Tall Task: US Cannabis Tries To Climb A Wall Of Worry

By Todd Harrison via Cannabis Confidential (July 11)

Marijuana retailers in Illinois have already sold more than $1 billion in legal cannabis products during 2024, Gov. JB Pritzker (D) announced, noting the state reached the billion-dollar mark at a faster pace than it did last year. The Prarie State is now on track to exceed $2 billion in sales for the first time.

"The increase in total adult-use cannabis sales, combined with the policies my administration is implementing to support communities ravaged by the War on Drugs, highlights how this emerging industry is helping set a national standard in equity and economic justice." – Gov. JB Pritzker

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Last Licks

A GOP-led House committee approved a large-scale spending bill that would block the Department of Justice from rescheduling cannabis. The included amendment would never pass the full House much less the Senate, and there are some who feel S3 will already be done before the final appropriations bill passes in the lame duck.

Separately, 23 Congressional Republicans have sent a public comment letter to the Attorney General opposing the Biden administration's planned rescheduling, alleging the recommendation was based on politics rather than science.

Both could be interpreted as a sign that Schedule III is closer than most people think.

To Those About to Rock… 🫡

A key U.S. Senate committee has approved a spending bill with a new amendment allowing doctors at the U.S. Department of Veterans Affairs (VA) to recommend medical marijuana to patients living in legal states.

"The only healthcare system in America where a doctor cannot discuss medical marijuana with patients in states where it's legal is the veterans system. We're discriminating against our veterans; its really unacceptable." Sen. Jeff Merkley (D)

Swiss Cheese

Six months on from the opening of Europe's first legal cannabis stores in Switzerland, experts are reporting trends towards regulated sales and ‘lower-risk' consumption methods, such as edibles and extracts.

The pilot study is one of seven approved by the Swiss Federal Office of Public Health (FOPH) to examine the effects of legal, regulated sales of cannabis for recreational use through licensed specialist shops in regions throughout the country.

Stocks & Stuff

It was a broken clock sorta session as a rotation within the broader market from tech and industrials into small caps, helped shine a light on the pay-no-mind club.

U.S. cannabis ETF MSOS gained 8% and while correlation doesn't equal causation, the space happened to catch a bid just as Kamala was creeping higher in the polls, which mirrors the price action that we saw at the beginning of this month.

Below, we'll weigh the current bricks in the sector's wall of worry, talk through the lay of the land, offer up some random hemp thoughts, and explain to prohibitionists why the administration's political motivations are more or less moot.

All that and more, just scroll down.

SPY 0.85%↑ QQQ 1.23%↑ IWM 1.16%↑ MSOS 1.85%↑ ETF Notional: $108M

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Market Stuff (written 8:00 AM)

We fire up our systems this AM following the slowest non-holiday day of the year.

As the fun and games continued in the broader market and analysts chase their S&P price targets higher, U.S. cannabis has been left for dead, with less than $8M notional trading yesterday in the underlying securities.

There are 11 days left in the comment period and while there’s nothing particularly magical about that date (don’t expect a PR) we’ll enter the next phase of this process, which remains on track to complete before the election. [great Sully interview here]

A wise man once said, “The opposite of love isn’t hate; it’s apathy” and I felt that a lot lately. It ain’t easy watching the world of risk rejoice while we remain stuck in the pay-no-mind club year after year. Ask me how I know…

But as I chew through our wall of worry below, I believe we'll see a healthy resolution of many of those items (others will take time to evolve and/ or solve). Indeed, at the beginning of the year, I shared that the government's tricky trifecta was Schedule III, Garland Memo and SAFE and they're all still viable (see Sully’s comments on SAFE).

Add Ohio (launch), Florida (polling well), Pennsylvania (posturing), New York (don’t sleep)—and the specter of a friendlier Trump 2.0 regime (if that’s where we land)—and the future doesn’t seem as scary, particularly with everyone already so scared and the space already so cheap, albeit bifurcated.

Did I expect this deep, prolonged, mid-year gut punch?

Hells no; I thought we would build momentum as the year progressed, rather than "so hot" to "so not," at least thus far. While the price action has been pitiful, it is also par for the course for anyone who’s spent any time in these prickly parts.

Gotta go through it to get to it, the buyers are higher, blah blah blah, I know, but we didn’t come this far…

Wall of Worry (written yesterday)

The bricks in the wall of worry for U.S. canna stocks:

1. Timing/ viability of S3.

2. Intoxicating hemp loophole (Farm Bill).

3. GOP post-election opposition.

4. Custody/ banking/ listing (liquidity)

5. Federal guidance? (Garland)

6. Pricing pressure/ normalization over time.

7. Sales trends in mature states.

8. Redundancy of state siloed supply chains.

9. Growth (FL? PA?)

10. Macro/ political volatility

Common Sense

Let's start with the facts: U.S Canna employs 500,000 Americans in state-legal jobs (Vangst) who sold $29 billion worth of product last year, a number that is expected to climb to $37 billion by 2027 (Cowen)

Away from the economic impact, there is a spectrum of wellness benefits, including:

Reduction in Opioid Use and Overdose: States with legal cannabis saw reductions in opioid prescriptions, use, and overdose deaths, suggesting that it is a safer alternative for pain management. (American Medical Association)

Impact on Teen and Underage Use: Legalization does not lead to increased cannabis use among teens as regulated markets ensure better control over sales and reducing access for minors. (National Institute on Drug Abuse)

Health Benefits: Legal cannabis provides patients with access to medical marijuana, which helps manage conditions such as chronic pain, epilepsy, and anxiety, thereby improving quality of life. (Harvard Health Publishing). The U.S. Department of Health and Human Services has already recommended changing the legal status of cannabis based on overwhelming support for medical benefits.

Support for Legalization: The overwhelming majority of American adults (78%) support the legalization of cannabis, recognizing its economic, medical, and social benefits; 91% of the U.S. population supports legal cannabis in some form (Pew Research Center).

And then, of course, there is the inequity—the stain on the soul of this nation that is the War on Drugs. We can't replace any of the lost time, not for those who have been or remain locked up for non-violent cannabis offenses, or for their families, but we can get on country back on the ride side of history.

Over 40,000 people are currently incarcerated for non-violent cannabis offenses in the U.S., with racial disparities disproportionately affecting people of color. (LPP).

Finally, as the federal government continues to impose onerous taxes on the industry—arguably illegal taxes, particularly in a post-Chevron world—the illicit market has proliferated, supporting violent, organized Chinese crime rings. (link)

Random Thoughts

If state-led U.S. cannabis was an inside-out evolution of the legal market, is hemp an outside-in revolution against the legal market? Maybe they should meet in the middle and create a single framework for all things cannabinoid.
While MSOs were passing the hat in Florida, they got flanked by the alcohol and farm lobbies in DC—and after five years of onerous taxation + legislative delays, the U.S. cannabis industry is ill-equipped to fight a two-front war.
We prolly won’t see a resolution on the Farm Bill in this Congress, which might shift the equation if the red spreads and the GOP is #teamhemp, which wouldn't make much sense unless you just follow the money.
It's a curious case study though: one industry, legal canna, was regulated/ taxed/ scrutinized from the word “go.” The other slipped through a loophole, and grew to a $40B industry, with rules and regs being applied after-the-fact.
Been writing online in real-time for 25 years—that's a quarter of a century—and thinking more and more about taking a real social media post-election sabbatical.
That last vibe is more about time than price; higher prices are nice but time is and will always remain the most precious commodity.

Housekeeping

As Stripe debates whether my Substack actually violates their services agreement as a "cannabis-related business" (scoffs), I’ve decided to take some time off from the daily recaps this summer and scribe when there’s actually something to say.

Subscribers won't be charged, and we'll revisit this at a later date, if it’s even mine to make. I'll continue to focus on the intraday market stuff in real-time on X-subs.

Meanwhile, next week PhamaCann will be hosting a screening of Unlikely Allies: The Weldon Angelos Documentaryon behalf of Mission [Green] in NYC. This has been a long time in the making; you can see the trailer here or better yet, support him here.

Stems & Seeds

How Minnesota accidentally created America's weed beverage capital