Cannabis Tax Changes Could Trigger 504% Cash Flow Leap, Which Industry Players Will Benefit?

The Department of Health and Human Services' recommendation to reclassify marijuana as a Schedule III drug under the Controlled Substances Act set off ripples across the cannabis market.

One day following Wednesday's news, MSOS ETF MSOS surged by 21%. Notable companies also experienced remarkable gains, with State House Holdings Inc. STHZF skyrocketing by 74%, Columbia Care CCHWF witnessing a 38% boost, Jushi JUSH rising by 32%, and Ayr Wellness AYRWF showing a 29% increase.

This proposal holds crucial implications for taxation and cannabis businesses, particularly regarding Section 280E.

According to analysis firm Zuanic & Associates (Z&A) the removal of 280E, irrespective of federal legalization, stands to significantly bolster company cash flows.

Cannabis Companies Primed For Cash Flow Surge

Pablo Zuanic, chief analyst at Z&A noted that current calculations show companies with positive operating cash flow and profit before tax could reduce their income tax rates to 70% of PBT, as opposed to the standard 21% rate sans 280E.

Especially benefiting would be companies with stretched balance sheets, marked by high debt and below-average cash flow and profitability metrics.

According to Z&A cannabis companies could see substantial changes. These cannabis companies include:

• StateHouse Holdings Inc. STHZF potential cash flow benefit, without 280E, could surpass $59 million, a substantial 2200% increase based on CY22 numbers.
• Ayr Wellness AYRWF could see its cash flow augmented by $84 million, a 504% surge in line with CY22 data.
• Jushi Holdings JUSHF might experience a cash flow boost of $61 million, equating to a 317% increase as per CY22 figures.

This shift could reshape the financial landscape for cannabis companies, paving the way for improved cash flow and stability.

However, these gains should be examined alongside nuanced factors such as debt and operational dynamics, which will play a pivotal role in determining the true impact on each business.

To know more about the future of cannabis regulation and how to invest wisely, join us at the Benzinga Cannabis Capital Conference, the place where deals get done, which is returning to Chicago this September 27-28 for its 17th edition. Get your tickets today before prices increase and secure a spot at the epicenter of cannabis investment and branding.

Photo by Vladimir Solomianyi on Unsplash.