U.S. Cannabis: Growth At A Reasonable Price?

By Todd Harrison via Cannabis Confidential (Nov 14)

With all eyes on the D.C dysfunction to see if Congress can kick the can a few more months—the House scheduled Tuesday’s vote at 4:20PM, I sh*t you not— U.S. cannabis earnings continue to filter through the marketplace with varying levels of success.

The eleven U.S. plant-touching cannabis companies with BBG revenue estimates have $12.65B in aggregate enterprise value against ~$8B in est. ‘24 revenues and ~$9B in est. ‘25 revenues. This comes, of course, after most of the industry reigned in their capital expenditures to generate the free cash flow necessary to navigate the status quo.

Obviously, there are extenuating circumstances surrounding U.S. cannabis investing including but not limited to eye-gouging onerous taxation and the inability to custody stocks, both of which remain frustratingly in place as we continue along this journey.

Insofar as there is real change afoot, however, the time to pay attention is now, which is why we spend so much time highlighting companies that are in the arena fighting for their life place on the right side of history.

While not every U.S. canna company put up 24% sequential growth like TerrAscend just did—more on that below—we expect Growth at A Reasonable Price (G.A.R.P) to emerge as a familiar rallying cry on the other side of normalization.

A New York Minute

A lawsuit against NY cannabis regulators that had stalled the opening of new legal weed dispensaries has been resolved, opening the door to the resumption of the long-delayed rollout. The settlement, which has yet to be finalized, could allow MSOs to begin selling into wholesale channels in the coming weeks ahead of their December retail launch.

[that last bit wasn’t in the article linked below; we heard it from someone close]

Separately, NY legislators officially sent a bill to the governor that would provide tax relief to NYC marijuana businesses that are currently blocked from taking federal deductions under daddy’s nemesis, IRC 280E.

“This modification to income is appropriate because while the expenses of cannabis-related business cannot be deducted for federal purposes, New York law permits and encourages these businesses akin to any other legitimate business occurring in the State.”

Across the River

The New Jersey cannabis market is on its way to becoming a billion-dollar business. From July ‘22 through June ‘23, state dispensaries sold more than $734M in cannabis products, according to statistics from the NJ Cannabis Regulatory Commission, with most of those sales coming from adult-use ($555M+).

O-HIGH-O

The governor of Ohio met with GOP Senate and House leadership to discuss changes to a voter-approved marijuana legalization initiative that he wants to see implemented before the law takes effect next month. He later said that voters should not expect any “surprises,” and that his proposed revisions would honor the “spirit” of the reform.

Adios Ambien

A new survey of cannabis consumers with sleep issues found that most preferred to use cannabis instead of other sleep aids to help get to bed, reporting better outcomes the next morning and fewer side effects. Flower and vapes that contained THC, CBD and the terpene myrcene were particularly popular.

Farm Aid

The success of the U.S. hemp industry is dependent on the renewal of the Farm Bill, which had brought significant change for the U.S. hemp industry by descheduling commercial hemp production and eliminating hemp from the CSA. If the proposed stopgap funding bill passes, it would include a one-year extension on the 2018 Farm Bill and it would remain in place until September, 2024.

“This extension is in no way a substitute for passing a five-year Farm Bill and we remain committed to working together to get it done next year.”

Stocks & Stuff

Cannabis stocks popped to start the session, with MSOS rallying 3%, before Pavlov’s Dog did his thing and pressed the space 4% lower, before it bounced 4%, before it gave back 4%—and all of that happened before the lunch orders were even placed.

Below, we’ll dig deeper into today’s price action, share a signal we spied along the way, review the recent earnings, preview the reports still ahead, talk on a pure trade and chew through why President Biden needs to step-down pivot to U.S. cannabis.

All that and more, just scroll down.

SPY 0.14%↑ QQQ 0.17%↑ IWM 0.30%↑ MSOS 1.20%↑ PT Notional: $67M

Top Stories

• Settlement in NY case could restart long-delayed legal weed dispensary rollout
• New York Lawmakers Send Marijuana Tax Cut Bills To Governor, Providing Local 280E Relief For NYC Businesses
• NJ Legal Weed Approaches $1 Billion in Sales
• Ohio Governor Says Voters Shouldn’t Expect ‘Surprises’ As He Works With GOP Leadership To Amend Marijuana Legalization Law
• Michigan ends cannabis testing for most government employees
• Farm Bill Sees One-Year Extension
• Most Americans Say The U.S. Has ‘Lost Ground’ In War On Drugs, Gallup Poll Shows As Support For Marijuana Legalization Hits Record High
• Oklahoma Regulators Seek to Revoke 165 Medical Cannabis Cultivation Licenses
• Bill to legalize medical marijuana clears Japan’s Lower House
• Marijuana Helps People Quit Using Prescription Sleep Aids And Allows Them To Wake Up More Focused And Refreshed, Study Indicates

Super Markets

After the initial pop this AM, we shared that the AdvisorShares Pure US Cannabis ETF MSOS had run +43% from the Halloween heels to this morning's toes—two weeks—and that we were taking it in stride w loose grips and tight lips, while noting AdvisorShares MSOS 2x Daily ETF MSOX had kissed the 200DMA ($3.99) and the last of the lindy’s—the 50DMA—was up at $7.22.

While the rest of the session was unremarkable—MSOS only traded in a 6% range—the ability to digest recent gains above the 200-day moving average keeps the double bottom (on lower volume) in place and the buyers-are-higher crowd on notice.

As we’ve written previously, we’ve got alotta wood to chop after the last few years and there are no shortcuts on the road to redemption. Most of the industry folk we speak with are frustrated, angry, exhausted and borderline numb—and those are the winners.

One step at a time as we collectively find our way.

The Cannabist Co. Reports Third Quarter 2023 Results + Call Notes Here

We recently nibbled on Cannabist Company Holdings Inc CBSTF in the low .40’s and it wasn’t bc of their management Mott’s or the quality of their quarter, it was a pure a trade after the forced liquidation crushed the stock (+ Cura + Cresco) as evidenced by their relative field positions as the only majors < 200 DMA ahead of several perceived catalysts; stock was 4X the recent lows two months ago today, when we enjoyed the benefit of the HHS rehearsal move.

[CBSTF share-based comp seems is excessive given perf but again, ‘tis just a trade]

Jefferies’ Owen Bennett 4 X 4’s U.S Canna earnings:

Charlie & Co. report tomorrow morning; a preview:

Stems & Seeds

The Biden Campaign Needs to Pivot to Marijuana

Enjoy your night, be safe and please enjoy responsibly.

/end

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.

This article is from an external contributor. It does not represent Benzinga's opinions and has not been edited for content.