Freak Show In DC: How Drama Distracts The Nation From Key Cannabis Reforms

By Todd Harrison via Cannabis Confidential (Oct 3)

A landmark cannabis bill is headed to the Senate floor and a host of lawmakers and former lawmakers, including Ed Perlmutter, John Hickenlooper and Jared Polis, are hailing the legislation as a game-changer for the U.S. cannabis industry.

“Forcing legal businesses to operate all-cash is dangerous for our communities and an open invitation to robberies, muggings, money laundering, and organized crime— the only people benefiting from the current system are criminals,” said Democratic U.S. Sen. Jeff Merkley of Oregon in a statement after the bill passed the committee.

Should banking legislation finally pass the Senate, as it appears it will, the focus will shift to the House which, let’s be clear, is a complete shit-show. Today’s D.C drama is the latest in a long line of political embarrassments for our Republic and the markets will continue to price in that uncertainty on the margin.

While SAFER would be a solid sweetener for the more seismic stepping stone that is Schedule III—that would irradicate the 75% effective tax rate U.S. cannabis operators are forced to endure—the show me crowd is demanding to see the next card…

VIII Capital

…which, according to peeps who follow such things, could potentially turn in the next few weeks. As the DEA is perceived to be the single-biggest risk to this historic shift, an affirmation of the HHS recommendation could prove to be the tipping point in the acknowledgment of federal reform, particularly if it is paired with the Garland Memo.

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The Florida Supreme Court has scheduled the much-anticipated hearing to decide if the state’s legalization initiative will make the 2024 ballot. With key arguments and responses already having been submitted, the dispute will be heard on November 8th.

New Mexico adult-use marijuana sales crossed the half-billion-dollar mark, Missouri announced the winners of 48 cannabis micro licenses, Colorado awarded its first MJ social equity businesses loans, Georgia’s MMJ operators could be hurt by a regulator’s mistake, Wyoming advocates are attempting to get their initiatives on the 2024 ballot and there are now 50 NJ dispensaries selling adult-use canna across eighteen counties.

Below, we’ll dig deeper into today’s stock market action, highlight a top U.S pick in the space, monitor the never-ending short-interest, talk through the expected sequencing of catalysts and dive into Village Farms after last night’s Vancouver dinner and ahead of today’s site visit in Delta, British Columbia.

All that and more, just scroll down.

SPY 0.29%↑ QQQ 0.95%↑ IWM -0.47%↓ MSOS -0.40%↓ PT Notional: $75M

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Market Stuff

If thoughts become things I gotta change the channel in my crowded keppe.

MSOS MSOS ~$7.5 = a ~50% pullback from the initial triple-digit percentage pop, most of which has been on lighter volume, which will matter only in hindsight/ higher prices.

While most big money guys we speak with are in ‘produce the corpse and we’ll release Sloane’ mode (we’ll wait until the actual reform happens bc we’ve been juked so many times by false stops/ empty promises) the tenor and frequency of those conversations is improving.

It would seem that the NYSE-listed ETF MSOS is the Trojan Horse into the space, even if I was two years and 70% early in identifying it, although TerrAscend has come up a bunch given their TSX-listing (←carved out of the MRB-custody restrictions).

All we need is one gorilla to breach the seal—one big ugly to file as a holder of U.S. plant-touching companies when the 13Fs come out—for all the self-proclaimed ‘first second movers’ activate like the Wonder Twins.

I don’t think we’re there yet but with the right combination of year-end catalysts, we could/ should/ would be—so long as there isn’t a government ~~shutdown~~ breakdown.

Echelon reiterates Verano as their Top Pick

MSOS short interest edged higher again—is now 26.62% of the float.

Illinois cannabis sales +9% YoY

It takes a Village

We’ve been a fan of Village Farms VFF for many moons and have the receipts to prove it…

…and while that stock has enjoyed 15-20X returns not once but twice since we penned that first report in August 2017, it subsequently succumbed to the brutal bear markets that have come to define all things cannabis. With that in mind, we headed north-by-northwest to Delta, British Columbia to see for ourselves what’s going on, up (t)here.

To understand Village Farms, you first have to know CEO Michael DeGiglio, who’s served in that role since he founded the company in 1989. A pioneer in the greenhouse industry, it only takes a few minutes with Mike to understand he’s a leader of men.

In his prior life, he served on active duty in the United States Navy as an officer and tactical carrier jet aviator from July 1976 - January 1983 and the Naval Air Reserves from 1983 - 2001, retiring at the rank of Captain with the U.S. Naval Reserve after logging over 5,000 hours of jet flight time.

I took to him immediately when we first crossed paths six years ago. His no bullshit demeaner instantly resonated and he almost dripped with integrity. We believed in how he was building Village Farms: as a low-cost, high-quality producer that continues to patiently await regulatory clarity before chasing after the next shiny object.

In the meantime, they continue to hone their craft in the ultra-competitive produce segment as one of the top-selling tomato producers in North America, a dynamic that has created one of, if not the most robust distribution platforms in the industry. This oh-by-the-way might matter big-time depending on the upcoming Farm Bill language.

At Gotham Steakhouse last night in Vancouver, as we got caught up, I couldn’t help but think of the parallels between Glass House Brands and Village Farms. Both are superb greenhouse growers with industry-leading COGS that currently serve about the same-sized market (California vs. Canada) with a larger TAM option (USA, EU).

Eighteen months ago, we took a road trip to Cali to see the Glass House (OTC: GLASF) cultivation unicorn (+ 4Front manufacturing unicorn) but I’ve yet to see Village Farms. That will change this afternoon so we’ll continue this conversation on the other side of that.

Suffice to say that “the left side of the equal sign,” as Graham Farrar likes to say, will certainly matter in the long-term success of cannabis operators—and in that regard, GLASF and VFF are birds of a feather, even if they don’t currently flock together.