government health agencies have told us, cannabis is less harmful than alcohol and as we’ve seen in 24 other states, a legal, regulated framework is not only good for our citizens, it’s great for our economy.”

A Proclamation on Second Chance Month, 2024

Pablo on Florida adult-use impact on U.S. cannabis companies:

If FL goes rec and the total cannabis market triples to $6Bn in sales, we calculate the value creation (EBITDA ramp valued at 8x vs. market cap) would be near 600% for Cansortium (i.e., 7x its current market cap), over 400% for AYR, >180% for iAnthus, >160% for SNDL (assuming equitization of Parallel debt), ~150% for Trulieve, and >120% for Planet 13 (on pending VidaCann deal).

There are 20 licensees with stores open in FL at present, of which nine are public (11 if counting Surterra and VidaCann); per our math, upside for the other MSOs in FL would be: Cannabist +65%; Cresco/Verano +40%; Curaleaf 27%; Green Thumb 5%.

U.S. cannabis ETF MSOS: March Madness

Swingers

Three states will set the tone into the election.

April 2, 2024

With Ohio having legalized adult-use and the Florida Supreme Court allowing residents to vote on whether to do the same, two-thirds of our 2024 cannabis swing-state trifecta are seemingly in place as all eyes shift toward the northeast.

Legalized cannabis in Pennsylvania has the potential to bring in more than $1B in tax revenue over the next five years, according to a new report, but the commonwealth is already behind the curve as five of it’s six bordering states have already flipped green.

“We’re losing out on an industry that, once fully implemented, would bring in more than $250 million in annual revenue and our failure to legalize and regulate only fuels the black market and drains much needed resources for law enforcement.”

Out of Africa

The South African cannabis industry has the potential to create up to 25,000 jobs and could be worth around R28 billion—but it still faces major hurdles. Despite gathering commitments from the gov’t to amend laws to create a thriving commercial industry, private businesses, growers, and entrepreneurs still face immense obstacles.

“We need to destigmatize the use of cannabis, whether it’s for recreational, medicinal or religious purposes, and the Constitutional framework allows us as adults to use it without prosecution.”

MSOs stand to be big winners in Florida

Ice Capades

Canadian canna on a power play.

April 3, 2024

Support for rescheduling is pouring in as the Biden administration considers moving cannabis from Schedule I to Schedule III. HHS already made their recommendation and as we await the DEA’s proposed or final ruling, politicians and attorney generals have now entered the chat.

Rescheduling isn’t a done deal—there’s some opposition and the DEA/ DOJ have a history of opposing cannabis reform. Still, the move has gained powerful allies, a binding “medical and scientific evaluation” and scheduling recommendation (HHS) and (likely) a similarly binding legal interpretation of the U.N treaty (OLC).

Rays of Light ☀️

The Florida campaign behind the cannabis legalization initiative that will be on the November ballot has announced that it’s raised an additional $15M from a variety of major cannabis operators as it gears up for an effort to raise awareness.

Verano, Curaleaf, AYR Wellness, Cresco, Green Thumb and INSA are new supporters, joining Trulieve, which footed most of the bill until now.

“We’re not only pleased that the court has agreed to move this initiative forward, but we are also thrilled to announce a strong alliance of committed donors to the effort.”

Roll in Ze Hay

The need for capital hasn’t diminished; if anything it has become more acute. We’ve already seen a few companies tap— $PLNH $OGI $CBSTF—and there’ll be more, lots more, on either side of the news, depending on when it gets here.

That’s not a bad thing, mind you—people can’t complain about the balance sheets of these companies, and then knock ‘em when they move to repair them, but it’ll impact share performance depending on the source (strategic?), style (placement?) + timing.

Offsides

A false breakout punishes the bulls.

April 4, 2024

Rep. Nancy Mace (R-SC) said “if Republicans want to keep the House,” they should pass a cannabis banking bill, arguing “there are votes” to approve it. She also said that it’s “mind-boggling” Virginia’s GOP governor vetoed a bill to legalize cannabis sales given the issue’s broad bipartisan popularity.

On the marijuana banking legislation, which is pending action in the Senate after clearing committee last September, Mace said, “I support SAFE 100%,” and “I would love to see [Senate Majority Leader] Chuck Schumer move it forward.”

Peas and Carrots

Abortion and cannabis will be on the ballot in Florida in November — two issues that are expected to mobilize young voters toward President Biden and Democrats in the Sunshine State. Those issues drove young voter turnout in other states, such as Ohio last year, and Democrats are betting Florida will see a similar boost.

“Watching social media in the last 24 hours, the youth vote is excited about the opportunity to be voting on cannabis and abortion in November.” -Nikki Fried

Free Bird

Massachusetts officials unanimously approved the governor’s proposal to pardon thousands of people with misdemeanor cannabis convictions effective immediately, and the process will be automated for most eligible people.

“Massachusetts made history today.” – Gov. Maura Healey’s (D)

DeSantis Says Florida Voters Will Reject ‘Radical’ Marijuana Ballot Measure, Claiming It Would ‘Reduce The Quality Of Life’ 👇

Ten Random Thoughts

1. Today was what a Dread Pirate Roberts dreaded false breakout looks like.

2. Order books and real exchanges would have been great on a day like today.

3. X has been giddy with excitement; emotion remains the enemy.

4. Ain’t nothing sexy about today’s engulfing technical candle.

5. We think, but don’t know, that we’ll see more from D.C in April.

6. As in, April (and into the summer) has the potential to be epic.

7. Until that’s walk, not talk, it won’t matter.

8. But when we walk—real, legitimate steps toward normalcy—the space will go.

9. All eyes on PA this summer to emerge as the third swing-state amigo (OH, FL).

10. Someone bought 22K MSOS May 17/19 call spreads today (~.12)

ATB on Florida Cannabis:

We believe investors should keep three things in mind:

(1) We think vertical integration requirement provides outsized benefits from scale, and therefore operators with a larger infrastructure in place or access to capital to meaningfully scale (Trulieve, Curaleaf, Verano, Green Thumb, Cresco) have a leg up.

(2) Given the size of the opportunity (it’s the main industry sales growth catalyst the next two years), we think operators w/o a presence in the state could be actively looking into acquiring assets. In our coverage, that includes TerrAscend and Ascend.

(3) The proposed initiative will require 60% voter approval and is currently polling at 67%. While uncertain, we view it as more likely than not that the initiative will pass. We think, however, that the market has not yet fully priced in the probability of this positive outcome, leaving room for significant upside.

Shake & Bake

I felt the earth, move, under my feet.

April 5, 2024

If 2024 is the year of reform, 2025 is the year of fundamental acceleration.

The U.S. cannabis sector is looking for major markets to open up and jump-start sales growth over the next two years. Analysts and companies expect 2025 to be a boom if Florida and Pennsylvania legalize adult-use and cannabis sales in Ohio and New York begin to ramp, as expected.

We’re also likely to see regulators reschedule cannabis to a less restrictive category of drugs this year, but optimism is hard to find on further federal reform from there.

“Putting the pieces together, these catalysts outside of rescheduling will likely have modest impact on the 2024 P&L, but set the stage for meaningful contributions to the P&L in 2025.” -AGP analysts Aaron “touch of” Grey

Tsunami Warning

Florida’s cannabis market is on the verge of a massive shift as the state prepares to legalize adult-use marijuana this November. With a robust MMJ program already in place, with over 871K registered patients and $2B in annual sales, the Sunshine State is poised to become one of the largest, most lucrative markets in the United States.

The legalization of adult-use suggests that Florida could see $4.9B to $6.1B in sales the first year of implementation (June ‘25-May ‘26). The explosive growth presents a once-in-a-lifetime opportunity for the state’s leading cannabis operators to capitalize on the expanded consumer base and skyrocketing demand.

Democracy Labs

Voters favor permitting state governments to establish their own canna policies free from federal interference, according to polling data surveyed in three states: Missouri, Ohio, and Wyoming.

Respondents in all three states—including majorities of Democrats and Republicans— strongly supported allowing states to set their own policies.

“The data is clear: midwestern voters want autonomy to develop policies that work best for them; voters understand the importance of having the right to choose what policies work best for them without interference from the federal government.”

Times Square Dancing

An Albany County Supreme Court judge wrote a decision Wednesday that invalidated the Office of Cannabis Management’s (OCM’s) entire slate of adult-use regulations—but he amended his decision to only void rules banning third-party advertising.

After shocking the industry with his initial ruling, Judge Kevin Bryant struck down New York’s marketing and advertising regulations, opining that the regulators’ advertising standards were “arbitrary and capricious,” and left the other regulations alone.

Dear Prudence

Sen. Majority Leader Chuck Schumer sent sent his Dear Colleague letter to the Dems that outlined his priorities ahead of the Senate’s return on Monday, which included, “the opportunity to safeguard cannabis banking in the weeks and months ahead.”

It was great to see the reflexive venom and disbelief in response to his latest promise as that bar should remain low until it’s cleared—but if they plan to get this bad boy on the tape by the summer, as some have speculated, it will likely have to hit the Senate floor this month; and yes, I think we’ve gotta shot at seeing that happen.

At 10:23 AM, the ground began to move beneath our feet and that’s not a metaphor—an earthquake shook our building, which is about 16 miles from the epicenter—and I couldn’t help but appreciate the symbolism.

Read full story

Into the early afternoon, MSOS was +3.5% as the adage, ‘stairstep up, elevator down’ came to mind following yesterday’s earthquake. Insofar as that script likely continues until our catalysts arrive, I, like you, look forward to soon channeling some Carol Ann.

Around 2PM, we saw this trade go up…

13:58:48 MSOS color, customer sells 5,000 May 7 Puts @ $0.26 to buy 5,000 May 14 / 16 Call Spread for $0.23 .. collected 0.03 as package 5,000x

…which was in addition to the 22K May 17-19 call spreads that were bought yesterday prior to the melt, and we know two things: 1) MSOS options are where dreams come to die, particularly as they pertain to predicting politics and 2) sans news, custody or volumes, the outsized open interest has routinely overwhelmed the price action.

When today’s dust settled, it was a better day than yesterday but overall, it was a fairly quiet, nondescript week, or at least that’s what one would think if they looked at the final figures. MSOS, with all it’s shimmers and shakes and real seismic quakes, landed eleven cents higher than where we entered the week.

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.