Whether you like it or not, members of Congress are allowed to buy and sell stocks. True, federal law prohibits them from using "nonpublic information derived from their official positions for personal benefit," and they're required to disclose their trades.

That said, it's understandable if folks don't quite trust politicians to be on the up and up when their personal fortunes might appear to be in tension with their duties as elected representatives.

Perhaps this is unfair; even cynical. But to modify a famous quote from Upton Sinclair, it's difficult to get a person to understand something when that person's salary depends upon the person not understanding it.

Take, for instance, the uproar around President Donald Trump, who said shortly before announcing a reversal on reciprocal tariffs that it "is a great time to buy stocks."

The reversal sparked a historic stock market rally and has some high-profile Democrats questioning if anyone in the Trump administration profited off the announcement.

Disclosure rules are supposed to help mitigate this problem. Thanks to these requirements, the public can follow what members of the House and Senate are doing with their investments.

Before we go further, please note that this activity shouldn't be used for trading purposes.

After all, insider buying and selling at publicly traded companies is voluminously disclosed and analyzed, but it doesn't really tell us much. That's because insiders – the executives and board members who know what's going on – can sell for any number of legitimate reasons, from paying tuition to portfolio diversification.

When it comes to stocks, insider buying is actually a more useful piece of information. And even then, it's not exactly a screaming buy signal.

Using insider activity among members of Congress as the basis for some kind of trading system is not a rigorous idea.

With those caveats out of the way, it is indeed interesting to see which stocks, bonds and private investments are most popular with members of the House and Senate. Perhaps more interesting is how certain pols churn their portfolios, which is to be avoided if you're a retail investor.

Have a look at the below table to see which politicians were the most active traders by volume over the past 90 days, according to data from Capitol Trades.

Stocks politicians are buying and selling

Look past the municipal debt and investments in limited liability companies, and you can see that pols are pretty normal when it comes to their buys. Top-rated Dow Jones stocks, mega-cap tech names and reliable and rising dividend-payers routinely make the list of our representatives favorite names.

Both sides of the aisle like many of the hottest stocks, including Apple (AAPL), Amazon.com (AMZN), Oracle (ORCL) and Broadcom (AVGO) these days – but then so does pretty much everyone else.

Interestingly, as much as Representative Ro Khanna (D-Calif.) is associated with tech investing, a number of his most recent biggest buys were stalwart blue chips such as JPMorgan Chase (JPM), the nation's biggest bank by assets, and Warren Buffett's Berkshire Hathaway (BRK.B).

Meanwhile, in addition to buying shares in speculative artificial intelligence (AI) firm BigBear.ai Holdings (BBAI), Representative Lisa McClain (R.-Mich.) also picked up Air Products and Chemicals (APD), which happens to be one the best dividend stocks for reliable dividend growth.

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Six months have passed since the Department of Health and Human Services (HHS) formally recommended the reclassification of cannabis under the Controlled Substance Act (CSA). Still, there is no word as to when or if the U.S. Drug Enforcement Agency (DEA) will carry out the department's request and classify cannabis as a Schedule III substance.

In the meantime, the brave and bold who have committed to protecting our country have poured their voices into a single letter pushing the Biden administration to "expeditiously" ease federal cannabis restrictions. 

"The men and women who served in the U.S. Armed Forces often face difficult physical and mental challenges upon returning home," a letter signed by the Minority Veterans of America, American Legion and several other veterans' advocacy groups reads.

"As such, we hope that in treating the wounds of war — both visible and invisible — that our servicemembers and veterans would have access to the widest array of possible treatments."

Veterans across the nation have been vocal about the need to reclassify and legalize adult-use cannabis. 

More than 80% of veterans surveyed by the American Legion said they support medical cannabis research and would like to have cannabis as a federally legal treatment.

Lawmakers from both parties and chambers have responded to these calls for study and legalization by introducing several bills related to veterans and cannabis over the last year. However, most die on the congressional floor and fall short of being signed into law.

Despite the sluggish pace of cannabis policy reform, veterans continue to fight and their efforts do not go unnoticed or unappreciated by those in the legal cannabis industry. Veterans, like most Americans, overwhelmingly support the federal decriminalization and eventual legalization of cannabis.

For whatever reason, the DEA has made it clear that letters, public statements and other diplomatic efforts are meaningless to them. Instead, they move forward on an unknown timeline that they feel is justified. In reality, it does nothing more than delay the will of the people and many of the lawmakers supposedly representing them.

Earnings season is underway

Fourth quarter earnings season is ready to begin and large operators like GTI, Trulieve and Verano are leading the charge.

Heading into earnings season, we were under the belief that consensus estimates were incorrectly on the downside, as data from Headset and individual states painted a different picture. Those that executed well throughout the fourth quarter were underestimated and look to over deliver (UPOD) throughout what appears to be a better than expected earnings season. As a result, the stronger companies could be poised for a back-to-back quarterly beat, a welcome progression. 

Green Thumb Industries (GTI) is a prime example of an industry leader being underestimated and over-delivering during this earnings season. The company's strategic capital allocation, efficient management team and commitment to focusing on the fundamentals of business growth have led to a solid quarter.

We suspect other public companies will be digesting GTI's strategy and communication and will adopt what they can in their earnings calls, with many more to go this earnings season. 

As earnings season unfolds, it will be fun to dig through additional reports and hear discussions about wholesale pricing dynamics, capex strategies, continued opex optimization, tax management and improving growth rates.

Legalisierung! Germany passes landmark adult-use cannabis law

Legalisierung or legalization, as it is known in English, is coming to Germany.

Earlier this month, lawmakers in the western European nation approved a hotly contested bill that paves the way for controlled consumption beginning April 1. 

Introduced by Chancellor Olaf Scholz's government, the measure allows adults to possess 25 grams of cannabis for use in public and grow up to three plants in the comfort of their homes. Also, cultivation in nonprofit cannabis clubs with fewer than 500 members will be allowed beginning July 1.

Health Minister Karl Lauterbach believes the measure will curb the nation's black market, tackle drug-related crime and prevent the sale of contaminated products.

"The situation that we are currently in is in no way acceptable," he explained.

"We have to face the problems and the approach we are taking here is a good approach."

Many had hoped that Germany would enter the global adult-use market at the beginning of the year. While the passing of this measure isn't as exciting as many had previously hoped, it is still a significant step in the right direction as the global war on drugs continues to erode.

As April nears, it will be interesting to see how the nation's adult-use program grows and Germans begin to experience the benefits derived through private and public businesses.

NYS adult-use market stumbles out of the gate, but it can still win the race

New York State has taken California's place in the legal cannabis market, but it's not in the way that many had hoped.

The Empire State has snatched California's title as the most underperforming adult-use market in the nation. When the Marihuana Regulation & Taxation Act (MRTA) was signed into law in 2021 and the Conditional Adult-Use Retail Dispensary (CAURD) program was formed, many had high hopes for the state's adult-use market could produce, including millions, in tax revenue that could be used to combat the War on Drugs.

A few years later, the state is home to a worrisome number of illicit cannabis storefronts, people of color looking to break into the business are struggling due to severe financial hurdles, and a recent report indicated that legal cannabis providers in California are funneling product to New York.

Now, members of the Office of Cannabis Management (OCM), local politicians, entrepreneurs and everyday New York residents are trying to find solutions to these pressing issues.

"It's not that we know the perfect way to design or implement a cannabis market," OCM Executive Director Chris Alexander said. "Who do we turn to to know the way to do this? It's just us."

The New York adult-use market is still far from reaching its full potential, but there is room for optimism. The number of licensed retailers across the state is growing, wholesale supply in the market is improving and there are new efforts to crack down on the illicit market. 

Sure, New York isn't off to the start that it had hoped, but it can still get on the right legal cannabis track and see success in the future.

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The time is now! Days after unveiling a budget proposal calling for the legalization of adult-use cannabis, Pennsylvania Governor Josh Shapiro says state officials "don't even have a choice anymore" on the matter.

The push for adult-use cannabis legalization has received bipartisan support and Shapiro argues the state is losing out on $250 million in annual revenue by not legalizing the plant for adult use. The governor has personally "evolved" his thinking about the matter and believes the Keystone State can create a competitive market that lifts up Pennsylvania businesses and empowers local communities. If he is able to achieve his goal, adult-use sales in Pennsylvania could start as early as January.

"It’s obviously wildly popular across the country and certainly in polling regionally and in the states. So if someone's going to be against it, I think they're going to have to justify that to their constituents as well," Shapiro said.

"There does seem to be an emerging bipartisan consensus that we've got to compete on this issue, and we'll see if we can get it done. We’re going to work hard."

It is encouraging to hear the governor express his "reformed" opinions and motivate legislators to take action. His views are well-balanced and aligned with the reality of today's industry. Reading about Shapiro's recent efforts is one of the most encouraging stories in quite some time. While much attention is paid to progress made at the federal level, state-level progress is the key to unlocking billions in legal sales across the country. 

With public officials like Shapiro leading the legislative charge, Pennsylvania and several other states can continue the process of breaking down the wall of prohibition and building a brighter future that provides patients and adult-use customers with the medicine, health and wellness products they need while generating millions, if not billions, of dollars in revenue for state and community efforts.

Florida legislatures aim to place cap on THC

Florida is home to the largest medical cannabis market in the nation and Governor Ron DeSantis expects adult-use legalization to appear on the ballot in November. While this all sounds promising, there is a catch or, rather, an attempt to thwart the viability of an adult-use program.

With the support of the Senate Health Policy Committee, state lawmakers have introduced Senate Bill 7050. If the bill were to pass and be signed into law, it would place a 30% THC cap on smokable flower and implement a 60% THC on all other forms of cannabis, excluding edibles. Senate Bill 7050 would limit the amount of THC in edible product offerings to 10 milligrams per serving and 200 milligrams per package.

The restrictions placed on edibles are in line with those enacted in other states, but Florida would join Connecticut and Vermont as the only two states to place a 30% THC cap on smokable flower. Some lawmakers argue highly potent products present health risks to Floridians, but others feel voters should make such a decision.

"If voters are going to speak the ballot initiative one way or the other … I want to give that process an opportunity," Senator Rosalind Osgood said.

This is not the first time that legalization has made its way to the ballot in Florida and it is not the first time that legislators have stood in the way of a viable adult-use program. Adult-use legalization detractors may stand in the way of progress, but the will of the people will not be denied. There is much to be gained if Florida launches an adult-use program, including increased revenues, opportunities for entrepreneurs to enter the marketplace and much more.

There is still great optimism that the Supreme Court will rule to include adult use on the ballot in November and the good people of Florida will have the opportunity to exert their will on the political process.

Massachusetts sales hit record high again

Massachusetts is one of several states to end 2023 on an upswing. The Bay State's adult-use cannabis businesses generated $1.56 billion in sales last year, a $78 million increase from the previous year. Adding in medical transactions, the state's sales total grew to $1.79 billion in 2023. It is the state's sixth consecutive year of record-setting growth in adult-use cannabis sales.

During that six-year stretch, the number of retailers and delivery businesses in Massachusetts has grown from two in 2018 to 359 in 2023. As a result, nine of the state's top 12 months for adult-use sales have occurred in the last year.

"This continued growth confirms that Massachusetts' regulated marijuana industry is still a maturing market," Cannabis Control Commission Chairperson Ava Concepcion said.

As sales rose in Massachusetts, prices also decreased in 2023. The Bay State has and can continue to manage the price normalization cycle by creating retail openings in new jurisdictions. Price can also be offset by unit volume growth through existing doors, but that is a higher bar. 

Utilizing these strategies, Massachusetts will continue to generate record-high sales that are essential indicators for public operators exposed to these evolving markets. This will become more visible as public companies begin rolling out their fourth-quarter earnings reports.

Rep. Bluemauer calls for transparency from DEA

The cannabis industry will forever remember the action or inaction of the U.S. Drug Enforcement Agency (DEA) in 2024. Months have passed since the U.S. Department of Health and Human Services (HHS) recommended the reclassification of cannabis under the Controlled Substance Act (CSA). Still, the federal agency has taken no concrete action. Now, the cannabis industry and members of Congress are left to wonder when the DEA will reclassify the substance. 

This past week, Congressional Cannabis Caucus Co-Chairman Earl Bluemauer grew increasingly put off by the DEA's review process and sent a letter requesting answers to the following questions:

• What is the DEA’s planned deadline to publish its draft rule on the scheduling of marijuana for public comment?
• What is the standard timeline for the DEA’s drug scheduling reviews?
• On what date did the DEA begin reviewing the findings of the HHS and recommendation on cannabis re-scheduling?
• How is the DEA ensuring the agency’s review incorporates the status of cannabis under state laws and regulations in its scheduling decision?
• How will the DEA proactively communicate developments and receive feedback from congressional partners as the review proceeds?

Earl Bluemauer is not the only member of Congress to issue a letter to DEA Administrator Anne Milgram. Earlier this year, Senators Chuck Schumer, Elizabeth Warren and John Fetterman urged the DEA to remove cannabis from the CSA altogether. Unfortunately, the DEA is not required to respond to any of the letters in a timely fashion or at all. 

Congress can create the change it seeks, but they have elected to choose words before action. A letter is excellent for grabbing headlines and putting forth one's thoughts on the paper, but this hardened cannabis investor does not get one bit excited seeing this request from Congress. 

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The S&P 500 Dividend Aristocrats index looks only a little different as we head into the second half of the year. 

Widely regarded as some of the best dividend stocks for dependable dividend growth, the S&P 500 Dividend Aristocrats is an index of S&P 500 companies that have raised their dividends for at least 25 consecutive years.

That's kind of a big deal if you are a long-term equity income investor. Regular dividend hikes not only increase the yield on an investor's original cost basis over time, often quite dramatically; they also help investors sleep better at night.

After all, any company that manages to raise its dividend year after year – through recession, war, market crashes and more – is demonstrating both its financial resilience and its commitment to returning cash to shareholders.

S&P Dow Jones Indices, which rebalances the index quarterly, ditched Walgreens Boots Alliance (WBA) at the beginning of 2024 after the pharmacy chain slashed its dividend by almost half.

Walgreens had increased its dividend every year for nearly half a century before the cut. Analysts, who regularly give WBA one of the lowest rankings of all 30 Dow Jones stocks, applauded the decision to take cash earmarked for shareholders and invest it back into the business. 

Perhaps most interesting is what will happen to long-time member 3M (MMM). The Dow stock is on the Aristocrats chopping block after slashing its dividend as part of its Solventum (SOLV) spin off. 3M is expected to be cut from the list of dependable dividend payers when S&P Dow Jones next rebalances the index.

Dividend Aristocrats Fastenal and Kenvue

The Dividend Aristocrats membership list remains at 67 stocks, however, as Fastenal (FAST) was added to the index in the first quarter of 2024. The industrial supplier has raised its dividend for 25 consecutive years, making it available for inclusion in the index. 

Most recently, Fastenal declared a quarterly cash dividend of 39 cents per share to be paid on February 29 to shareholders of record as of February 1. The company generated more than $1 billion in levered free cash flow in fiscal 2023, and that was after paying out more than a billion dollars in dividends. 

Fastenal stock sports a dividend yield of 2.4%, which is fairly generous for an Aristocrat. The exchange-traded fund that tracks the index, the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), has a dividend yield of 2.1%. 

Other changes to the Dividend Aristocrats over the past year include the removal of VF Corp. (VFC) and the addition of Kenvue (KVUE), which was spun off from fellow Aristocrat Johnson & Johnson (JNJ). 

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The year is nearly coming to a close and little federal progress has been made regarding the legalized cannabis industry. In August, the U.S. Department of Health and Human Services (HHS) formally recommended reclassifying cannabis as a Schedule III controlled substance. Four months later, it is unclear if the Drug Enforcement Agency (DEA) will heed the advice of the HHS or wait until the first quarter of the new year to reschedule cannabis under the Controlled Substance Act. However, there is a group of six governors who want to see cannabis rescheduled by year's end.

"We hope that [the] DEA will follow suit and reschedule cannabis to Schedule III this year, given that 88 percent of Americans are in favor of legalization for medical or recreational use. Rescheduling cannabis aligns with a safe, regulated product that Americans can trust," a five-page letter signed by Governors Jared Polis (Colorado), JB Pritzker (Illinois), John Bel Edwards (Louisiana), Kathy Hochul (New York), Phil Murphy (New Jersey) and Wes Moore (Maryland) reads.

It is great to see state leaders acknowledge the benefits of cannabis and hold President Joe Biden accountable for his promises to decriminalize the plant. Reclassifying cannabis as a Schedule III substance under the Controlled Substance Act is an "overdue step" in the right direction. Though we are not expecting it until next year, it would be incredible if the DEA doesn't wait until the ball drops and the calendar turns. The time is now.

GOP pushes back as recreational marijuana use begins in Ohio 

At the direction and will of the voters, Ohio will enter the world of legalized adult-use cannabis in December. Adults over 21 years of age can possess up to 2.5 ounces of marijuana in plant form or up to 15 grams in extract form and grow up to six marijuana plants per adult.

"Marijuana is no longer a controversial issue," Tom Haren, a spokesperson for the Coalition to Regulate Marijuana Like Alcohol, said. "Ohioans demonstrated this by passing State Issue 2 in a landslide. Ohioans are being extremely clear on the future they want for our state: Adult-use marijuana legal and regulated."

Despite Ohioans voting to legalize of adult-use cannabis in November, state lawmakers are threatening to make significant changes to the state's adult-use landscape. Most notably, the Republican-controlled Ohio Senate voted 28-2 to approve a measure that would tax cannabis sales at 15% and cut the number of cannabis plants residents can own in half. 

"Ohioans will remember blatant disregard for the voters on marijuana. I have been a Republican my entire adult life, but I have never felt as disrespected or disenfranchised by my own party and my legislature as I do right now," Ohio resident Tyler Ward wrote in a letter to the editors of The Columbus Dispatch.

The latest measure pushed through the Ohio Senate must be approved by the Ohio House of Representatives before it can be signed into law. In the meantime, the voters of Ohio and those in the other 49 states will be watching and hoping the lawmakers abide by the will of the people. That is what's right for Democracy and for basic economics.

News broke this week that the initiative is now being fast tracked, with recreational marijuana sales now expected to commence within 90 days. It seems the compromise included a 15% excise tax and caps on potency, which are both illogical. We expect some serious unintended consequences around the potency cap with vape as just an initial example. The positive is that the market will quickly open with existing medical doors being able to sell adult use.

Most Floridians support legalizing adult-use cannabis

Less than four weeks stand between American voters and another eventful election year. Aside from the high-profile federal races, many will be watching the Sunshine State as state-level initiatives bring the topic of legalized adult-use cannabis to the forefront. 

Florida has entertained the idea of adult-use weed legalization before, but each attempt has missed the mark for one reason or another. However, Florida has changed quite a bit since the most recent failed attempt at legalizing recreational cannabis use. 

A recent survey conducted by the UNF Public Opinion Research Lab (PORL) found that 67% of Floridians would vote for an initiative that legalizes the possession and regulates sales of small amounts of cannabis for personal use among adults. Support was highest (77%) among adults between 18 and 24 years old, followed by Floridians between 55 and 64 (70%). While the survey sample size was limited to 716 respondents, it was surprising to see support among 35 to 44-year-olds sit below 60% and no data was presented about adults between 25 and 34.

"Unlike previous surveys when we simply asked if folks support or oppose [the] legalization of recreational marijuana, this time we gave respondents the specifics of the proposed amendment," PORL Faculty Director Dr. Michael Binder said. "Yet again, it looks like (the amendment) has a good chance of passing, if it makes it through the courts, and that is a very big ‘if.'"

The results of the survey are consistent with the prevailing notion that young Americans nationally are very much in favor of ending cannabis prohibition. The future leaders of this country will bring about change despite efforts from the old guard who continues to hang on to their political positions. 

More improvement could be made on California's cannabis tax revenue

California, despite its many known challenges, remains the largest legal cannabis market in the world. Industry projections estimate California will make up 20% of the U.S. market by 2025 and be worth $5.4 billion by 2030. 

This year, California's cannabis market produced $285.1 million in tax revenue during the second quarter and $269.3 million during the third quarter. The market should be more desirable and implementing the following strategies could result in a more significant legal industry.

• Access: Incentivize the many jurisdictions that have yet to allow for legal cannabis to open immediately. 
• Taxes: Cut the state's excise tax down to 10%, as seen in many other adult-use legal states. It would also be beneficial to cap the tax rate that cities are also adding in.
• Enforcement: Address the burning distribution license matter, that is currently allowing massive diversion to the illicit market and undercuts the legal market. The state is aware of this issue and public officials should address it immediately.

The state has our support as it takes steps toward enhancing its significant cannabis program. Some progress has been made, but there is always room for improvement, as no market is perfect. The state and its cannabis industry can tackle these issues, find solutions and provide citizens and legal industry participants with the healthy and thriving program they deserve.  

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Ohio's legalization efforts could be facing an uphill battle following a celebratory election night. 

On November 7, Ohioans overwhelmingly approved Issue 2, a proposal to commercialize, regulate, legalize and tax the adult use of cannabis. The approval of Issue 2 should be a moment to celebrate as freedom and democracy push forward. However, this enthusiasm is tempered a bit by the reminder that the journey of legalized cannabis use is a continued slog that requires constant effort and support. Moments after the proposal was passed, Republican lawmakers and prohibitionist groups were already pushing back on the will of the voters.

"This statute was written by the marijuana industry and should not be treated as a cash grab for their cash crop at the expense of a state trying to emerge from the opioid epidemic," Senate President Matt Huffman said on election night. "The General Assembly may consider amending the statute to clarify the questionable language regarding limits for THC and tax rates as well as other parts of the statute."

Lawmakers and prohibitionist groups may position Ohio to follow in the footsteps of Virginia, an adult-use market without legal sales due to legislators' unwillingness to represent the will of their constituents. Thankfully, we saw that control can be stripped away as midterm elections reshaped Virginia's legislature to follow the will of voters. 

This is another excellent reminder of the power of voting. If you are unhappy with your elected official, you can fire them by casting your vote. The people of Virginia and Ohio deserve the right to have cannabis be legal as they voted for and not how some conflicted politicians may deem otherwise. The U.S. is supposed to be the greatest democracy and we want to see that shine.

Florida Supreme Court hears arguments on the legalization of recreational weed

Florida may become the next state to end adult-use cannabis prohibition. On Wednesday, supporters and opponents of adult-use cannabis met at the Florida Supreme Court to debate an initiative that would put recreational marijuana legalization on the ballot in 2024. 

The Sunshine State has a thriving medical cannabis market, but Florida Attorney General Ashley Moody has been vocal in his criticism of the proposal to legalize adult-use cannabis.

"We think in several ways this ballot summary is misleading," Jeffrey DeSousa, a representative for the Florida Attorney General's Office, told the court. "There is at least ambiguity in this ballot summary that a reasonable voter could look to and at least think this could not be criminal under federal law."

Despite his criticism of the proposal, members of the Florida Supreme Court pushed back, questioning the claim that the proposal is misleading.

"Where's the hidden ball?" Justice Charles G. Canady asked. "I'm baffled by the argument. Maybe it's just me."

While promising, it is unclear if the pushback from the Florida Supreme Court will lead to success on Election Day next year. Florida has historically been a conservative state and with a significant population skew to retirees. However, this mix has changed quite a bit in the last few years with a substantial influx of notable companies relocating there. 

The demographics are changing and as things come to the center, cannabis stands to do well. It would be another big win for legal cannabis to get through the court and hit the 60% voter support next November. We will be watching.

Support for cannabis legalization reaches record high

It is difficult for an overwhelming majority of Americans to agree on much of anything, much less a political measure, but the latest Gallup poll has found that 70% of adults in the U.S. support the legalization of cannabis. More than 80% of Democrats and 55% of Republicans support legalization, providing yet another clear data point that the federal government should be paying attention heading into an election year.

"When I founded NORML over 50 years ago, only 12 percent of the public supported legalizing marijuana," wrote NORML Founder Keith Stroup in a recent article. "Today, according to just-released polling data compiled by Gallup, a record 70% of U.S. adults agree with NORML's core principle: That the responsible use of cannabis should no longer be a crime. To be blunt, this change in public opinion is remarkable."

The journey to federal cannabis legalization could also take a significant step forward if it is reclassified as a Schedule III substance in the coming months, if not weeks. There is no better time for the government to catch up to the American people and finally begin recognizing what people are supporting.

Big financial companies, NRA lobby on SAFER Banking Act

In yet another sign of progress excluding action initiated by lawmakers on Capitol Hill, more mainstream groups publicly support cannabis reform. Just before Halloween, Bank of America (BAC), Mastercard (MA) and the National Rifle Association (NRA) included the SAFER Banking Act in their lobbying disclosure for the third quarter of 2023. This trio is very influential in the nation's capital, and their decision to include the SAFER Banking Act in their lobbying disclosure should not be ignored. 

However, their recent actions should not come as a major surprise. We have long hypothesized that support would grow from established sectors when the cannabis industry became big enough for them to care. It is probable Mastercard and Bank of America saw the volumes, saw the opportunity they are missing out on and now want to participate in cannabis transactions legally. 

Additionally, we now have the support of the NRA to see federal reform of cannabis. Typically, medical cannabis patients are excluded from buying guns, so the NRA is seeing their addressable market being impacted. 

Despite these promising trends, we have no idea when D.C. will act, and we are not optimistic about any near-term action around federal policy reform for cannabis. 

Still, it goes without saying that change is long overdue, so it is encouraging to see the industry stepping up and pursuing a judicial path in addition to the ongoing efforts on Capitol Hill. 

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The legalization of recreational weed is up for a vote in The Buckeye State. 

Election Day is approaching in Ohio and residents of the battleground state have the opportunity to approve Issue 2. The proposed ballot measure, sponsored by the Coalition to Regulate Marijuana Like Alcohol, would allow adults over 21 years old to possess 2.5 ounces of cannabis and up to 15 grams of cannabis concentrates for recreational use. 

Additionally, the ballot proposal would allow adults to cultivate cannabis in their homes and usher in the state's Division of Cannabis Control to oversee the industry. 

Ohioans still have time to cast their ballots, but polling indicates that nearly 60% of registered voters intend to vote in favor of Issue 2. If voting results match preliminary polling outcomes, Ohio would become the 24th state to step into the legalized adult-use cannabis market.

"We are proposing to regulate marijuana for adult use, just like we do for alcohol," said Tom Haren, a corporate lawyer dubbed "the Face of Marijuana Legalization in Ohio" by Cleveland Magazine. "Our proposal fixes a broken system while ensuring local control, keeping marijuana out of the hands of children, and benefiting everyone.

If Ohio voters approve Issue 2, the more conservatively governed state could turn heads leading into a national election, especially given its influence in those elections. Polling results are promising, but it's going to be a push as prohibitionists are coming forward with misinformation and threats about trying to repeal a legal program should it pass. We hope the good people of Ohio see through the noise and cast their vote. 

Study shows cannabis reduces COVID-19 mortality rates

Research is an aspect of the legalized cannabis industry that doesn't receive widespread attention given the plant's status as a Schedule I drug under the Controlled Substances Act. Public discourse surrounding cannabis research is often limited to anecdotal experiences and restricted studies. As a result, cannabis professionals remain cautious about making potentially false claims about the plant because that will surely not garner any favors with the Food and Drug Administration (FDA), Drug Enforcement Agency (DEA) and other governing bodies. 

With that said, a recent study presented at the annual meeting of the American College of Chest Physicians has many folks excited about a potential link between cannabis and lower mortality rates as it pertains to COVID-19.

A team of researchers, led by Dr. Fasih Sami Siddiqui, has found that cannabis consumers who contracted COVID-19 had better outcomes and reduced mortality compared to non-cannabis consumers. 

Dr. Siddiqui and his colleagues analyzed the medical records of 322,214 patients and sorted their data into two groups depending on their cannabis usage. Once separated into two groups, researchers matched cannabis users with "non-users 1:1 on age, race, gender, and 17 other comorbidities including chronic lung disease," according to the study. Ultimately, Dr. Siddiqui and his peers found that cannabis consumers who contracted COVID-19 had a mortality rate of 2.9%, while those who tested positive for COVID-19 and did not consume cannabis had a mortality rate of 13.5%. 

"On univariate analysis, marijuana users had significantly lower rates of intubation (6.8% vs 12%), acute respiratory distress syndrome (ARDS) (2.1% vs 6%), acute respiratory failure (25% vs 52.9%) and severe sepsis with multiorgan failure (5.8% vs 12%). They also had lower in-hospital cardiac arrest (1.2% vs 2.7%) and mortality (2.9% vs 13.5%)," researchers wrote.

It is important to note that those who use cannabis represent less than 1% of those in the initial pool of analyzed medical records. However, researchers are hopeful that this study will implore other medical professionals to look further into the potential connection between cannabis and lower COVID-19 mortality rates.

"The significant decrease in mortality and complications warrants further investigation of the association between marijuana use and COVID-19,” researchers noted.

The results of this recent study build upon a 2022 study posted in the Journal of Cannabis Research that noted a potential connection between cannabis, lower hospitalization rates and better clinical outcomes. This study is also interesting because cannabis saw an incredible boom in consumption during the height of the COVID-19 pandemic. Maybe, one day cannabis could be credited with playing a role in society managing COVID-19 directly and/or tangentially.

Census Bureau debuts interactive cannabis tax revenue map

It is difficult to talk about the business of legalized cannabis without discussing federal policy and taxation. The U.S. Census Bureau recently added to the conversation by publishing a map detailing the proportion of state revenue generated through the legalized cannabis industry. 

While all states did not offer data to be featured in the interactive map, the results collected in several states, including Michigan, Illinois, Alaska, Colorado and Oregon, were eye-catching. 

In Oregon, for instance, cannabis taxes accounted for 4.67% of total revenue in the first quarter of the 2023 fiscal year and 4.7% of state revenue in the first quarter of 2022. In Illinois, cannabis tax revenue exceeded alcohol tax revenue by $135.8 million during the fiscal year that ended June 30. Similarly, Colorado and Washington received more tax revenue from legal cannabis than from alcohol or cigarettes during the 2022 fiscal year. 

Mississippi, Connecticut, New York, California, Missouri and Maine also experienced increased cannabis tax revenue during the second quarter of the current fiscal year.

"This data highlights the fact that legal cannabis markets are making positive contributions to their communities,” National Cannabis Industry Association Executive Director Aaron Smith said.

Data featured throughout the U.S. Census Bureau's interactive map is promising, but there is room for growth. Additional cannabis tax revenue could be generated if the 280e federal tax is removed, state regulations are improved and operators continue to drive sophistication into their organizations. 

Reclassifying cannabis as a Schedule III substance, passing the SAFER Banking Act into law and receiving clarity on credit and debit card usage would also provide a strong organic growth tailwind for the industry and tax revenue. While it is best to remain cautiously optimistic, the industry is still young and the economic boom that it can provide is promising. 

Medical marijuana will be easier to access in Georgia

Georgia is home to a medical market worthy of our attention. There are only two licensed operators and seven medical dispensaries in The Peach State, but cannabis access is about to shift dramatically. 

State officials have opened the door for nearly 120 pharmacies to provide cannabis products from Botanical Sciences to prescribed patients diagnosed with severe conditions, including Parkinson's Disease, terminal cancers and post-traumatic stress disorder (PTSD). Moving forward, the number of pharmacies able to distribute prescribed cannabis products could grow to almost 400. 

“Pharmacists have been fielding questions from patients for years without ever having the ability to do anything about it,” Botanical Sciences CEO Gary Long said, as reported by ABC News. "Finally, they have the ability not just to give people advice but provide them with the therapies they've been seeking."

Georgia is the first state to travel down this particular path of medical cannabis access. Those that expedite the process of expanding access to medical or adult-use cannabis, like Maryland, often limit the growth of the illicit market and lower the presence of unregulated products such as those derived from hemp. 

As for the pharmacies helping expand access to medical cannabis, it is unclear how they will be treated as a percentage of their sales will soon be subjected to 280e taxes. Not to mention, businesses engaging in cannabis sales often face challenges regarding insurance, banking, etc. Regardless, Georgia deserves credit for taking an innovative route to improving access to cannabis.

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On an autumn Tuesday evening in the nation's capital, history was made. By a narrow vote of 216-210, members of the U.S. House of Representatives approved a motion to remove Rep. Kevin McCarthy as the speaker of the House. Never before has the U.S. House of Representatives removed an active speaker and the consequences of doing so could have a lasting effect – particularly on cannabis.

Our concerns about federal progress within the cannabis industry are well documented. The U.S. House of Representatives has changed significantly since it passed the Secure and Fair Enforcement (SAFE) Banking Act multiple times over the years. The congressional body seemingly deteriorated further as key members negotiated a federal spending bill that will keep the lights on until November 17. With McCarthy's removal fresh on the minds of federal lawmakers, there's no guarantee that another federal spending bill will be approved before the winter holiday season.

"At a minimum, the likelihood of government shutdown in mid-November just went up to 80%, as the House's inability to do its immediate job of funding the government increases," Pangea Policy Founder Terry Haines told MarketWatch.

McCarthy's removal does not bode well for the immediate advancement of the  Secure and Fair Enforcement Regulation (SAFER) Banking Act – the latest iteration of the SAFE Banking Act. It did receive approval from the Senate Banking Committee and could make it to the Senate floor, but the threat of another government shutdown will likely push the bill's timeline down the road. Unfortunately, the most that many cannabis industry veterans can do is focus on their business while we wait patiently, and continue to advocate for the SAFER Banking Act.

Cannabis banking bill inches closer to Senate floor vote

It wouldn't be "This Week In Cannabis Investing" if we didn't examine the latest cannabis banking developments on Capitol Hill. After receiving approval from the Senate Banking Committee, the SAFER Banking Act cvould be headed to the Senate floor for a vote. The bill, first introduced on Capitol Hill in 2015 as the Marijuana Businesses Access to Banking Act, has the potential to provide much-needed financial support for those operating exclusively with cash due to regulatory constraints that often prevent banks from working with cannabis businesses. 

"Banks have been in a difficult position because they have had to sever the relationship they have with longstanding clients," Senator Jeff Merkley (D-Oregon), a sponsor of the SAFER Banking Act, told CNN. "If they do business with a company that provides fertilizer to 200 places and one of them is a cannabis company, they have to cancel that bank account."

This is an enormous inconvenience, the senator added. "There are some institutions, including some credit unions, that provide services, but their fees are much higher than for any other commercial enterprise," Merkley said

Cannabis industry veterans remain anxious as the SAFER Banking Act aims to go from bill to law. Over the last eight years, it has expanded in scope and complexity, becoming heavier by the day. Cautious optimism remains as the day-to-day activities of Capitol Hill lawmakers become more unpredictable. Moving forward, all eyes will be locked on the Republicans, or lack thereof, who have signed on to support the bill, which currently stands at an anemic four. Challenges lie ahead, but at some point there will be light at the end of this long, winding tunnel.

Maryland recreational cannabis sales keep hitting records

There may not be a lot of movement on Capitol Hill, but there is definitely action at the state level. For the third consecutive month, Maryland has had record-breaking adult-use cannabis sales. 

The Old Line State's adult-use sales have grown from $53 million in August to $54.3 in September. Overall, Maryland recorded over $90 million in cannabis sales last month.

"This is Maryland's time to lead in this new space – our time to forge new partnerships between our government and our people, our time to create an economy that is more competitive, while also being more equitable, and it's our time to get this right while we do right," Maryland Governor Wes Moore said earlier this year.

The rise of recreational weed sales in Maryland coincide with the decline of the state's medical sales. In September, retailers recorded $36.5 million in sales, the second-lowest total of the year thus far. However, this is not out of the ordinary as other states have experienced a dip in medical sales with the introduction of adult-use sales.

"There's more than 4 million eligible consumers versus 168,000 medical patients," Maryland Cannabis Administration Acting Director Will Tilburg said in June.

Despite the drop in medical sales, Maryland's strong adult-use launch is expected to bolster the state's market for months and years. Early projections paint a picture of a thriving market that could grow to $2 billion in the future.

Curaleaf and Verano seek out new exchanges

The cannabis industry has learned that the Canadian Securities Exchange (CSE) is the wild west of stock exchanges. While it has been welcoming to United States operators, there are numerous challenges for companies listing there. 

As a result, cannabis companies are seeking alternative exchanges when possible with the hope of listing on exchanges in the United States when possible. Curaleaf Holdings (CURLF) plans to follow this trend as it prepares to move its stock listing to the Toronto Stock Exchange (TSX). The multi-state operator seems poised to join fellow marijuana stock TerrAscend (TSNDF) is the latest company to take its talents to the TSX. Boris Jordan, executive chairman and founder of Curaleaf, said the move will "bring stability, better governance and better protection from market manipulation of its stock."

Curaleaf is not the only company to recently transition into a new exchange. This week, Verano Holdings (VRNOF) received conditional approval to list its shares on Canada's Neo Exchange, owned by Cboe Canada. They join others like The Cannabist, which some believe is a good stepping stone to U.S. exchanges when they become available. It is an important step for Verano as its stock has seemed to be one of the more volatile of the large multi-state operators.

“In light of recent policy momentum, we are taking this strategic and momentous step with Cboe Canada, which we believe will better position the Company to capitalize on future legislative catalysts in the U.S.,” George Archos, founder and CEO of Verano, said in a press release.

“We continuously evaluate opportunities in the capital markets and have confidence that moving to Cboe Canada will provide improved access to liquidity for our investors through its market-making services, as well as through potential inclusion in global benchmarks such as FTSE and MSCI," Archos added. "Additionally, we believe the move to Cboe Canada will position the Company well for a timely transition to a U.S. listing should the industry make further inroads in D.C."

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The SAFE Banking Act is back in focus as senators prepare to take the next step down the long, 10-year path of cannabis federal banking reform. 

Members of the Senate Banking Committee have reportedly reworked key sections of the Secure and Fair Enforcement (SAFE) Banking Act and found a "sweet spot" that allows for a public markup of the proposed bill. More specifically, it appears that pertinent pieces of the act, such as Section 10 and capital markets, are being addressed and the door is open for the bill to leave the committee with a "strong vote."

"[We've] talked extensively about Section 10, and we've made some progress," Democratic Senator Jack Reed of Rhode Island said, as reported by Politico. "I think we've resolved most of the issues we had – and I hope we have so we can get it out of the committee with a strong vote."

As the legalized cannabis marketplace continues to evolve, the federal government must recognize the industry as there are potentially billions of dollars in capital hanging in the balance. With the committee set to vote on the SAFE(R) Banking Act in less than one week, I am eager to see how the path to fully-fledged cannabis federal banking reform looks moving forward.

Banks back cannabis industry at the state level 

While we wait for both congressional bodies to formally approve the Secure and Fair Enforcement Regulation (SAFER) Banking Act, banks, credit unions and other financial institutions are stepping up to the plate to provide services to legalized cannabis companies. 

The Financial Crimes Enforcement Network reports that a record-high 812 financial institutions worked with legalized cannabis companies in the second quarter, a 5% increase from last year. 

Financial institutions in California, Oklahoma, Washington and Michigan are reportedly leading the way with the highest numbers of suspicious activity reports (SARs), a measurement of cannabis-related financial actions, filed by banks. Even states with little to no legalized cannabis activity like Texas and Kansas have also recorded an increased number of SARs.

It is promising to see record levels of banks supporting cannabis businesses, although in very limited capacity. The American Bankers Association and other financial organizations have consistently advocated for cannabis reform on Capitol Hill. 

"It's an important issue – and it's an extremely frustrating one that we haven't been able to resolve it," U.S. Treasury Secretary Janet Yellen said in 2022 about the bill. "We're supportive of it."

As the Senate Banking Committee prepares to vote on the SAFER Banking Act, many within the industry are eager to take the next step on this long, arduous journey toward reform that would allow capital to be infused into the marketplace.

States pave the way for legal weed success

Individual states continue to drive growth within the legal cannabis industry. A dozen states accounted for a combined total of $1.04 billion in sales during August. 

Michigan led the way with its $270.6 million in adult-use sales and an additional $5.6 million in medical sales. The Wolverine State fell approximately $600,000 short of setting the state's monthly record of $276.8 million from July. 

Similarly, Illinois fell approximately $4 million short of setting its yearly high, but still recorded a promising $165.7 million in sales in August. Massachusetts, meanwhile, was able to hit a monthly record-high of $158 million in adult-use and medical sales. 

"Massachusetts continues to hit record sales even as other states have come online," said Shawn Collins, executive director of the Massachusetts Cannabis Control Commission. "Demand for tested, quality cannabis products remains strong in the region, and consumers shopping in other states have not impacted Massachusetts' success."

Other states that contributed to the $1 billion total include Missouri, Maryland and Rhode Island. The collective success can be attributed to several factors, including price stabilization in key markets. Aggregate pricing may be on a downward trend, but that seems more attributable to high-price markets declining rather than those that have already experienced price compression and are seeing stabilization or price improvement. 

Two years of depressed capex has also helped to align the supply-demand imbalances of the previous cycle. Operators continued to become more intelligent about expanding product offerings, such as value brands. All in all, emerging legal cannabis markets are progressing and there is clearly consumer demand with much more to be met in the future.

New York takes steps for adult-use cannabis expansion

Don't call it a comeback yet, but New York's legal cannabis market may storm back after an arguably failed launch. On Tuesday, September 12, the New York State Cannabis Control Board (CCB) approved a resolution that would allow the state's existing medical marijuana dispensaries to transition to adult use quicker than previously expected. 

Initially, the CCB prohibited medical cannabis companies from competing with new adult-use dispensaries for three years. Thanks to a newly approved resolution, existing medical companies could enter the adult-use market within the next year.

"Today marks the most significant expansion of New York's legal cannabis market since legalization, and we've taken a massive step towards reaching our goal of having New Yorkers being able [to] access safer, regulated cannabis across the state," said Chris Alexander, executive director of the Office of Cannabis Management, in the press release. "The regulations finalized today are the result of robust engagement with stakeholders across the State who submitted thousands of comments. This final package truly represents the values of equity and competition that we believe are central to this market."

Broadening access to participation in the state's recreational marijuana market is expected to expedite the process of opening additional dispensaries at a time when there are a limited number of adult-use retailers across the state. 

This is a welcome step as New York is far behind its potential in many ways, including sales, tax and job creation. The industry will continue to watch these steps, and hopefully more, and their ability to unwind the now entrenched illegal and unlicensed participants statewide. 

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The end of August and transition into fall may not only signal a change in seasons, but it can also mark the beginning of change in the nation's capital. Most people were probably at the beach soaking up the final days of summer sun when the Department of Health and Human Services (HHS) sent a letter recommending that cannabis be classified as a Schedule III substance under the Controlled Substances Act (CSA). Arriving at a point in time when few expected it to arrive, the news of a potential reclassification led to positive change for U.S. cannabis stocks. With that said, it is still amusing that media members continue to note Canadian stocks in this discussion when this move directly benefits U.S.-based cannabis professionals and companies.

"Certainly, moving cannabis off of Schedule 1 is the right decision and long overdue," notes Patrick Rea, managing director at Poseidon Asset Management. "Though a full descheduling would be preferred and likely most appropriate for cannabis, we welcome smart decisions and progress towards full legalization and regulation in the legal cannabis industry."

Rea's statements ring true as we continue to dig in and unpack what largely seems like a positive move by the federal government. It will be interesting to see how this move could lead to tangible change in the future.

How cannabis reclassification impacts Section 280E

The Department of Health and Human Services's recommendation to reclassify cannabis as a Schedule III substance has the potential to impact several relevant policies, including Section 280E of the Internal Revenue Code. Under Section 280E, cannabis businesses are forbidden from deducting otherwise ordinary "expenses from gross income associated with the 'trafficking' of Schedule I or II substances." Rescheduling cannabis as a level three substance would allow producers to write off their business expenses. More specifically, it appears that legal cannabis companies could see their effective federal tax rate drop by nearly 50%. This would only change the tax rate on a go-forward basis and companies would have to pursue other means for attempting to reclaim their previous and arguably overpayments. Simply put, this is a big step forward for the viability of cannabis as a legal industry.

"Anytime there's any progress on cannabis in the United States over the last 100 years, it's a big, huge momentous day," said Andrew Freedman, executive director at Coalition for Cannabis Policy.

State taxes, federal taxes and interest from indebtedness have been the two major impediments to free cash flow for most cannabis operators. It is no surprise that Green Thumb Industries, an industry-leading operator, announced a stock buyback days after the HHS announcement. This is one of the potentially many long overdue moments needed to unlock shareholder value for cannabis investors.

Cannabis leaders hold NY officials accountable for lack of progress 

Another week, another opportunity to discuss the fledgling legal cannabis market in New York. The Office of Cannabis Management estimates that 2,000 retail dispensaries are needed to serve the state's legal cannabis market, but the state is on track to open fewer than 100 by the start of the new year. This trend has upset several medical cannabis providers, who have been barred from entering the recreational market, including Curaleaf, Green Thumb Industries, Acreage and PharmaConn. 

"NY's cannabis program is a total failure under Governor Kathy Hochul," a flier designed by Coalition for Access to Regulated and Safe Cannabis reads. "Governor Hochul can fix these issues by opening NY's adult-use cannabis program to the thousands of minority and women business owners, veterans and medical cannabis operators seeking cultivation and dispensary licenses."

It is disappointing to see state leaders fail to maximize the market's potential. Unfortunately, New York is likely going to be known as the state that did one of the worst jobs of building an efficient, robust cannabis market when it has all of the tools to do so. Thankfully, cannabis leaders in the Empire State are becoming more vocal and holding those in public office accountable. These companies have employees and shareholders who will be at risk if the market continues on its current trajectory. Simply put, the state needs to live up to its full potential in regards to legalized cannabis.

Senators hint at movement on SAFE Banking Act

The Department of Health and Human Services (HHS) is not the only group looking to make headlines on Capitol Hill. This week, members of Congress indicated that the SAFE Banking Act would be a priority in the coming weeks. To be specific, Senator Sherrod Brown said that he's spoken to Senator Chuck Schumer and they hope to advance the bill within the next "six weeks." 

“We want to get RECOUP. We want to get SAFE Banking. We already have, in the NDAA, the FEND Off Fentanyl Act. All three of those are my priorities,” Senate Banking Committee Chairman Sherrod Brown said. “We want to do all that in the next six weeks.”

Sitting on the side of minimal optimism, this is not the first time that federal lawmakers have issued the same or similar statements. Will this time be different? Maybe, the HHS recommendation to reschedule cannabis as a Schedule III substance under the Controlled Substance Act (CSA) could provide the cover needed for the bill to advance. Either way, they are far behind the curve as I and others have been saying for a while. Using my best judgment, it's safe to say that something else would have to happen before Congress completes a simple task for the legalized cannabis market. One can only hope that those in Washington, D.C. get the job done and even get capital markets done in the process. A long-time cannabis investing guy can still have hope, right?

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Americans are becoming increasingly comfortable with cannabis use. 

A recent Gallup survey found that adults aged 34 and younger are consuming fewer alcoholic beverages while cannabis use continues to rise. On average, young adults consume nearly two fewer alcoholic beverages per week than young adults one decade earlier. In contrast, cannabis use among adults between 18 and 34 has increased by 11 percentage points in the same period. 

"Young adults' increased use of marijuana in recent years could be a factor in their declining interest in alcohol," Gallup said in its findings. "It's possible young marijuana users smoke it (or use it in other ways) more often than middle-aged users, making marijuana more of a replacement drug for alcohol for them."

As the cannabis plant becomes more normalized, the Drug War era of fear-mongering will end. Sadly, many elected officials are incapable of embracing this long-rolling sea change because they were a part of the Drug War era rhetoric that harmed many for decades. 

While politicians learn the error of their ways, Americans continue to gravitate to cannabis instead of federally legal substances like cigarettes. This is incredibly ironic because people over the age of 18 can purchase cigarettes, while cannabis is viewed as less harmful by American adults.  Hopefully, these changing social attitudes will lead to change on Capitol Hill.

Cannabis earnings season comes to an optimistic end

The second-quarter earnings season has concluded and several cannabis companies are making progress heading into the next one. 

Few companies in the cannabis industry substantially expanded their revenue, but several operators enhanced their cost management and progressively improved their bottom line. 

Those in management are placing a premium on generating positive cash flow as a way to sustain their company's future endeavors. As a result, several public companies have made an effort to strengthen their balance sheets and maximize their operational efficiency. By emphasizing the importance of balance sheets, operational efficiency and profitable growth when possible, public companies are raising their confidence and sowing the seeds for continued fundamental gains. 

The potential for profitable growth and expansion is certainly on the table for several cannabis companies heading into the second half of the year.

New England loves cannabis

Business is booming in several New England markets, including Maine, Massachusetts and Rhode Island. 

Last month, adult-use cannabis sales reached a record $136 million in Massachusetts. During the same period, retailers in Maine recorded a state-best $20.8 million in cannabis sales and Rhode Island retailers sold a record-high $6.8 million worth of adult-use cannabis. Each state is on pace to reach record-high sales by the end of the year. The success of these New England markets is complemented by the early achievements of adult-use markets in Michigan, Maryland and Illinois.

"The adult use side is growing rapidly," said Dr. John Hudak, director of the Maine Office of Cannabis Policy. "New businesses are opening every month for cultivation, manufacturing and retail."

The record-breaking sales documented in several New England states are a positive development after many markets in the region experienced significant price compression limiting the benefits of strong unit growth. As the industry matures and capital remains tight, we are seeing some stronger decision-making around built capacity. A better supply-demand balance with increasing access via retail is a recipe for good profitable growth and a welcome place from Poseidon's point of view.

Successful transitions into cannabis industry remain rare 

While young, the cannabis industry is far from unfamiliar with the practice of large alcohol and tobacco companies attempting to duplicate their success in an emerging market. Some have attempted to gain a foothold in the industry by utilizing their venture arms or balance sheets. To their chagrin, many of these large corporations have made the transition into the cannabis industry with limited success.

When large companies with a proven track record in other industries attempt to transition into the cannabis marketplace, several employ skilled consultants to lead the way. However, many of them lack relevant experience in the cannabis industry that is needed to have success. Other companies also partner with organizations that lack proven track records or necessary knowledge about structures and valuations.

"This is [a] new-to-the-world business," said Stephen P. Kaufman, senior lecturer of business administration at the Harvard Business School. "There [are] unknowns. But the unknowns [are] unknowns – they [are] unknowable. You need to have a theory, rather than to look for data. And this is much tougher than what we often see major companies getting into startup-type markets because they're entering a market that a startup has already proven exists. This is a place where no market exists."

We note these issues, not to point out their flaws, but to highlight how their capital can be utilized more efficiently. Capital can be used to drive federal and states forward, so they can avoid blaming the industry for previous lackluster outcomes.

It would also be very interesting to see strategic capital participate in new ways, such as more of a private equity approach. There is plenty to unpack in that suggestion and we hope to discuss this topic further in future discussions. Cannabis is still in its infancy and there is tremendous opportunity ahead. 

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A federally funded study has highlighted one of the many benefits cannabis provides. From December 2019 through November 2021, researchers at the British Columbia Centre on Substance Use and the University of California, Los Angeles surveyed 205 people who used cannabis and opioids without a prescription. Through their survey, researchers learned that nearly 60% of respondents used cannabis to reduce opioid cravings. Further analysis showed that the cannabis use of those surveyed "was significantly associated with self-reported reductions" in opioid use.

"Increasing the accessibility of cannabis products for therapeutic use may be a useful supplementary strategy to mitigate exposure to unregulated opioids and associated harm during the ongoing drug toxicity crisis," the authors of the study wrote.

As the longest-running dedicated cannabis investment firm, Poseidon has had the opportunity of working with many companies and a broad range of investors in our funds. We learned years ago that cannabis was a largely unavailable but highly sought after-exit drug for addiction clinics. It is great to see federal studies confirming these benefits, especially with the years-long opioid epidemic that continues to wreak havoc on communities nationwide. This study also arrives as work is being done around the potential rescheduling of cannabis from Schedule 1 under the Control Substances Act, which is long overdue.

The Baked Big Apple: Study Crowns New York City as Cannabis Consumption Capital

It is best to examine the health of the cannabis industry at the state level. In Missouri, the commencement of adult-use sales has led to great success for the state's overall cannabis industry. Similarly, the adult-use market in Maryland is experiencing great success after launching in July. However, there is one state that has not experienced the success that many had hoped it would, and that is New York. The Empire State's lack of early success in the adult-use market could be attributed to decisions by public officials thus far. Despite this, there are still reasons to believe that New York will eventually be one of the largest legal cannabis markets in the U.S. Among those reasons for optimism in New York is the love many of its residents have for cannabis.

The 2023 Cannabis Global Price Index has crowned the Big Apple as the cannabis consumption capital of the world. New York City residents consume an average of 62.3 metric tons of weed combined every year. In comparison, residents of Sydney, which finished in second, consume 45.8 metric tons of cannabis each year. For those of us that have lived in New York, this is not a surprise. The city's relaxed attitude regarding cannabis consumption coupled with its population density make it a prime destination for those who love the plant and want the industry to thrive in the Empire State. And as Buffalo, N.Y. natives, we are rooting for the good people of New York as we still do for the Buffalo Bills — our day will come!

Experts Say Maryland Adult-Use Market Could Grow to $1 Billion

There is plenty to unpack as many public cannabis companies move into the thick of the second-quarter earnings season. The industry is diverging from the few that are showing better capital allocation, cost controls and governance. However, there is a clear, bright spot in Maryland, as noted in some of the initial earnings calls so far.

On July 1, residents and visitors across Maryland filed into dispensaries as the state's adult-use market launched. In a matter of weeks, cannabis sales skyrocketed from $42.7 million in June to $87.4 million in July. Retail store operators in Maryland are noting a 200% or more increase in sales volumes from the run rate of the medical market. As access to and awareness of the adult-use market improves, it is poised to cross the $1 billion market.

"We're excited, we're optimistic," Andrew Garrison of the Maryland Cannabis Administration said about the future of the state's adult-use market. "We're going to keep working with the industry to make sure that they're going to meet the demand and are doing so responsibly."

MasterCard Moves Away from Cannabis Industry

The legal cannabis industry has received another painful reminder that Capitol Hill is far behind in its recognition of the industry. Without federal reform, cannabis is susceptible to elevated volatility from insurance firms, financial institutions and beyond. For example, Mastercard (MA) has instructed U.S. financial institutions this week to stop allowing purchases of cannabis on its debit cards.

"In accordance with our policies, we instructed the financial institutions that offer payments services to cannabis merchants and connects them to Mastercard to terminate the activity," a spokesperson for MasterCard said.

Unfortunately, this creates an elevated risk for retail operators across the country. The absence of debit transactions forces retailers to pivot to cash transactions, which makes them more susceptible to robberies. 

"It makes absolutely no sense that legal businesses are being forced to operate entirely in cash, and it's dangerous — and sometimes even fatal — for employees behind the register," Washington Senator Patty Murray said.

Medical cannabis use is legal in 38 states, three territories and the District of Columbia. Adult-use cannabis is legal in 23 states, two territories and the District of Columbia. As the industry continues to grow, national sales could exceed $57 billion annually by 2030. With an industry this widespread, federal officials can't claim ignorance. Federal reform is needed now more than ever to legalize cannabis banking.

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Progress in the legal cannabis industry can materialize in a variety of ways. Sometimes, progress is achieved through several small victories. In other instances, progress is achieved through a singular, large-scale advancement. Recently, TerrAscend (TSNDF) became one public company that has taken both routes to achieve success.

Throughout the last year, TerrAscend has taken steps to improve its operational and structural capabilities. More recently, TerrAscend became the first U.S. plant-touching cannabis company to be officially listed on a Tier-1 exchange on the Toronto Stock Exchange (TSX).

"Today is an incredible day for TerrAscend and our stakeholders," said Jason Wild, executive chairman of TerrAscend, in the company's press release. "We believe our TSX listing will provide the Company greater access to a broader group of institutional and retail investors looking for attractive opportunities in the cannabis space."

The marijuana stock has only been trading on the TSX for a few weeks, but we are starting to see the value of this move as they are gaining more institutional and retail access than their cohort. 

TerrAscend, like any other TSX-listed security, can be traded through Morgan Stanley investor platforms. Uplisting to a Tier-1 stock exchange can also provide better access to capital, improved credibility and greater liquidity. Increasing liquidity for publicly traded multi-state operators is needed now more than ever within this evolving industry. With this achievement, TerrAscend is certainly leading the way with increasing access.

Label shopping could be coming to an end

The legal cannabis industry has balanced the actions of good and bad actors throughout the last decade. Good actors work hard to establish a legitimate, accountable infrastructure that customers and regulators can trust. Meanwhile, bad actors within the illicit market often claim to be operating legally while engaging in nefarious practices. Positive figures within the legal cannabis industry have overcome several challenges, but there is still plenty of work to do in markets around the country, including California.

Labeling fraud in the form of inflated THC numbers has been an issue within the cannabis market for years. California law firm Dovel & Luner has undertaken six cases that challenge the bad actors who engage in this activity and earned a significant victory on a demurrer motion in June. A judge ruled that the makers of a popular product line couldn't solely place the blame of a label with inaccurate THC percentages on the testing lab.

"Defendants are not immune from liability simply because they parroted third-party misrepresentations," the judge in the case wrote.

This recent decision could also impact another long-term issue within the industry – label shopping. The practice of label shopping consists of brands dependent on high-THC numbers bouncing from testing lab to testing lab in hopes of getting the highest THC results. 

Label shopping is reminiscent of the "rating shops" that contributed to the Great Financial Crisis in many ways. The rating agencies received payments to provide ratings on bonds and became less inclined to rate low-quality bonds accurately in fear of losing future revenue. Testing labs are behaving similarly in this instance – post higher THC results to get more business. Thankfully, it seems that the label shopping game may finally be coming to an end.

It will take time to work this issue out entirely, but this is a step in the right direction for good actors across the industry. At Poseidon, we have tried to bolster the good as partners and capital providers and will continue to do so.

U.S. cannabis wholesale prices stabilize

Another form of progress for the cannabis industry is the rationalization of supply, or rather, farmers reacting to wholesale pricing for capacity planning of their crops. Now, overproduction and surplus has been a key theme for agriculture, even specialty crops like grapes, for at least a century, but the emergence of data in the 21st century has generally muted the peaks and troughs. 

Cannabis would be inevitably predisposed to the same temptations of margin capture as our row crop farmers due the allure of high prices, unknown addressable markets and limited datasets to monitor supply from peers. As a result, almost every adult-use market has seen meaningful wholesale price declines due to overproduction. 

Due to capital scarcity and troughing spot prices, we believe there may be an end in sight. A recent report from wholesale pricing data firm Cannabis Benchmarks reflects a country-wide stabilization for pricing, with forecasts for 2023 pricing 5.7% higher than the year prior. 

This is a theme that we at Poseidon monitor closely because of the impact it has on every business in the industry. By leveraging state regulatory data, we have found similar insights. 

For instance, in Michigan, the second largest cannabis market in the country by sales, crop capacity has slowed to merely 15% the growth rate of the past two-year average. This has caused utilization, or plants being grown relative to the maximum potential allowed, to be 10% higher than the same period in the past two-year average. 

The state is on track to hit new highs in utilization this summer, and this has resulted in a stabilization of prices for the top three product categories, a trend that hasn't occurred since the program started in 2019. Most importantly, the volume of purchases by consumers have continued to grow, and sales are up 34% year-to-date.

In California, the largest market in the country, crop capacity is down 21% year-to-date, according to Mike Regan at Excelsior Equities, and spot prices are up 20%, according to Cannabis Benchmarks.

Near term, prices should continue to fade as the new capacity across many markets adds incremental supply, but because of the slowed rate of additional capacity, this decline will be at a lower magnitude than the industry has seen in past years.

Longer term, capital expenditures are a promising indicator of sustained price stability. The 10 largest publicly traded cannabis operators have guided to decrease spending 53.6% year-over-year in 2023, after a 21.5% decline in 2022. In the private markets, interest in funding new capacity is even lower, so while not an immediate event, stabilization of prices across the cannabis market is coming. 

GOP lawmakers weigh in on banning

We are not believers in banning over a path of regulation and tax when it comes to matters such as cannabis. Anyone looking objectively and not with a stigma agrees that the war on drugs has been a complete failure, destroying lives and wasting incredible amounts of time and resources. 

Politics certainly come into play here, especially when we have a very aged demographic of elected officials. And we understand that not everyone has to be a supporter of legalizing cannabis, but the better politicians separate their bias from representing the will of the people. We see how politicians will contradict themselves in certain pursuits that may open other doors that they didn't intend to open. 

We thought it was amazing this week when several Republican senators noted that banning, as it relates to nicotine products, has perverse impacts. Further, there was recognition that legalizing cannabis has been a productive path to reducing cartel activity. 

So if banning doesn't work, and legalization has been a benefit to society by reducing illegal market activity, then what is the hold up on federal reform around cannabis? We have been hearing a lot of posturing and grandstanding over the last ten years with no federal progress. The American people deserve better.

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Marking another setback for the marijuana industry, Mastercard recently sent cease-and-desist letters to banks and payments processors that assisted in the purchase of legal cannabis.

In the letters, the credit card giant told the recipients to suspend accepting marijuana transactions using PIN debit cards on its network, according to a July 26 Bloomberg report.

"As we were made aware of this matter, we quickly investigated it," a Mastercard spokesperson told Kiplinger in a statement. In accordance with its policies, the company instructed the financial institutions that offer payments services to cannabis merchants and connects them to Mastercard to terminate the activity, he said.

"Our rules require our customers to conduct lawful activity where they are licensed to use our brands. The federal government considers cannabis sales illegal, so these purchases are not allowed on our systems," the spokesperson added.

For an already-struggling cannabis industry, this latest move leaves customers scrambling for additional purchasing options. Cannabis transactions are usually carried out with debit cards or cash.

Although medical and recreational marijuana is legal in 38 states, retailers often find themselves left out of standard banking and payments processing systems because pot remains illegal at the federal level, according to MarketWatch.

“Mastercard’s move is another blow to the payments industry and cannabis operators nationwide,” Justin Kahn, CEO and co-founder of Reepher, told Kiplinger.

Many operators have been caught off guard

“Its actions and the subsequent actions taken by the payments providers that serve the cannabis industry have caught many operators off guard. Operators have had their funds frozen and services turned off. It’s just another nail in the coffin of cannabis payments,” said Kahn, whose company offers the first behavior-based product with insurance coverage.

The American Trade Association for Cannabis and Hemp as well as cannabis trade groups in 16 states and Washington, D.C. recently lobbied Senate leaders to pass the Secure and Fair Enforcement (SAFE) Banking Act.

The legislation, which was reintroduced in the House and Senate last April by a group of bipartisan lawmakers, is unlikely to move out of committee before Congress breaks for its August recess. It aims to enable cannabis businesses to access banking services by circumventing cash-only transactions that can expose businesses to public safety concerns, including robberies.

Meanwhile, the 17th annual Benzinga Cannabis Capital Conference  take place on September 27-28 in Chicago. Among the featured speakers this year are J.B. Pritzker, governor of Illinois, and Albert Bryan Jr., governor of the U.S. Virgin Islands.

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The SAFE Banking Act, a bill designed to allow cannabis businesses to operate legally without fear of punishment by federal regulators, was introduced in 2013.

Not a single state had legalized adult-use cannabis 10 years ago. However, a few intelligent members of Congress were able to see the writing on the wall. Those with foresight understood that legalization efforts would soon result in individual states running their own recreational cannabis markets and federal oversight would be needed in some form or fashion. Unfortunately, politicians do not always act in a unified or timely manner. 

There appeared to be a bipartisan effort in the Senate to progress the SAFE Banking Act not long ago, but that joint effort has gone the way of the shifting winds in Washington, D.C. The bill is seemingly struggling to keep up with the shifting demands of certain people for no other reason than politics.

"The 10-year anniversary of the first introduction of the SAFE Banking Act is an inauspicious one," NORML Political Director Morgan Fox said, as reported by Marijuana Moment. "It is frustrating that after such a long time – and after this narrowly-tailored commonsense reform has been repeatedly approved in the people's chamber – its forward movement in the Senate remains in question."

Poseidon is also celebrating its 10th anniversary, so we have been front and center of this incredibly challenging political theater. Despite the lack of progress made on Capitol Hill, we continue the mantra of heads down, working with companies to build and navigate these dynamics, and following where there is action happening at the state level.

DEA takes two steps back with tweet 

Three yards and a cloud of dust – a phrase often used to describe an offensive scheme in American football, but it's also reflective of our current journey to federal cannabis legalization in the U.S. This phrase feels fitting for an industry that has been gritty, hard-nosed and willing to kick up all kinds of dust to move the legalization effort forward. Despite these efforts, there are moments in which we're reminded of how far we still have to travel to achieve our ultimate goal.

The U.S. Drug Enforcement Administration (DEA) Twitter account recently shared an article with a subheading that reads, "Don't let boredom be one of the reasons you try drugs. Try these fun activities and get a natural high!" 

Among other things, the article advised readers to "play video games" or "take Instagram more seriously." We were shocked and disgusted by the agency's decision to share this article. It completely put us on our heels because this commentary is absurd and unsupported by science. This kind of rhetoric is unacceptable and we expect far greater from this country. 

Pennsylvania moves one step closer to adult-use marijuana

States in this country continue to drive forward despite what the DEA shares via social media. For example, lawmakers in Pennsylvania are committed to meeting the needs of voters, including implementing cannabis initiatives. Politicians from both sides of the aisle joined together to file Senate Bill 846, an act that moves the state one step closer to adult-use legalization

"Legalized adult use of marijuana is supported by an overwhelming majority of Pennsylvanians and this legislation accomplishes that while also ensuring safety and social equity," Pennsylvania Senator Dan Laughlin (R) said in a statement.

Pennsylvania recognizes the pressure to legalize adult-use cannabis after New York and New Jersey took similar action. At first pass, this bill appears to be easy to follow from a regulatory and tax point of view and that is a welcome starting point. 

Maryland's recreational weed market is off to a fast start

Maryland is the latest state to commence adult-use sales. The state's established medical market was prepared with plenty of supply and many medical doors ready to welcome adult-use customers via a dual license. Sales are off to a good start, hitting almost $21 million in the first week. 

"We often see an uptick in demand following the initial launch of adult-use sales, and with sales in Maryland predicted to reach $1 billion by 2025, there is a significant opportunity for cannabis businesses and the overall economy to benefit," Verano President Darren Weiss said.

In addition, the state has launched a low-interest-rate loan program of $40 million eligible for social equity applicants. The first round of qualified applicants will receive their financial awards by Aug. 1 and another round of applicants can apply until September. It is great to see a state that is moving swiftly in the right direction and not bogged down in bureaucratic complexities. Keep up the good work Maryland!

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There is a concerted effort in the Senate to pass the SAFE Banking Act. The bipartisan bill, also known as the Secure and Fair Enforcement Bank, is expected to be reviewed next month when the Senate resumes following the Independence Day recess. 

Senator Steve Daines (R-Montana) says that now is the "best" time to pass the bill and Senate Majority Leader Chuck Schumer (D-New York) says he is "confident" that it will be approved. 

Observers are also under the impression that the SAFE Banking Act can pass through the Senate, but question if Democratic lawmakers might expand the bill to include measures Republicans oppose.

"Leader Schumer has been working hard and effectively to assure that we have a SAFE Banking bill and not something beyond that," Senator Steve Daines said, as reported by Politico.

This is democracy at work. Recognition at the federal level through passage of the SAFE Banking Act is a meaningful step for an industry that has been screaming to be treated no worse than other sectors of the U.S. economy.

TerrAscend makes major strides with M&A, TSX listing

The first half of 2023 was pivotal for the legalized cannabis industry in the U.S. We remained cautious over this time frame because there were various concerns such as wholesale price compression, slowing growth, poor investor sentiment and rising defaults following a loose debt cycle. 

Investors are also learning that debt in cannabis does not necessarily translate to downside protection. We also watched public markets experience continued pressure as custody declined further and sentiment remained poor. It is easy to be a bear after a prolonged period of capital market tightness, significant stock price declines, companies going out of business and a lack of federal progress. With the first half of the year behind us, we are starting to see the opposite and remember what it was like to be bullish.

Companies are excited for the second half of 2023 and are taking action within their businesses. We saw capital raises return late in the second quarter, including equity and equity-like instruments. These raises are modest for the most part as investors are dipping their toes in the equity waters of the industry, but some companies are enjoying notable victories. 

TerrAscend (TRSSF) is the clear winner of the 1H23 Hussle award. It has raised capital, expanded its retail footprint in Maryland with the acquisition of Blue Ridge Wellness, and the marijuana stock has met the requirements to list its common shares on the Toronto Stock Exchange (TSX).

"We have an exciting future ahead of us and can't wait to share the TerrAscend story with the larger audience of participants that this listing brings," Jason Wild, executive chairman at TerrAscend, said in a statement.

Action is winning as they are commanding an above-market valuation in an industry that is otherwise very lowly valued. Congrats to the team there!

States seek to launch adult-use markets, implement tax relief

Companies are not the only ones taking action. States are also making meaningful progress by implementing tax relief policies and launching adult-use markets. Legislators in New York, New Jersey and Pennsylvania have passed legislation allowing cannabis companies to deduct business expenses from their state income taxes. This is a major step in the right direction while we wait for the federal government to follow suit. 

"There's been a wake-up call in the last couple of years as it's become clear in California and some other states that because of the myriad of issues that are largely due to federal prohibition, and in some cases over taxation and overregulation, that it can actually be really challenging for cannabis businesses – even well-capitalized ones – to be profitable at all," Karen O'Keefe, director of state policies at the Marijuana Policy Project, told MJBizDaily.

Meanwhile, legalization efforts in Maryland have the Old Line State set to open its doors as an adult-use market on July 1. Maryland's opening is expected to be a very strong one and lead to a multiple of its medical marijuana revenues per door, similar to Missouri, Illinois and New Jersey. There is plenty of supply already in the market, so we expect minimal near-term supply-demand imbalances, a good thing for a robust opening.

Most cannabis companies struggling to turn a profit

The journey to success has been challenging for many companies in the cannabis industry. Fewer than 25% of U.S. cannabis businesses have been able to turn a profit, according to Whitney Economics. 

"By conducting this survey, Whitney Economics strives to bridge the gap between the theories of business economics and the daily lives of operators within the cannabis industry," Beau Whitney, founder of Whitney Economics, said in a press release.

The challenges presented to many operators will continue to exist until federal recognition and tax policy changes are made, and especially so for those groups exhibiting poor capital allocation and cost controls. If these changes are not made, large companies will likely make an increased effort to acquire small, struggling companies. 

Large operators continue to enhance their operations and make strategic acquisitions that will strengthen their footprints in specific markets. Operators are also establishing relationships with smaller peers regarding supply agreements and shelf space. These moves will likely increase in frequency, which will help to accelerate the movement of money. 

As we head into the second half of the year, remember this old Wall Street saying  –  bull markets climb a wall of worry; bear markets slide down a slope of hope. Let's see if the bull can get back on the field for the second half of this year.

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Connecticut's legal adult-use cannabis market may be young, but it is already experiencing great success. In May, adult-use recreational marijuana sales eclipsed medical sales for the first time in state history. This is a great milestone for the people of Connecticut and it is a great sign of what could happen in the foreseeable future.

We were recently in Connecticut and see substantial growth potential there given the limited amount of legal dispensaries open. Those that are open are seeing healthy growth as noted in recent quarterly earnings calls from public companies with exposure to the state.

Connecticut is committed to supporting the growth of its legal cannabis industry. The state recognizes the unjust federal tax rate for cannabis, known as tax code 280e. Governor Ned Lamont recently signed legislation allowing operators to take deductions at the state level that are prohibited at the federal level. 

"I am fully aware that this makes Connecticut an outlier among the states in this current political climate and I don't take that for granted," Governor Lamont said earlier this month when signing the state's new budget legislation into law. "By working together collaboratively, we are making Connecticut stronger and adopting policies that benefit the people who live here."

Illinois signs cannabis tax deductions legislation

Ned Lamont is not the only governor to enact beneficial tax policy changes for cannabis businesses. This week, Governor J.B. Pritzker of Illinois approved legislation that allows licensed cannabis businesses to utilize state tax deductions. Newly enacted provisions allow cannabis company business deductions for "an amount equal to the deductions that were disallowed under Section 280e of the Internal Revenue Code for the taxable year."

"Signed, sealed [and] delivered," the governor tweeted shortly after the bill was signed into law.

Connecticut and Illinois join several other states by taking this meaningful step in the right direction. States are recognizing that high taxes do not mean more revenue. In fact, high taxes are actually worse as it creates an unfair advantage for the illicit and alternative cannabinoid markets. 

The cannabis industry is not asking for special treatment in comparison to other American industries. We are simply asking to be treated the same as our peers and we are thankful for the states that share that mindset.

States punish bad-actor cannabis companies

The legalization cannabis industry has been volatile since Colorado launched adult-use sales in 2014. Since then, the industry has witnessed cycles of extreme investor euphoria and despair. 

Equity markets have also largely dried up and many companies have pivoted to leveraging their balance sheets. This recent shift within the cannabis industry has materialized in debt, real estate leasebacks, vendor financing, tax accruals and much more. Many of these shifts can be tied back to the federal tax rate born on the industry and states and municipalities with overly burdensome tax rates. Operators have also struggled with a whipsaw of wholesale pricing of cannabis because initially high prices collapsed faster than most pro forma plans expected. 

With all these challenges, some companies have slowly realized that their best option would be to shutter growth and survive by improving cash flow. Unfortunately, many cannabis companies have been unable or unwilling to explore this option. As a result, these bad actors are unable to pay their counterparts or taxes. 

California has dealt with this ongoing issue, but the lack of federal tax reform and continued tight capital markets have allowed this issue to spread into new territory. States have responded by recognizing the industry's immaturity and are seeking to implement similar laws used in other industries, like alcohol, that went through similar cycles. 

"Businesses that are working to comply with regulatory systems face a tremendous squeeze," said Chris Lindsey, director of state advocacy and public policy of the American Trade Association of Cannabis and Hemp, according to MJBizDaily. "Our public policy needs work because there is too much of a burden on struggling businesses who want to be compliant."

It is not a positive reflection of our industry that companies are behaving in this manner and it may deter investors' willingness to underwrite this business. We believe that denying licenses to those that are behaving in this manner will improve the industry. We also believe that bad actors should not be licensed to operate and should get out of the way of those that want to shepherd forward a legal and credible cannabis industry.

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The Drug Enforcement Agency (DEA) is taking a regressive approach toward delta-8 THC, CBD and other alternative cannabinoids derived from hemp. 

The federal agency is reportedly planning to propose a ban on these cannabinoids, which runs contradictory to the idea of legalization. 

Those in support of this potential ban argue that delta-8 THC and other hemp-derived cannabinoids are created through "chemical synthesis" and should be classified as controlled substances. While we agree that an unregulated market is harmful, we also strongly believe that a ban would be a major step in the wrong direction. 

"If the DEA attempts to schedule delta-8 THC and other THC isomers derived from hemp as 'synthetic THC,' then it will be blatantly violating the 2018 Farm Bill, which specifically includes 'derivatives' of hemp within the broad exemption included in the definition of 'hemp,'" cannabis, hemp and CBD business attorney Rod Kight told MJBizDaily.

"A 'derivative' is, by definition, a synthesized compound," Kight added.

Consumers should have the choice to buy legal, tested products from licensed businesses. We urge the DEA to consider a modern approach that creates a safer marketplace that puts the power of choice in the hands of consumers. It would not be surprising to see consumers gravitate toward cannabis products instead of hemp products, but we should not be stifling innovation that could benefit the legal consumer.

Minnesota latest state to legalize recreational weed

Congratulations to Minnesota as it becomes the 23rd state to legalize adult-use cannabis! The journey to this momentous occasion was no simple feat and we are pleasantly surprised with their efforts to keep things moving throughout the process.

"The majority of Minnesota voters support repealing marijuana prohibition and replacing this failed policy with legalization and regulation," said Paul Armentano, deputy director of NORML, after the bill passed.

"Passage of this legislation is the result of years of grassroots activism by consumers and stakeholders, including Minnesota NORML," Armentano said, adding that the impetus for the formation of Minnesota NORML was based upon a police raid and resulting marijuana arrest. These sort of destructive actions are now poised to come to an end in Minnesota."

By legalizing adult-use cannabis, Minnesota finds itself in an interesting position as it is one of the only states in the region to do so. One of the many benefits of letting states choose to legalize recreational cannabis is its ability to create competitive dynamics between bordering states, such as competitive tax policies. For example, Wisconsin Senator Melissa Agard is recognizing the sea of change as she continues to work toward legalization. 

Minnesota has more work to do before legal sales commence, but the clock has started and we look forward to the swift launch of its regulatory market.

Tax relief could be coming for Illinois cannabis companies

Change could be coming to the legalized cannabis industry in Illinois. In recent years, licensed dispensaries in the state have not only been subject to high state taxes, but also the federal government's punitive 280e tax. Minnesota has also seemingly drawn millions of dollars out of the state by employing low taxes for licensed businesses. 

Illinois lawmakers have finally recognized that high taxes are not conducive to building a thriving, competitive legal industry. State legislators in both chambers recently approved H.B. 3817, a bill that provides tax relief for state-licensed cannabis businesses. The bill "amends the Cannabis Regulation and Tax Act" and "makes changes in provisions concerning conditional adult use dispensing organization licenses."

Illinois, like New Jersey and many other states, is recognizing that creating a deduction can be meaningful for the viability of cannabis operators. As H.B. 3817 leaves the hands of the Illinois House and Senate, we will be watching to see how Governor J. B. Pritzker responds. He has been positive in his approach toward the legalized cannabis industry and a shift within the state's tax policy could be effective.

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Nearly 90 years after the anti-drug propaganda film Reefer Madness peddled unintentionally hilarious warnings about the perils of pot, marijuana is becoming accepted and legal across the U.S. and increasingly popular among older adults. 

When today’s retirees were teens, their elders didn’t approve of pot. Now, however, it’s the oldsters themselves whose physicians prescribe weed to treat chronic pain, to ease the side effects of cancer chemotherapy, even to deal with Alzheimer’s symptoms. 

More than two-thirds of Americans support legalizing marijuana, according to Gallup, and 21 states, along with the District of Columbia, have legalized recreational use. 

A lot about marijuana has changed in the last 50 years, culturally, legally, chemically, technologically and financially. Where folks used to have a couple of well-hidden plants growing in the backyard, there’s now a multi-billion-dollar agricultural industry. And the old $25 one-ounce plastic bag “lid” is now an exotic cannabis cultivar selling for more than $500 an ounce. 

Here’s what you need to know: 

1. Older adults are the fastest-growing user group for cannabis 

Firm numbers are hard to come by, but about 12.8 million people age 50 and older reported using marijuana in the past year, according to the 2021 National Survey on Drug Use and Health, published by the Department of Health & Human Services. A 2018 survey reported in JAMA Internal Medicine (Journal of the American Medical Association) found a 75% jump in usage by seniors over a three-year period. 

2. Marijuana is a growing business 

Cannabiz Team Worldwide, which provides staffing for cannabis jobs and helps people find work in the industry, says that cannabis is the fastest-growing industry in the U.S., with 428,059 full-time jobs across the country. If you want to pursue employment in this ever-evolving market, research your state’s laws. 

There may be local networking events where people interested in the industry can connect. New York City, for example, is hosting the three-day Cannabis World Congress & Business Exposition, a trade show,  in June. 

3. You can invest in it

The cannabis industry is relatively healthy, despite lackluster investment returns over the past five years. MJBizDaily, a business news source for the cannabis industry, estimates cannabis sales in 2022 at $38.8 billion, a 43.7% increase over 2021. The economic impact is expected to increase even more, to $53 billion by 2026. 

You can even buy stocks of companies in the industry — including blue-chip names such as Altria and Scotts Miracle-Gro. Kiplinger.com regularly publishes a “This Week in Cannabis Investing” feature.

4. Pot appears to help with some medical conditions 

Retirees suffering from numerous ailments are looking for ways to mitigate pain. A study published by Science Daily, a research news site, says older adults reported less chronic pain when using marijuana and less need for opioid painkillers. Most older people are more interested in CBD (cannabidiol) used for pain relief and seizure reduction than in THC (delta-9-tetrahydrocannabinol), the ingredient that actually gets someone high, according to a study published in 2022 in Psychopharmacology. 

More research is needed on whether cannabis is the best alternative to prescription drugs, says Benjamin Han, a geriatrician at the University of California San Diego School of Medicine. “I have had older patients tell me that they find cannabis useful for symptoms related to neuropathy and neuropathic pain as well as symptoms related to post-traumatic stress,” he says.

5. This ain’t your ’70s reefer 

Cannabis is much more potent than it used to be. Modern marijuana has three times as much THC as it did 25 years ago, according to a study published by the National Library of Medicine. The introduction of hydroponic farms in the 1980s and 1990s allowed growers to produce stronger, more potent products, which led to higher levels of THC. 

Medical marijuana users can select from a variety of high-potency strains with various concentrations of terpene, essential plant oils for aroma, and cannabinoids, the chemicals that can treat pain. Recreational users have a veritable candy store assortment of THC-infused products. The merchandise for sale at San Francisco’s upscale Apothecarium dispensary range from fruit-flavored edibles with names like “Camino Sours Sleep Blackberry Dream Gummies” to THC cartridges for vaping to packs of pre-rolled reefers.  

6. There’s a lot of gray between legal and illegal

While 21 states have made marijuana possession fully legal, the devil is in the details. Wide-open California is okay with you holding one ounce or having six plants in your backyard, while Michigan’s limits are 2.5 ounces and 12 plants. Pot is decriminalized in Atlanta, but possession of an ounce elsewhere in Georgia could land you up to 12 months in jail. Montana is pretty much anything goes, but neighboring Idaho can throw the book at you — up to five years in jail — if you’re holding more than three ounces. 

Meanwhile, the feds are on the fence. Marijuana is still a controlled substance, just like cocaine or heroin, but the government won’t prosecute people for possessing small amounts. And in October, President Biden pardoned federal convictions for simple marijuana possession offenses. 

7. Employers have their own rules 

Even if marijuana is legal in your state, your boss may have another idea. You may never have had to undergo a pre-employment drug test, but if you are going back into the job market today you should know that many employers screen for marijuana and other drugs. But change is coming. More employers are treating marijuana use much like alcohol use, and some states are limiting pre-employment marijuana testing. 

That said, workplace safety remains a high priority — especially if the job involves vehicles or heavy machinery. Not surprisingly, airline pilots and school bus drivers are tested for pot use. Potential Walmart employees “may be drug screened as part of the post-offer hiring process or prior to accepting certain positions,” and otherwise marijuana-friendly Amazon maintains a “zero tolerance for impairment while working.” 

8. There are risks that come with that high 

A UC San Diego study found a 1,808% increase in cannabis-related trips to emergency rooms between 2005 and 2019. The study noted that older adults — already at a higher risk of having adverse health effects from all psychoactive substances — are especially vulnerable. 

Cannabis can slow reaction time and impair attention, so its use can lead to more falls. It can also increase the risk of delirium and paranoia, exacerbate cardiovascular and pulmonary disease and may interact with prescription drugs. A French study found that drivers under the influence of marijuana were 1.65 times more likely to cause fatal crashes. 

9. You can become a pot addict 

The Substance Abuse and Mental Health Services Administration says people can and do become addicted to marijuana, due to its much higher potency today. People who seek treatment for marijuana use disorder typically use it every day and have done so for 10 or more years. Treating it with medications and behavioral therapies may help reduce marijuana use. Marijuana Anonymous is a 12-step program for pot addicts.

10. But friends can still get together 

One thing that hasn’t changed is marijuana’s attraction as a social drug. For older adults, this means clubs are forming in senior living facilities across the country, reports CNBS, an online cannabis guide. The Rossmoor Medical Marijuana Education and Support Club in Walnut Creek, Calif., for example, has more than 1,000 participants. 

Big cities sport dozens of cannabis-focused social clubs and networking groups. There are “Puff, Pass n Paint'' cannabis-themed art classes in at least eight cities. And Denver hosts the International Church of Cannabis. Of course, who needs an organized group? For those who partake, good friends, music and pot go together like, well, Lennon and McCartney. 

Note: This item first appeared in Kiplinger’s Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

As investors in cannabis, Poseidon has a rich history of hitting the road and applying a boots-on-the-ground approach. We enjoy meeting with people, seeing local market dynamics, and investigating new opportunities. 

This week's trip to Washington, D.C. proved to be highly informative and productive as we met with various trade groups and senators. It's been too long since we last visited the U.S. Capitol, and the progress we witnessed is encouraging. 

While the cannabis industry clamors for change, it's important to recognize that the pace of change in D.C. differs significantly from that of private industry or public perception. Nonetheless, we are delighted to see national-level groups acknowledging cannabis and the dichotomies we currently face.

Let's delve into a few key highlights from our meetings:

• As we've previously covered, the historic Senate hearing on the SAFE Banking Act was met with positive sentiment from several senators we spoke with, including those who participated in the hearing.
• While frustration lingers over the events of last year, members of Congress note that significant progress was made in late 2022 and has continued into 2023. We extend our gratitude to Republican Senator Steve Daines from Montana, in particular, for his dedicated efforts on this initiative.
• Notably, this is the first time the Senate is proceeding with a regular order on banking reform, instilling confidence among Senators that a floor vote will take place. 
• While legislative action always carries risks, the industry acknowledges the importance of keeping the bill focused and avoiding unnecessary complications. Both parties seem to lend support to this approach, leaving room for negotiations. 
• Trade groups have identified SAFE Banking as their top priority in 2023 and are actively working to build more support, highlighting the industry's commitment to progress.
• SAFE Banking is more than a cannabis reform initiative; it is a public safety and small business initiative. As more states legalize, Senators are seeing the need for reform as it impacts constituents in their own states.
• American Bankers Association (ABA) CEO Rob Nichols is collaborating closely with Senator Daines to help inform and educate Republicans and Democrats about the practical reasons to support the SAFE Banking Act. Although the regional banking crisis and debt ceiling have absorbed the ABA's attention, SAFE remains a significant focus for them.
• Senator Daines is resolute in his dedication to ensure the success of the SAFE Banking Act. The alignment surrounding this issue allows it to progress through the Senate in regular order, a noteworthy feat in today's political climate.
• Insiders agree that there is no strong formal opposition to SAFE, and any dissenting voices are primarily from individuals who simply oppose anything related to cannabis. Rather than investing efforts in changing their stubborn views, we will focus on building sufficient support.
• The key to success will be garnering sufficient Republican backing and avoiding an overloaded bill. Senate Majority Leader Chuck Schumer hopefully understands the need to refrain from loading the legislation with unpopular features, avoiding a repeat of past missteps.

As we move forward, we will closely monitor developments over the next 60-90 days, particularly as attention shifts back to the SAFE Banking Act following the debt ceiling talks. 

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Support for more equitable regulations on cannabis banking, including those found in the SAFE Banking Act, continues to come from the American Bankers Association (ABA) and it has been much appreciated by the cannabis industry. 

Discussion on the SAFE Banking Act began Thursday in the Senate Banking Committee, and the ABA sent a letter to congressional leadership to voice strong support for cannabis banking reform.  

"The SAFE Banking Act is an urgently needed, and widely supported, bipartisan solution that will allow banks to handle not only the proceeds from both state-licensed cannabis businesses and the ancillary businesses – accountants, skilled trades, landlords, law firms, and other service providers – those businesses rely upon to operate, but also accept deposits from and make loans to employees of those businesses," the ABA said in its letter. 

It's a positive for the industry to have professional groups such as the ABA consistently supporting federal reform of cannabis. There is plenty of room for new supporters to join in the effort to assist one of America's fastest growing industries. The House has already passed the SAFE Banking Act seven times, but this week marks the first time the Senate will participate in the process.  

Missouri cannabis sales reach milestone 

Did someone mention Missouri and its successful launch of a recreational cannabis market in 2023? Well, the progress continues with the state clocking in over $350 million in legal sales in Q1, easily surpassing recent estimates of the state being a $1 billion dollar annual market. 

Not only are Missouri's tax revenues pouring in, but so are ancillary revenues like employment taxes from those working directly in legal cannabis or providing services to the industry. Business owners in Missouri expect numbers to grow even more once cultivation capacity grows. "I don't think we've seen peak numbers yet at all, just because there's still cultivation groups that haven't come online," said Tyler Hannegan, co-owner and chief of operations and sales at Robust Cannabis. 

We know this trajectory will mature but for now, this is a celebration of the good that can come from sensible cannabis legalization. 

Maryland to launch recreational cannabis sales this summer

The countdown to Maryland's recreational market opening has begun, and July 1 is right around the corner. 

Maryland made its first step in this direction 20 years ago when the state recognized cannabis with medicinal purposes in direct conflict with the plant's Schedule I status. It is great to see this Mid-Atlantic state pushing past outdated stigmas created by broken politicians and special interest groups. 

The Old Line State has shown an understanding of timeliness when it comes to enacting a regulatory program that we're encouraged by. It's very much true that delays in launching a recreational market create a void for the illicit market to occupy. We're looking forward to hearing about Maryland's first day of sales, right in time for the July 4th celebration of American freedom. Now that's some patriotism that we're in favor of.

New Jersey supports tax relief for cannabis companies

The federal government is typically slower to catch up with the will of the people and progress in cannabis has been frustratingly no different. It is encouraging to see the Senate start the process of a hearing on the SAFE Banking Act as their first step forward. 

We support banking reform and would like to see a swift passing and enactment so we can move on to the next very pressing matter, taxes. Cannabis has been classified as a Schedule I substance under the Controlled Substance Act since 1970. Being Schedule I or even Schedule II makes cannabis subject to what is known as the 280e tax code. This is an intentionally destructive tax as the government's way of trying to discourage commerce in Schedule I or II drugs. 

Cannabis is sadly a clear case study of how destructive that tax is. A new research report from Whitney Economics notes that the legal cannabis industry paid an additional tax of $1.8 billion in 2022 and expects $2.1 billion in 2023. Profitability was noted to have dropped from 42% to 24% of legal operators in the U.S. from 2021 to 2022. 

We have seen so many companies fail in cannabis over the last 12-18 months, which in normal circumstances is not unusual for startups, but especially acute with this unjust tax. Cannabis entrepreneurs deserve to be treated equally as other startups in pursuit of the American dream.

States are where we see more action, good or bad, from lawmakers and regulators. New Jersey has recognized the destruction of 280e and has now made it legal for operators there to deduct that burden from their state tax. Every bit counts and this deduction will provide a bit of relief for operators in NJ. Sensible tax policy and regulations are good inputs to a healthy market and this is good pressure for surrounding states to follow suit or face loss of revenue with their residents traveling over. A very clear example is what we are seeing in real time with Missouri taking a big chunk of revenue from the highly taxed Illinois market.

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As multi-state operators kick off 2023 earnings, Green Thumb Industries (GTBIF) reported strong cash flow generation despite a muted top-line result. Q1 revenue for the industry leader was up 2.4% year-over-year. Same-store sales grew 6%, which helped drive total retail growth of 9.4% and offset wholesale declines of 14.7%. 

Management attributed the wholesale softness to continued price compression across markets, a narrative we expect to hear from most U.S. operators through the first half of the year before any prospects of stabilization. Despite the sequential price compression, gross margins grew 240 basis points to 50.2% from Q4. (A basis point = 0.01%). 

Operating expenses as a percentage of revenues were 32.4%, among the lowest of the public operators and resulting in a net income of $9 million. 

Plus, the company is a cash cow. Cash flows from operations were $75 million, and despite investing $65 million into capital expenditures, the business grew its cash balance by $8 million to $185 million.

The results of Q1 highlight why GTI is among the best-of-breed companies in the cannabis industry. It has consistently shown an ability to maintain its margin profile and cash generation in the wake of volatile crop pricing and uncertain regulatory environments. 

It is especially important in this current period to have flexibility in the balance sheet for capital expenditures in the markets with the highest potential returns. This is a unique stage in the cannabis market, where few operators can access capital for expansion of both crop supply (e.g., cultivations) and retail. So for those with cash like GTI, the potential return on new and expansion projects can be much higher than they've historically averaged. We expect this to result in crop prices staying higher for longer in limited license states, eventual stabilization in more mature markets, and consolidation of market share across the country for leaders like Green Thumb Industries. 

This dynamic of cash generation and market expansion is likely to spur the outperformance of the GTBIF stock through 2023. For the past 12 and 24 months since the end of April, GTI has had an 83% and 72% correlation, respectively, with three other top marijuana stocks: Curaleaf (CURLF), Verano (VRNOF) and Trulieve (TCNNF). While all of these companies are compelling for different reasons, the fundamental operational performance variance between them should justify a wider correlation in returns. This year, investors will probably begin to see this trend emerge due to the cost of capital for multi-state operators, and Green Thumb Industries is poised to benefit.

Cannabis sales generate billions in tax dollars 

As the U.S. cannabis industry continues on its somewhat patchwork growth path, local, state and federal taxes are all flowing accordingly. 

According to the Marijuana Policy Project, between 2014 and 2022, states have collectively generated over $15 billion in tax revenue from recreational cannabis sales. In 2022, legal states saw close to $3.8 billion in revenue from taxes on cannabis, which was about $100 million less than in 2021. States with newer legal cannabis programs generally saw higher tax revenues, while the most established states saw declines that were offsetting.  

Last year was arguably the most difficult yet for legal cannabis because of tight capital markets, significant overcapacity in several states, and increased competition from illicit sellers. Given all these headwinds, it is encouraging to see that tax revenues were largely flat from 2021 to 2022. 

We believe 2022 was a critical year for legal cannabis as it pushed forward and showed that demand continues to expand. Now that we're through the first third of 2023, we believe this year will be one of renewed growth in topline sales for companies and governments, setting new records for both.

Cannabis companies among country's fastest-growing businesses 

Continuing on the theme of growth, it's great to see 11 cannabis companies acknowledged in the Financial Times rankings for the 500 fastest-growing companies in America. Each company recorded compound annual growth rates ranging from 21% to 175% between 2018 to 2021, while two were close to reaching $1 billion in sales. This growth is quite remarkable amid the formidable headwinds this young industry has experienced since Colorado first launched recreational sales in 2014. 

"Growth in cannabis exists at every level," said Kim Rivers, chief executive of Trulieve, one of the companies to surpass $1 billion in sales, according to the Financial Times. "We see new consumers discovering the category for the first time – Gen Z'ers and middle-aged women in particular, you've got growth at the state level as new states come online … and then, of course, at the federal level, we could see massive change over the next five to 10 years."

I can't help but consider the missed growth opportunities if federal banking and taxation reform had passed. However, the continued growth prospects for the industry are exciting as more states prepare to legalize and the federal government slowly catches up. 

The companies that focus on fundamentals, execution, and earning customer loyalty stand to benefit the most when federal regulatory reform arrives. For now, it's still early days.

Medical marijuana now for sale in Georgia

Medical cannabis markets are heating up in the South. This week, Georgia began sales of low-dose THC products. 

Trulieve, a Florida-based operator highlighted above for its rapid growth, opened doors at the state's first medical cannabis dispensary in Marietta, a city located roughly 20 miles north of Atlanta. The company is set to open an additional dispensary in Macon. 

Georgia lawmakers legalized medical cannabis in 2015, but the nearly 30,000 registered medical cannabis users have lacked options for legal purchase until now. In March, state lawmakers also passed a bill bringing the number of medical cannabis dispensary licenses from six to 15. 

We will continue to watch this market to see how regulators respond. Conservative states tend to expand on regulations with qualifying conditions and form factors as they gain comfort with the legal cannabis program. This is a manageable setback for the market if there is no rampant illicit activity or competing hemp derived products, which are often not sold with the same level of regulatory cost and taxation. 

New York takes steps to expand and support legal cannabis marketplace 

New York continues to garner a lot of attention from interested players because of its massive potential as a legal cannabis market. Unfortunately, the state has weathered several massive mistakes by its lawmakers and regulators since the launch of the its recreational market. 

It now seems that they are moving from talking tough to enacting change via the state budget to allocate more resources for enforcement. Democratic Governor Kathy Hochul announced that as part of the state budget, New York will expand the enforcement powers of the Office of Cannabis Management to further grow the legal marketplace for cannabis, including levying fines on illegal retail operations and closing those shops down. New York intends to use these new tools to tackle the proliferation of illicit shops still operating. 

It is our belief that enforcement alone is an unbalanced solution that consumes resources without benefit. The state needs to consider a "repeal and replace" approach while it enforces the illegal activity so that legal access, such as licensed retail, is there to offer legal supply. 

The New York recreational cannabis market still has the potential to become a thriving ecosystem of companies, big and small, public and private, with stable and clear regulations, taxation, and enforcement. The people of New York voted for the benefit of legal cannabis, and the state should be working more swiftly to uphold their duty.

The SAFE Banking Act has been given new life on Capitol Hill. 

There's been a flurry of activity in D.C. this week around cannabis regulations, continuing from the onslaught of bills released last week in the run-up to 4/20. It was disappointing to see the Senate reject a bill regarding cannabis research for veterans suffering from PTSD and other issues. We're sad to see politics get in the way of progress for veterans who have served and protected the nation. 

However, the Senate surprised many by scheduling the first-ever hearing for cannabis banking reform in their chamber. A new attempt to pass the SAFE Banking Act is being led by Senators Jeff Merkley (D-Oregon) and Steve Daines (R-Montana). 

"For the first time, we have a path for SAFE Banking to move through the Senate Banking Committee and get a vote on the floor of the Senate," Merkley said in a statement. "Let's make 2023 the year that we get this bill signed into law so we can ensure that all legal cannabis businesses have access to the financial services they need to help keep their employees, their businesses, and their communities safe."

As I told CNBC, "[SAFE's] reintroduction is a major advancement for the industry. We have seen many firsts in legal cannabis and that now includes the scheduling of a hearing of cannabis banking reform in the Senate. This is an historic step for the Senate."

In response to the news, several marijuana stocks popped Thursday, including Curaleaf Holdings (CURLF), Green Thumb Industries (GTBIF) and Trulieve Cannabis (TCNNF).

Twitter allows photos of cannabis products in ads 

Twitter continues to lead social media platforms as a welcome destination for legal cannabis companies to interact and advertise. This week, the platform added key updates to its advertising capabilities, including allowing cannabis companies to post pictures of their products in ads. Cannabis is a major part of the U.S. economy as a tax generator, job creator and a point of social justice reform. It's exciting to see our industry gain more mainstream access with the help of Twitter.

Alexa Alianiello, Twitter's cannabis sales and partnerships lead, said in a tweet Tuesday that the company listened to cannabis executives' requests and implemented the changes. "We listened, and updated our ads policy," Alianiello wrote in her tweet. 

During the Benzinga Cannabis Capital Conference in Miami earlier this month, Ms. Alianiello told a room of cannabis business founders and investors that Twitter has their back. 

Data shows record-high cannabis sales on 4/20

At Poseidon, we cherish all of the inherent value that data brings to the table. Co-founder Emily Paxhia is known to refer to data visualizations as "beautiful," and it's no secret that I also love a good chart or diagram. Now that the 4/20 holiday has come and gone, analytics and technology platforms are releasing their insights, and the results have been nothing less than historic.  

This year, cannabis sales numbers for 4/20 hit a new all-time high, and we expect to see this trend continue for years to come, much like the annual records set in the traditional e-commerce space. 

"The success of this year's 4/20 holiday is a positive sign for the cannabis industry," said Kyle Sherman, founder and CEO of cannabis e-commerce company Flowhub. "It's clear people want their cannabis as more consumers shopped on the holiday than ever before. We are also seeing retailers adopting a more efficient approach to holiday strategies, avoiding over-discounting and spreading deals over multiple days. It is a testament to the maturation of the industry, and a sign of a stronger and more sustainable future for cannabis retailers." 

Data from Headset indicated that more than $100 million in total transactions were generated on 4/20, and during certain intervals, sales reached $160,000 a minute. E-commerce cannabis site Jane Technologies reported that its data showed a 9.7% year-over-year increase from 4/20 sales. 

We love this great video from Headset showcasing the sales in North America throughout the day.

Dutchie experiences outages on 4/20 

Unfortunately, the 4/20 sales surge put some of the industry's most prominent service providers under stresses they were not able to absorb. 

We have seen issues before with point-of-sale and state-level tracking technology experiencing outages during the days leading up to 4/20. This year, the industry's leading point of sale company, Dutchie, had significant outages. 

Dutchie's e-commerce platform reported elevated error rates on Tuesday and Wednesday and went down for part of the day on Thursday. In a LinkedIn post, Dutchie CEO Tim Barash cited an issue with the company's database provider for the system failures seen on 4/20. 

It is hard to quantify the lost sales for its customers, but last week's record sales numbers could've been materially higher without outages from Dutchie. The company claims it is trying to do right by "making up" for the lost sales. We give them credit for trying to do what they think is right to alleviate this unfortunate issue.

Delaware legalizes recreational cannabis

Delaware became the 22nd state to legalize recreational cannabis. Late last week, Democratic Governor John Carney decided against vetoing the bill for legalization as he has done in the past. The state still needs to establish dispensaries, but it passed a bill that will create state-led regulations and licensing for retail, cultivation and manufacturing. 

The Mid-Atlantic is heating up as Maryland is poised to open doors for recreational sales on July 1, and New Jersey continues to plow ahead with impressive revenue numbers. We were initially excited for Delaware to get to this point, but unfortunately, our enthusiasm has quickly waned given the obnoxious sales tax rate of 15%. The border retailers in New Jersey, Maryland, and Pennsylvania will likely see a lot of Delaware license plates as a result. It's a shame that the loss of sales will affect tax revenues for Delaware's constituents.  

Minnesota could be next to legalize recreational cannabis

Minnesota is making progress this week with the House passing its bill to legalize recreational cannabis. The Senate will likely pass its version of the bill by the time you're reading this. 

"Members, our cannabis laws are broken. Prohibition has failed," said Rep. Zack Stephenson (D) while addressing the floor this week. "It's not achieving any of its goals, and it costs in terms of dollars and inhuman costs are overwhelming."

The full chamber approved the legislation presented by Stephenson in a 71-59 vote. We like some of the final edits to the bill, including low-dose gummies not being sold through alternative channels, as that should benefit the licensed operators in the state. We will keep watching to see if Minnesota joins as the 23rd legal recreational market.

It has been a while since we've seen demand exceed supply in the cannabis space, but Missouri's soaring recreational weed market is now facing a product shortage. 

It was a regular occurrence when new states opened recreational sales, but with so much talk about oversupply across markets, that feels like a time long past. Missouri's legalized adult-use cannabis market has been off to a red-hot start and we are seeing inventory depletions at rates far faster than even large operators there can handle. 

The Midwestern state launched its recreational weed market on Feb. 3, and is on pace to surpass $1 billion in sales during its first year online. Strong demand from local and out-of-state customers has exceeded expectations for the state's legalized weed sales, resulting in product shortages and higher wholesale prices. 

Near the Kansas border, Missouri cannabis retailers are seeing foot traffic increase ninefold, and many Illinois residents are crossing the Mississippi River to purchase cheaper cannabis in St. Louis. The product shortages and pricing issues in Missouri's recreational weed market will be corrected as more capacity comes online. 

As long-time industry participants, we hope that history doesn't repeat itself and capacity builds are aligned with Missouri's demand levels. 

Legal cannabis sales surpass $33.5 billion 

The legal cannabis industry continues its headline growth, with industry publication Marijuana Business Daily projecting 2023 sales of $33.5 billion. The projections are a $4 billion increase from 2022, and by 2028 legal cannabis could see sales close to $57 billion. 

Cannabis sales from this year will surpass the money spent on craft beer, chocolate, chicken eggs and topical pain relief. With the number of licensed U.S. marijuana businesses now exceeding 165,000, the cannabis industry is expected to inject $100.8 billion into the overall economy this year.  

For context, Poseidon started investing in cannabis with outside capital in 2014, when legal recreational sales first began. It is amazing to reflect on that time, having watched an industry grow from a modest medical market with $0 in recreational sales to $33.5 billion nine years later. The industry did this with no federal support, no broad banking access, a pandemic, and a two-plus-year capital crunch with significant price compression in many markets. 

The throughline is that there is strong demand for legal cannabis. Though messy and frustrating at times, legalization is working. Imagine how much more is on the horizon as regulatory progress continues.

Curaleaf renews New Jersey recreational license  

Most of the regulatory action in cannabis is at the state level, and we often talk about the positives of new states opening or the challenges impairing market growth. Late last week was a unique situation as the New Jersey Cannabis Regulatory Commission (CRC) surprisingly decided not to renew material recreational licenses belonging to publicly traded marijuana stock Curaleaf Holdings (CURLF). 

These actions by the New Jersey CRC board essentially stripped Curaleaf of its ability to serve recreational consumers in the state. Citing the closure of a cultivation facility in Bellmawr and interference with unionizing efforts, the decision would have impacted the company's ability to grow and forced it to shut down dispensaries in Edgewater Park and Bellmawr.  

We were shocked and very concerned about how this decision was made and the potential fallout. Thankfully, cannabis industry operators are well-versed in politics, and we were pleased to see Curaleaf respond swiftly, professionally, and with a time-tested tool of democracy – peaceful protest. The CRC quickly reconvened this week and course corrected by providing the renewals to Curaleaf under certain conditions. 

"As we said after the decision, this was an arbitrary decision without legal merit, and that's been demonstrated with the board's new decision today," said Matt Darin, CEO of Curaleaf, said in a press release. 

New initiative proposes the removal of the 280E tax

Representative Earl Blumenauer (D-Oregon) continues to be one of our industry's longest-running champions, trying to effect real change in Washington D.C. 

It is 4/20 week, our industry's primary holiday and politicians are capitalizing on the attention. We are proponents of removing the 280E tax, which is the objective of the Small Business Equity Tax Act, which Blumenauer refiled this week. Representative Nancy Mace (R-South Carolina) originally filed the bill late last year and will co-sponsor it this year alongside Blumenauer and Representatives Barbara Lee (D-California) and Dave Joyce (R-Ohio).

"State-legal cannabis businesses are denied equal treatment under 280E," Blumenauer said in a press release. "They cannot fully deduct the cost of doing business which means they pay two or three times as much as a similar non-cannabis business.

"This grotesquely unfair treatment incentivizes people to cut corners. If Congress wants to get serious about supporting small businesses and ending the illicit cannabis market, it is common sense that we allow legal cannabis operations to deduct business expenses, just like any other industry."

Our industry would be far healthier from the smallest to the largest operators when 280E is finally repealed and replaced. Note that we are not proposing or supporting a 21% federal tax rate. Sadly, D.C. does not realize the job destruction that is happening to small operators in cannabis due to this tax. Please bring this bill to a vote in Congress and make a real difference for the cannabis industry.

The cannabis industry was in focus this week, with  the Poseidon team traveling to Miami to attend the Benzinga Cannabis Capital Conference. 

The event was exceptionally executed, and we've noticed that attendance continues to increase each year. We were on-site and used the opportunity to meet with public and private companies across the landscape. From those conversations, we have three primary takeaways: 

Cannabis companies face tight capital market, overcapacity

The overall mood was somber, but that's not surprising. Cannabis is in year two of its first real downturn, where the industry experienced a tight capital market and faced challenges with overcapacity resulting in significant price declines. 

Consequently, we have seen growth moderate in more established markets and that deceleration caught many, especially weaker companies, off-guard. Even thriving companies are keeping their positivity close to their chest because they are aware of others that likely won't survive this period.

Cannabis companies focused on fundamentals

It's refreshing to see the cannabis industry so focused on fundamentals. For years, too many distractions were caused by misguided growth opportunities, leading to some irrational decision making. 

However, the industry has been taking its medicine. Many groups are realizing the number of excess costs they've endured and taking steps to rationalize their capital and operational expenditures. These companies are also looking at growth opportunities with positive returns for the business, a welcome discipline. We are seeing green shoots, and those that stick to fundamentals are seeing that flow to the bottom line, with visibility to free cash flow. 

Strong fundamentals will drive regulatory reform

We need to see action over noise. Many entrants in the cannabis industry can't wait for D.C. to do its job. Most have realized that press about federal legalization and rescheduling is meaningless unless there is action to support words. Those in the industry must focus on fundamentals, and then we will ultimately see regulatory reform. 

Cannabis executives know they need a business to survive and thrive until that change happens and realize interstate commerce is already freely happening, primarily out of California, with no enforcement. This has operators even more focused on how they view building capacity and seeing what the future holds. The 280e tax is the biggest challenge for cannabis companies, and that should be the central focus of reform in D.C. 

An industry that is aligned on reform initiatives is far more powerful than the fragmented approach of the past that has yielded no action.

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The NBA took a major step forward this week by allowing players to invest in and promote cannabis brands. 

Michele Roberts, a former executive director of the NBA Players Association and now a member of the board of directors at Cresco Labs (CRLBF), previously predicted that NBA would consider changing its policies around cannabis. 

As of the terms listed in the leagues' new collective bargaining agreement, cannabis will also be removed from the banned substances list for players. This is a welcome change for a cannabis industry seeking additional sources of capital while it continues to erode the old-world stigmas created by previous generations. 

We've seen a number of professional athletes getting involved in the cannabis industry after their sports careers. They are a group that is keen on the benefits cannabis provides for pain and inflammatory management, and many are also passionate about making a difference. Former NBA veteran Al Harrington's Viola Brands immediately comes to mind as a trailblazer here. We're excited to welcome more athletes, especially those as passionate about building their brands and business ventures as they are about their active profession.

Kentucky legalizes medical marijuana

Let's welcome Kentucky as the 38th state to join the medical cannabis industry. The state's General Assembly approved the bill to legalize medical cannabis on March 30, and Kentucky Governor Andy Beshear (D) signed the bill into law the next day.

"Today the General Assembly finally took action and passed a bill to legalize medical cannabis – something a majority of Kentuckians support," Beshear tweeted after news of the vote broke last Thursday. "I am thankful this progress has been made, and I will proudly sign this bill into law tomorrow."

At a March 31 press conference, prior to signing the bill, he added, "Far too many people face the obstacle of having chronic or terminal diseases like cancer, or those like our veterans suffering from PTSD, or Kentuckians living with epilepsy, seizures, Parkinson's and more. These folks want and deserve safe and effective methods of treatment." 

We support this step forward for Kentucky, the qualifying medical conditions for cannabis should allow constituents to participate at their discretion. The Kentucky market is showing signs that it will resemble the medical cannabis program in Ohio, which has done fairly well and garnered a good amount of investment even in a tight capital environment. Hopefully, the state regulators will observe the benefits of installing a limited license program versus the states struggling with open market schemes and over-permitted supply. It should be fascinating to watch Kentucky's program take shape.

Missouri's red-hot cannabis market sparks job growth 

Missouri is an excellent example of what a good legal cannabis program can look like. The state is rightfully gloating about the jobs and taxes generated. Since Missouri's cannabis program began, initially as medical, the state notes that more than 6,800 jobs have been created. We have also seen how the cannabis industry contributes to strong ancillary growth as jobs emerge for capital projects like construction and service contracts to support this growth. 

"Billion-dollar markets like Michigan, Illinois and Massachusetts employ anywhere between 30,000 to 50,000 workers in the cannabis industry," said Sloane Barbour, CEO of engin, a technology platform helping cannabis companies hire hourly workers. "It's enormous job growth, and it really happens quite quickly. So we are seeing customers and partners in Missouri aggressively and actively hiring."

The state kicked off 2023 with a record-setting first month of sales, surpassing $100 million in January. This young program seems poised to be a new billion-dollar industry for the state, with more jobs and tax dollars coming to the good people of Missouri.

Big Alcohol continues to push for cannabis reforms 

The Wine & Spirits Wholesalers of America (WSWA) continues to build on its recently announced initiative to support the federal legalization of cannabis. This week was the association's annual event, Access LIVE, and Chairman Tom Cole reiterated its ability to apply experience and understanding of alcohol distribution to the emerging cannabis sector. 

"The beverage alcohol industry's commitment to public health and safety is something that sets us apart from other consumer products," said Cole. "We believe that the successful state-based regulatory model which has served America's consumers and our industry so well, should be a part of the discussion… I call upon my industry colleagues to support our efforts and to lend your voice and experience to the conversations happening on Capitol Hill."

As we noted last week, there are benefits to a group like WSWA joining in support of ending the broken dynamic surrounding the limited legislative movement on cannabis. However, focusing on interstate commerce first could result in the continued demise of many in our industry, leaving far fewer companies for WSWA to work with by the time interstate is a reality. 

It would be beneficial to see the WSWA prioritize the repeal and replacement of federal tax code 280e for licensed cannabis operators in either medical and recreational use states. The tax rate applied to cannabis companies is unfair and should be the absolute priority if the WSWA truly understands what the industry needs and wants to be viewed as partners. 

Earlier this month, Altria Group (MO), the company behind Marlboro cigarettes, divested itself from Juul Labs, recording a $12.5 billion loss. 

In the past, Altria has benefitted from its position as an oligopoly player in the tobacco and nicotine industry. As a result, it enjoyed significant cash flows that led it down many pathways. MO has explored expanding beyond the core combustibles business, but the company's efforts have mainly been destructions of capital. Management and the board bear the most responsibility for these setbacks, but are more interested in shifting blame onto failed investments such as Juul. 

The hypocrisy is prevalent as Altria has shown it is willing to turn around and pay another massive valuation for e-cig maker NJOY. Altria is one of Wall Street's best dividend stocks. And its investors have profited from a steady and healthy payout for many years, so they haven't truly pushed management, not wanting to kill the golden goose of that sweet, sweet, addicting dividend. 

The company is now considering other paths of exploration, including caffeine pouches and cannabis products. However, there are already existing pouch companies working in alternative markets like CBD and THC. Poseidon has invested in a company called Cannadips that is accomplishing much of what Altria claims to be exploring, and we look forward to healthy competition there. 

It's a surprise that the cannabis industry responded positively to the Altria news, given the company's poor track record of capital allocation, including the $2 billion investment in Cronos Group (CRON), which has been another loss for MO shareholders. We will have to see if Altria has learned from its past mistakes or if we will continue to see poor capital allocation at the expense of its core consumers' health

Big alcohol industry players call for federal cannabis legalization 

As the cannabis industry reaches a run rate north of $26 billion in legal sales, the market is seeing increasing attention from tangential industries wanting a piece of the action. This week the Wine & Spirits Wholesalers of America (WSWA) sent a plan to congressional leadership supporting federal legalization. 

"The current conflict between state and federal law is not only causing adverse consequences for consumers and non-consumers of cannabis but will also have long-term public health and safety costs that are too great to ignore," the WSWA said in its letter. "The fact is cannabis legalization at the state level is here to stay, as evidenced by nearly a decade of new legalization efforts and no meaningful effort to undo them. Rather, the states that have legalized are expanding their markets and even discussing ways to begin interstate commerce of the product. Yet they receive no support from the federal government in determining how to ensure that products are safe or the market is far – especially as that market becomes increasingly national in scope."

Their four-point plan shows the group's interest in wanting to profit from the cannabis industry, initially as a primary distributor. Additional pressure on federal lawmakers is welcome, as more shots on goal from large lobby groups like alcohol bring the energy and money needed to get these politicians to listen. It's unlikely that action is on the horizon, but this is another data point that bears monitoring.

Delaware Senate approves cannabis legalization and sales 

"Hi, I'm in Delaware!" Queue up more punchlines from Wayne and Garth, as Delaware may join the 21 other states with recreational cannabis markets. This week, the Delaware Senate approved a bill that they feel has enough support to override another veto initiative from Democratic Governor John Carney. 

"The legalization of adult-use recreational marijuana is inevitable because it is the will of the people," said Senator Trey Paradee (D-Delaware). "Sixty percent of Delawarens believe that recreational use of marijuana should be legalized. That percentage will certainly grow quickly in the years to come."

The Mid-Atlantic corridor pieces are all coming into place, with a thriving New Jersey recreational market and the Maryland recreational market quickly coming online. This development could also pressure Virginia elected officials to get their act together. The Old Dominion is in a challenging situation regarding its limited medical market and lack of progress in opening adult-use retailers after legalizing recreational cannabis in July 2021.

Delta-8 was handed another blow this week. Kentucky took meaningful steps to rein in the rampant unregulated growth of the Delta-8 market that has proliferated the Bluegrass State. 

Delta-8 THC has grown in popularity across the U.S. since the passage of the 2018 Farm Bill, which legalized hemp production and products. A national leader in hemp production, Kentucky's state legislature passed a bipartisan bill stating that Delta-8 THC products sold after Aug. 1st will be subject to product testing, labeling and age-restriction requirements. 

The new regulations are a modest step in a positive direction. However, we suspect there will be more psychoactive cannabinoids to get commercialized from hemp, making it more of a band-aid solution. We would prefer for Kentucky to have a fully regulated recreational market that includes Delta-8 as one of the cannabinoids and see that as a more realistic long-term resolution. 

Medical marijuana providers sue New York cannabis commissions

Progressive action continues to come from within the cannabis industry as a coalition of cannabis companies has decided to sue the state of New York for the horrific rollout of its recreational adult-use market. 

The lawsuit was filed by Coalition for Access to Regulated & Safe Cannabis, a trade association representing licensed registered medical cannabis providers, including publicly traded marijuana stocks Curaleaf Holdings (CURLF), Green Thumb Industries (GTBIF), and Acreage Holdings (ACRHF). A spokesperson for the coalition noted that the companies have been unable to enter the state's recreational market because of the limited licensing program. This abject failure of enforcement and licensure has created a massive illicit industry, hurting confidence in the legal industry and clearly showcasing the outcome of bad regulation. 

After putting real human and monetary capital at risk, these companies are now seeking legal protection to drive change in New York. The coalition's lawsuit claims that state cannabis regulators exceeded their authority by opening the initial application pool only to applicants with past marijuana convictions and names New York's Cannabis Control Board and Office of Cannabis Management as defendants. Almost two years removed from New York's legalization of recreational cannabis, regulators have awarded 66 dispensary licenses, and the state's fifth dispensary opened doors in Ithaca last week. 

We are excited to see this angle of attack by the legal cannabis industry as New York must make swift and aggressive changes to right size this dire situation. New York could be, and should be, a massive and successful legal market.

GOP senator supports cannabis banking reform

Republican Senator Steve Daines of Montana is becoming more vocal about GOP support for cannabis banking reform. During a speech at an American Bankers Association (ABA) conference, Daines got into the next steps for the SAFE Banking Act, which he is working to advance alongside Senate Majority Leader Chuck Schumer and other lawmakers.  

"This bill has been out there a long time," Senator Daines said. "I think with each passing year, there's a greater number of people who understand that the problem – forcing businesses to operate in all cash – is only getting worse. We need to be very clear: This is a public safety bill, and the longer we go without addressing the issue, the worse the situation on the ground becomes."

However, this new noise around SAFE Banking is only a modest signal given the context of a politician knowing the crowd he is pandering to. The ABA is a favorable audience for Daines and it has already demanded changes to the laws surrounding cannabis businesses and banking, so these comments were welcome there. 

We took note of his comment about an "army of lobbyists" to push reform, not on the premise of cannabis, but on the premise of safety. The signal that SAFE or new cannabis banking reform legislation has more than a near-zero probability of passing will become stronger when we have confirmation of this lobbyist army being deployed in Washington D.C., armed with the proper talking points to create change. 

No federal review of cannabis scheduling before 4/20 

U.S. Department of Health and Human Services Secretary Xavier Becerra continues to enjoy the limelight from his task to review the scheduling of cannabis. The "expeditious" timeline President Joe Biden gave Becerra has yet to be defined. 

"It's got to go through a number of hoops and, again, safety and efficacy are what will drive this determination, so stay tuned," Becerra said in an interview with KDKA-TV. In the meantime, cannabis continues to provide political humor through the annual celebration of 420 (April 20), but those of us within the industry celebrate by counting the societal and economic gains from legalization. 

It's unclear when Secretary Becerra will put forward the findings, but we learned an important aspect of the review from a recent interview. In addition to the science, the HHS is also considering the views of Americans about cannabis legalization. 

The last time this review was conducted was in the 1990s, when polling regarding legalization was still in the minority, and no state had a legal market. Since then, a majority of Americans are now supporting federal cannabis legalization, and there are 37 medical markets and 21 recreational markets (and counting). We don't know what weight this ultimately carries in the secretary's consideration, but any additional contributions are heavy relative to the past.

Germany is currently making strides in its recreational weed legalization efforts. 

In recent news covered by Marijuana Moment, Germany's leading regulator and health minister, Karl Lauterbach, stated the country has received "very good feedback" from the European Union (EU), the most critical governing body in the weed legalization process. 

The EU's approval is essential for Germany to proceed with adult-use weed legalization, given that cannabis use for recreational purposes is restricted by both European and international laws. Previous attempts by other European countries, like Luxembourg, to legalize cannabis have been stymied due to similar legal challenges.

Germany still has a considerable amount of work to do, and expectations for the previously stated target of legalizing cannabis in 2024 has now been pushed back to 2025. 

The current proposal for the bill would allow adults to buy and possess up to 30 grams at licensed stores and grow up to three plants. It also includes suspending and closing criminal proceedings related to offenses made legal under the reform. 

While we view this announcement positively, we approach it with some skepticism given the EU's previous stance on cannabis legalization. However, if Germany can create a plan that adheres to European law, it could serve as a model for the entire continent. This could pave the way for fast-tracking weed legalization in other countries, particularly those that have expressed an interest in following Germany's lead, such as the Czech Republic.

Another cannabis banking bill is in the works

Three months after the SAFE Banking Act failed to be included in the federal spending package, Senate Democrats are now working on another cannabis banking bill.  

This news is completely expected, and the cannabis industry knows to respond to actions, not words, when it comes to cannabis banking.  

As we've stated many times before, evolving cannabis banking would be a big win for the industry. Democrats in Washington D.C. should expect a cautious, "once-bitten, twice shy" approach absent meaningful support from the Republican party for the new banking bill.

We are back to a near-zero probability of any banking reform for cannabis in the U.S. for the foreseeable future. This probability has further declined after the recent demise of Silicon Valley Bank (SVB). The regulators and auditors both blessed SVB as a well-capitalized bank weeks before it collapsed. Meanwhile, executives sold stock and paid bonuses days before the bank failed to secure much-needed capital. SVB was forced to shut down and hand over the keys to the FDIC.  

The bank failed on a basic premise of depleting deposits and disregarding simple interest rate risk management, i.e. buying long-duration securities in a rising interest rate environment, topped off with arrogance and greed. This is likely the beginning of more bank failures, three in the last week or so, in the U.S., as this duration crisis morphs into a defaults crisis. It seems regulators are now waking up and trying to head off another 2007-2009 global financial crisis.

As a result, we expect no room for politicians or regulators to prioritize cannabis banking while they are struggling to catch up once again. 

For those in cannabis, it is a good idea to have redundancies with banking if you don't already. We know banking challenges are not new in cannabis, so we are generally better equipped, but these diverted efforts are still not where we all want to be devoting time.

The challenges in the banking sector are likely to tighten risk capital on a macro level. Lending has already been tightening in commercial sectors, and we expect that to spread to other areas, which will keep a lid on capital for cannabis. 

TerrAscend seeks listing on Toronto Stock Exchange 

It's proving to be a year of action for the cannabis industry. We are done with cheap talk in D.C., and brave CEOs are pursuing action. Waiting is deflationary, and we have all spent enough time waiting. Companies are working hard to build their businesses in a challenging, long-lasting capital drought. This approximately 760-plus day bear market – the same number of days since the peak in the prices of most marijuana stocks – has forced and will continue to force companies to focus on balance sheets and execution. 

In the meantime, cannabis stocks have struggled with declining trading volumes as retail investors move on. Declining participation creates more of a deflationary feedback loop, leaving many to ask and hope for change. 

Well, change can come from within, and TerrAscend (TRSSF) is stepping up to the plate this week with a bid to list on the Toronto Stock Exchange (TSX). Membership with TSX would make TerrAscend the first U.S. multi-state operator (MSO) to be listed on the major stock market exchange.

TerrAscend is pursuing a similar structure to Canopy Growth (CGC)/Canopy USA, but it's exploring the TSX over the Nasdaq. This seems like a good potential path for creating public company structures that can list on major exchanges, which can have great benefits like expanded and lower cost of capital, additional potential access to institutional investors and more participation from passive ETFs. We will continue to follow this journey and expect other U.S. operators to follow suit should TerrAscend make it.  

Ascend Wellness earnings are in

Announcements for 2022's fourth-quarter and full-year earnings continued, with Ascend Wellness Holdings (AAWH) reporting mid-week. We are generally frustrated with the analysts' work in cannabis, or their lack of work, as it impacts consensus estimates on which people base a company's performance. 

Ascend increased Q4 revenue by more than 22% year-over-year to $405.9 million, but lost $15 million during the three-month period. However, Ascend's 2022 consensus was very close to actuals on revenue, gross profit, and EBITDA (earnings before interest, taxes, depreciation and amortization). We expect analysts will lower their previous 2023 estimates, consistent with their work post-earnings from others so far. 

Overall, it was a solid year of execution for this emerging U.S. operator. Ascend maintains that it is the top operator on revenue per door metric, the top growth rate in adjusted EBITDA and the sixth-largest operator on total adjusted EBITDA dollars generated basis. 

The company experienced some modest headwinds in their Illinois retail and wholesale in Q4, but this was offset by gains in the Massachusetts and New Jersey markets. Ascend sees good growth opportunities in their soon-to-be-closed Maryland retail acquisitions, as that state is fast-tracking towards its recreational sales, with further store openings in Ohio and Illinois. The company has uniquely positioned itself with asset concentration in many of the most profitable U.S. markets, without overexposing itself to volatility in these states by limiting its cultivation capacity. 

In the current environment where many of its peers are shuttering and divesting assets due to price compression and wholesale exposure, Ascend is among the few public operators actively growing its business. This growth can be tracked through M&A in attractive markets (e.g., Maryland) and organically through quality improvements in smaller, easier-to-manage cultivations and cost efficiencies in downstream assets like retail. Management is focused on continuing to execute its growth initiatives under tight capital controls and driving toward generating cash flow.

An Oklahoma recreational weed bill failed to pass in the Sooner State this week, as Republican lawmakers in Oklahoma continue spreading Drug War-era rhetoric. 

Since 2018, when Oklahoma voted in the legalization of medical cannabis, the state has amassed over 2,800 dispensaries, and roughly 10% of the state's adult population currently holds a medical license for cannabis. Unfortunately, unlike neighboring state Missouri, an Oklahoma recreational weed bill could not garner enough support to pass. State Question 820 was handily defeated, leaving Oklahoma residents with a very concerning illicit market and a fledgling medical market. 

Oklahoma is home to the fourth largest population of farmers in the U.S. Lawmakers in the state have struggled with how to perceive the quick rise of cannabis production that has taken place after the adoption of its medical marijuana program. 

"We have something like seven or eight thousand growers in Oklahoma," Governor Kevin Stitt said. "It's taken us a while to get our arms around that." 

The recent success and sales turnover seen from recreational cannabis coming online in states with healthy medical cannabis programs like Missouri and Connecticut makes the defeat of the Oklahoma recreational weed bill all the more baffling. 

Sadly, this is not a surprise, but should serve as a wake-up call that there is still plenty of work to be done for proponents of legalization. It is disheartening to hear elected officials spreading misinformation about the impacts of recreational cannabis legalization while complaining about the current dynamics they have created with rampant illicit activity. Sound familiar – New York, California?

Trulieve Cannabis reports earnings 

Following in the footsteps of fellow cannabis company Green Thumb Industries (GTBIF), Trulieve Cannabis (TCNNF) this week reported earnings. 

TCNNF reported fourth-quarter revenue of $302 million and full-year 2022 revenue of $1.2 billion. These results were generally a miss versus expectations for the marijuana stock, and we were disappointed to see industry analysts raising expectations within the last week. There is a credibility issue in the cannabis industry, and continued overpromising and under-delivering must stop. It's important for the industry to meet and exceed expectations on a consistent basis and most companies are failing to achieve this objective.    

It's also frustrating to hear operating companies mention investments in proprietary technology in the same breath as talking about inventory management issues. Improved focus on core operations, capex and strategic growth initiatives is plenty from an execution and capital allocation perspective. 

Trulieve's earnings also show that large M&A – a cannabis trend we're watching this year – is challenging to absorb, especially for assets with inferior fundamentals. This is a good reminder for others that are thinking about embarking on a similar path. There are still some positives that may emerge from this environment. A lot of discussion was spurred around cash management, debt reduction and the rationalization of underperforming assets. This will come at the expense of goodwill write-downs and job reductions in certain areas, but it could ultimately better position Trulieve's longer-term potential. 

Missouri reaches recreational cannabis milestone

Missouri is setting a high bar for new recreational cannabis markets by exceeding $100 million in its first month of sales and swiftly becoming the third fastest growing adult-use market. An amendment allowing recreational sales in the state was passed in November 2022, allowing dispensaries to open last month. The state recorded $13 million in recreational cannabis sales from its first weekend alone.  

However, there's been a decline in Illinois sales with Missouri coming online, and the size of the impact was a bit sooner than expected. We have seen these circumstances in other instances, especially when a new and thriving recreational cannabis market opens. Overall, this is great for Missouri's citizens, who now have legal access to cannabis and healthy tax revenues that will be generated to help the state as well.

California plans to expand local cannabis retail programs

Regulators in California are introducing a $20 million grant program to incentivize dozens of counties and cities to start or expand retail cannabis programs. Cannabis deserts are a well-known term for industry insiders. In this instance, we are referring to the many jurisdictions throughout California that have yet to establish legal retail cannabis access. 

Orange County, the state's third largest county by population, is a clear example of a California region that lacks legal cannabis retail. In an area with 3.2 million residents, only four cities or towns allow recreational cannabis sales. This has been a major challenge for the California cannabis industry, allowing the illicit market to grow and overbuilt capacity leading to price declines and company closures. 

Thankfully, the state seems to be recognizing these challenges and is taking steps to encourage access growth across these deserts and in other underserved areas. 

"Expanding access to California's retail cannabis market is an important step towards protecting consumer safety and supporting a balanced market," said Nicole Elliott, director of the Department of Cannabis Control in a press release. "The retail access grant program ultimately seeks to encourage legal retail operations in areas where existing consumers do not have convenient access to regulated cannabis."

In the meantime, we continue to see capacity come offline and struggling brands exit the state. This combination of access growth and capacity reduction is a long overdue green shoot for California's cannabis industry. We remain of the position that a healthy California cannabis industry is vital for the overall legal cannabis industry nationwide. 

This week, Green Thumb Industries (GTBIF) kicked off a busy stretch of fourth-quarter and end-of-year earnings releases from cannabis companies. 

Several announcements have already been released from marijuana stocks that are of less interest due to poor management, balance sheets, capital allocation and business strategy. Those reports have come and gone, primarily forgotten about or noted negatively for continuing with behaviors likely to be punitive to shareholders. 

Plenty of ink has already been spilled covering the negativity there, but it reminds us of a quote from the 2022 Berkshire Hathaway Annual Report that was released on Feb. 25, 2023: 

"Don't bail away in a sinking boat if you can swim to one that is seaworthy."

With that in mind, let's focus on a few observations from Poseidon's desk through this earnings season. 

Green Thumb Industries Q4 earnings, by the numbers 

This past week, Green Thumb Industries got earnings for multi-state operators (MSOs) rolling. GTI beat fourth-quarter revenue estimates largely on the back of the legalization of recreational cannabis in New Jersey. The Garden State is poised to become one of the largest recreational cannabis markets on the East Coast. 

The total revenue reported by Green Thumb Industries was $259.3 million, up 6.4%  year-over-year. The topline revenue number was a bit ahead of consensus, while gross margins were below expectations. Still, Green Thumb's continued execution and cost controls drove a slight beat on EBITDA (earnings before interest, taxes, depreciation and amortization). 

There was noise around wholesale price compression as a primary driver impacting gross margins, but it's worth noting how decreased pricing drove comparable sales improvement in the mid-single-digit range. This is a cannabis trend to watch for: As prices decline across various markets, volumes often offset a net revenue decline as the industry takes share from the illicit market. 

Green Thumb Industries noted that they continue to focus on gross margins over longer periods. In the near term, they are targeting operating expense efficiencies to continue improving their cash-generative capability and balance sheet. Unfortunately, some U.S. operators repeated Canada's mistakes by building too much capacity, but high-quality teams like GTI are proving more capable of managing through. The management team specifically mentioned how they monitor individual markets (i.e., states) for capital expenditures. They aim to avoid markets that see overspending as it's a likely indicator of coming price declines. 

It's also important to note the goodwill write-down Green Thumb Industries took, which had some one-time implications on the results. We expect to see many others do the same, and likely to a larger extent, given the preponderance of M&A around the last cycle's peak, along with higher prices and increased transactions. GTI has largely remained steadfast, steering its own course without getting duped by FOMO (fear of missing out). We'll close MSO earnings observations with another great quote from the Berkshire Hathaway letter:

"The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders."

Innovative Industrial Properties earnings highlight struggles in cannabis industry

In comparison to GTI's thoughtful capital management, Innovative Industrial Properties (IIPR), the leading real estate lender for the cannabis industry, reported results highlighting how some of its borrowers are struggling to pay bills due to overbuilding capacity while taking on expensive lease structures. 

Due to the combination of capital drought, price compression and unsustainable lease rates, rent collection on the IIPR's portfolio slipped to 92% at the end of February compared to 97% for all of 2022. While leverage is not an issue for the company and liquidity remains comfortable, the annual filings reflect a stark difference in operating performance among cannabis operators. Where some operators appear to be quickly approaching insolvency, others are producing tens of millions in quarterly cash flows. 

The earnings reports from both GTI and IIPR are indications of the greater trends we expect to see from all operators in the industry. There were other earnings out this week from RIV Capital (CNPOF), MariMed (MRMD) and Grown Rogue (GRUSF). Those were not covered in this week's column given the depth of the discussion, but we wanted to point those out for our loyal weekly readers. 

What to watch for in cannabis earnings this year 

Price compression will continue as a consistent topic. We monitor this closely, leveraging the most detailed insights from data providers like Headset. Although consensus predictions from 2023 will be for continued compression, it's unlikely that management teams discuss how deep cuts to capital expenditures and limited investment capital across the industry could provide indications of price stabilization by Q3 or Q4. 

This year, cash flow will be the top priority for every major cannabis company. Cash flow is generally the only path for companies to avoid either highly dilutive financing or consolidation within a stronger-performing peer. We expect to see capital expenditures decline dramatically, as well as cuts made across all operating expenses from lease rates to labor.

Finally, balance sheets will be another trending topic, as the liquidity of firms will be the leading indicator of their ability to survive in this environment. Cash balance and inventory levels will be highlighted as liquidity sources, and tax management and strategy will also be crucial to help avoid investor concerns about liabilities to lenders who rarely negotiate. 

Predictions for the next cycle of cannabis M&A

We foresee a healthy phase for cannabis and a unique opportunity for investors. Throughout the COVID-19 pandemic, the U.S. cannabis industry had massive inflows of investment capital with minimal concern towards underwriting. This led to a state in which operators would be forced to focus on cash flow generation for their liquidity needs. That dynamic made it difficult for fundamentally driven cannabis investors to reflect alpha in their strategy as the rising tide lifted all boats. Even worse, when the tide went out, all boats were beached, regardless of who was seaworthy. 

As investors that are actively allocating in this operationally focused stage of the industry, we continue to gain a stronger sense of which companies will be consolidators in a challenging environment. Currently, there are fewer dollars buying more equity with arguably less risk than ever before. Businesses that were poor capital allocators and disregarded operational acumen will fall by the wayside. The future leaders of the cannabis industry will take market share from fallen peers and the illicit market and then generate cash for liquidity needs, all while valuations stay dormant amid limited updates on federal cannabis legalization and other policies. 

There are countless catalysts that could cause a positive reset in the valuations to compare more efficiently to peers in CPG or alcohol. In the meantime, we have the opportunity to allocate towards cash-flowing businesses in a global, secular growth industry, with the prospects of these companies becoming multi-generational incumbents of a $100 billion area of the market. 

Is weed legalized in North Carolina? Not currently, but efforts are being made by state lawmakers to pass a medical marijuana bill.

Republican state senator Bill Rabon refiled a medical marijuana legalization bill in late January that, if passed, will allow patients with several qualifying conditions, including cancer, post-traumatic stress disorder (PTSD) and epilepsy, among others, the ability to buy and possess cannabis from licensed dispensaries. A similar bill was blocked last year, but in its current form, was approved by the Senate Judiciary Committee. It still has to make it through a full floor vote in the Senate and House of Representatives, but Republican House Speaker Tim Moore said in an interview that he "would not be surprised at all if that bill moved.  I think the odds are more likely than not that something will happen on that."

According to early looks at the licensing and qualifying conditions included in the bill, North Carolina is making great progress toward establishing its medical cannabis market. Initial plans within the state are for 10 vertically integrated licenses to be approved that will hold up to eight dispensaries each, essentially allowing for 80 doors statewide. Previously, we have seen thriving operators born from a similar tight license count model combined with limited medical conditions and a good addressable market. 

We're reminded of a small-scale version of the Florida market, which has grown massively over the years. This will likely result in a ballot initiative for adult-use weed legalization in Florida in 2024. There will be a lively amount of interest when this is all in place and the application process begins.

Right on North Carolina's heels comes additional legislative progress in South Carolina. This week, the Senate approved a bill for the legalization of medical cannabis in the state. We covered the potential for this bill to progress earlier this year and are seeing the momentum carry forward. 

The movement to legalize medical cannabis in North and South Carolina reminds us of James Tayler and his wonderful song, "Carolina in My Mind." We are rooting for the Carolinas to bring jobs, tax revenue and legal choice for the good people across both states. 

The South shall rise again, but this time as a growth engine for legal cannabis. 

Twitter allows ads from legal cannabis companies

This past October, while Elon Musk completed his ownership of Twitter, speculation swirled around the possibility of the social media platform becoming more cannabis-friendly. Last week, the cannabis industry received confirmation of that, as Twitter announced a policy change that will allow U.S. cannabis companies to advertise on its platform. 

Twitter is proving to be the social media platform most aligned with the legal cannabis industry, and we are very excited by its move to create a path toward legal cannabis advertising. Mainstream advertising platforms have been reluctant to promote an industry that is federally illegal and have expressed concern about how to validate potential advertisers as legal businesses. 

However, Twitter is now stepping in while ensuring procedures are compliant and comfortable, and we expect to see a lot more growth on the horizon. In 2022, there were over 20 million tweets about cannabis. About 75% of Twitter conversations about cannabis are from those aged 35 and younger, but the most significant jump in conversations comes from those who are over 45. The growth within this older cohort is an intriguing prospect, as advertisers see a growing consumer base with potentially more disposable income. For example, 76% of people surveyed said conversations on Twitter resulted in them purchasing a product. 

"It is a groundbreaking thing for many cannabis advertisers to be able to reach their markets and their audiences without doing any type of workarounds," said Amy Deneson, co-founder of the Cannabis Media Council. 

Twitter is home to many cannabis-focused conversations, including Twitter Spaces like our very own "Cannabis Closing Bell with Poseidon," which is hosted on Tuesdays and Thursdays at 4 p.m. ET. 

TPCO and Gold Flora merge

Cannabis M&A activity is slowly thawing after a deep freeze. The conditions for M&A returning is one of the top cannabis trends we're watching for 2023, and the cycle is starting to turn from last year's trough. 

M&A is a natural need in the legal cannabis industry, given the fragmentation of operators and the requirements for scale to create operational efficiencies and improved bottom-line fundamentals. This week, we saw a merger of equals, between public firm The Parent Company and private California operator Gold Flora. 

We have known about Gold Flora for several years and they have a good reputation as a flower producer in California. The resulting transaction will result in Troy Datcher, current CEO of TPCO, becoming chair of "New Parent" company's board, while Gold Flora CEO Laurie Holcomb will take the helm as chief executive officer. 

"[The] merger of equals with the Gold Flora Corporation represents the next stage in our evolution, leveraging our complementary assets and core capabilities to deliver the most value for our customers and shareholders," Datcher said in TPCO's press release. "This vertical integration will fuel development of more consumer brands and broader consumer reach." 

Our initial reaction is mixed to negative. The transaction notes savings in the $20-million-plus range, which means this transaction has many redundancies that will need to be shuttered. This comes after The Parent Company has been cleaning up several previously inherited assets that made better business sense. We expect to see headcount reductions, asset sales, and more, as this new footprint centralizes. 

We aren't too bullish about creating an unbalanced organizational structure with too much upstream capacity. For example, the proforma company notes a 33% gross margin. A razor-sharp SG&A containment or another M&A transaction will be necessary to significantly bolster The Parent Company's retail footprint to balance and drive a better margin profile. This points to complexity and a heightened degree of execution. 

The bright side was to use the cash on The New Parent's balance sheet to provide it with the cushion to execute its strategy. However, this looks less bright with the inherited debt, the issued line of credit to Gold Flora, transaction costs and the likely longer than expected duration of synergy realization. 

We see this deal having a decent probability of busting and that is likely a better outcome for The Parent Company versus all the challenges that come with this transaction. Legal cannabis is for the bold, and we will continue to watch this evolving story to see how well the team can achieve this endeavor. 

Senate Veterans Committee approves cannabis research bill

Research opportunities are growing in the U.S. with another much needed potential bill underway for veterans. On Tuesday, Feb. 21, the Senate Veterans Affairs Committee passed a bill to conduct further research on cannabis treatments for PTSD and chronic pain. The observational study plans to explore the positive and negative health outcomes of cannabis use by veterans and will investigate other aspects of medicinal cannabis use. 

"Our bipartisan bill ensures VA is listening to the growing number of veterans who find critical relief from alternative treatments like medicinal cannabis, while working to empower veterans in making safe and informed decisions about their health," said Democratic Senator Jon Tester of Montana. 

The amazing people serving this country should have a choice on how to recover from their service. We have seen similar activity in the House, and it would be great if the legalization of this bill were to move quickly. If so, the bill would represent another data point proving that straightforward legislation is the preferred path for progressing cannabis legalization in D.C. This would be a welcome contrast to the failed bloat of legislation that has drowned previous progress. 

There's more rough news for the U.S. hemp industry this week. The Drug Enforcement Agency (DEA) issued a letter stating that "delta" cannabinoids, including Delta-8 THCO and Delta-9-THCO, synthetically derived from hemp do not qualify as hemp and will be viewed as Schedule I drugs. This is not a surprising stance from the DEA, considering our understanding of the delta derivatives and the law enforcement agency's mandate.  

For those unfamiliar, the delta market includes a group of new cannabinoids synthesized chemically from legal hemp. Delta-9-THCO and Delta-8-THCO are the most common delta compounds in the market, and both produce an intoxicating high similar to that of Delta-9 THC – a compound specifically called out in the Controlled Substances Act as a Schedule I drug.

THCO (tetrahydrocannabinol-o-acetate) is a modified form of THC that has been chemically altered by adding an acetyl group to the molecule. This modification changes the way the body metabolizes and processes the compound, making it longer-lasting and potentially more potent than THC. Because THCO is not found naturally in cannabis plants, and is instead created through chemical synthesis or modification of existing THC, it is often used in delta products for its unique effects, which may be longer lasting and more potent than standard THC.

Due to the costs and lack of raw materials to naturally derive Delta-8 or -9-THC from hemp, nearly all the current delta products are produced synthetically. And it is unlikely that naturally derived versions of these products will become substitutes in existing sales channels. 

Delta products are derivatives of legal hemp, and many within the hemp industry previously argued that the language in the 2018 Farm Bill – which legalized hemp and its derivatives – would extend to delta as federally regulated and legal. However, the DEA states that delta products are not naturally derived from hemp, but must be chemically synthesized and thus do not qualify as derivatives. Other counterarguments to delta's legal status have cited the Federal Analogue Act, which states that any chemical that is substantially similar to a Schedule I or Schedule II controlled substance will be treated as if it were scheduled if it is intended for human consumption.

By not being exactly the same as Delta-9 THC, other chemically synthesized delta products have existed in a nebulous space as far as legality is concerned. This gave some entrepreneurs the cover they wanted to aggressively pursue the development, marketing, and sale of delta products outside of the state legal cannabis regulatory framework. This week, the DEA acted to clarify delta's status. 

Since its development in 2020, delta sales have grown rapidly in the U.S., specifically in states where the legalization of cannabis has not been passed. One research report estimated that Delta-8 products generated $2 billion in sales over two years. Delta products are being sold widely outside of dispensaries in conventional retail, often gas stations and convenience stores. The products are technically unregulated, have been blamed for one death, and have triggered over 104 adverse event reports to the Food and Drug Administration (FDA). There is a growing concern that underage children can buy these products and are subject to abuse. Some states have moved to ban or regulate delta products, including New York, Ohio, Michigan and Texas. 

One of the key pillars of the legal cannabis industry's platform for legalization was responsible, regulated use by adults. It seems the delta market may be at odds with this, so it makes sense that it could be targeted for federal action.  

It will take time for this all to play out and for legal experts to interpret the letter from the DEA, but it will give pause to some entrepreneurs and investors concerned about the risk of crossing the DEA. Remember, they are the ones that put you in the orange jumpsuit.

January sales strong in Connecticut recreational weed market

After the legalization of adult-use cannabis in June 2021, the Connecticut market officially opened for recreational purchases on Jan. 10, 2023. January sales reflected continued demand from consumers across the northeast and a tailwind for the cannabis operators in the state. 

Connecticut's first month of recreational weed sales was consistent and strong, totaling $13.3 million. We expect revenues to grow as the state expands access beyond the seven approved adult-use retailers. Dispensaries have commented on significant growth in customer visits, and the regional director of Zen Leaf, a dispensary owned by Verano Holdings (VRNOF), noted the need to hire 25 additional employees as customer visits rose from 250 per day to almost 1,000 as of early February.

Market research firms like MJBiz Daily forecast around $165 million in incremental sales from recreational cannabis in Connecticut in 2023, for a total of $375 million. That's a significant addition compared to an estimated $210 million in 2022 sales. This surge in revenue will hinge on the state's ability to approve more dispensaries for recreational weed sales.

Due to prior issues seen in states like New Jersey, product supply has been a leading concern for the state regulators, but the market has yet to see any shortages or empty shelves. This trend is a positive data point for the four cultivators in the state, including Verano, Curaleaf Holdings (CURLF), Green Thumb Industries (GTBIF), and Theraplant, showing their ability to keep up with the quickly growing demand.

A total of 21 states have legalized adult-use recreational cannabis sales across the country, with 37 states allowing for medical marijuana. The Northeast is quickly emerging as a powerhouse for industry sales while providing a compelling set of new markets for the leading brands and operators that commonly have a foothold on the West Coast.

Forian exits cannabis industry 

One of the cannabis trends we're watching in 2023 is the likelihood of M&A re-emerging, with a specific trend toward distressed roll-up strategies. Right on time, this week, the sale of BioTrack was announced as Alleaves looks to consolidate cannabis software. 

For context, BioTrack is a software company in the "seed-to-sale" category. These products provide a digital inventory control system that the state regulators use to track cannabis products throughout the supply chain. The software is often sold into government contracts and mandated for operator use. Although this yields a certain market share in most cases, it often prevents any chance of margin expansion.

Forian (FORA) was originally formed in March 2021 through a merger of BioTrack's parent company, Helix Technologies, and healthcare analytics company, Medical Outcomes Research. According to the firm's S-4 filing, the merger consideration for BioTrack totaled $57.5 million. We estimate this represented a five to six times trailing twelve-month revenue multiple. 

The company has since provided little transparency into specifics around the financial profile of their offerings outside of their consolidated results, so the acquisition multiple paid by Alleaves is difficult to estimate. Based on management commentary around consistent growth occasionally offset by customer churn challenges, the $30 million purchase price would be around one to two times trailing revenues.

Forian's sale was likely necessary because the company burned an average of $1 million per month with limited cash remaining on their balance sheet, even after landing state contracts with compelling new markets like Connecticut and New York. The company simultaneously announced that its CEO and president, Daniel Barton, would be stepping down, with the executive chairman, Max Wygod, being appointed as interim CEO. 

For Alleaves, a relatively unknown enterprise resource planning (ERP) platform that announced $40 million in funding this past July, this roll-up purchase could be a strategy for the firm to buy the market share at a relatively low multiple. It also allows for potential cross-selling opportunities from both their core products and future technology acquisitions. 

This deal follows a similarly distressed seed-to-sale transaction with Akerna Software, who announced plans to sell their core product suite to POSaBIT at an estimated 0.4 times trailing revenues in early January.

2024 will be here before we know it, and another big election cycle is on the horizon. Primary election years are usually strong for state-level cannabis legalization initiatives, given the higher voter turnout. We are closely watching a few key states, with potential weed legalization in Florida being of particular note. 

Late last week, we learned a key hurdle for recreational cannabis legalization in the state was cleared when Smart & Safe Florida gathered over 294,037 valid signatures for its petition. The committee is seeking weed legalization in Florida, and acquired the number of signatures needed for the Florida Supreme Court to review the proposal and confirm its validity. 

From there, the initiative will get the green light to continue gaining more signatures. It will require at least 891,589 for recreational cannabis use to make the ballot next year. Momentum is building, with key stakeholders like Trulieve (TCNNF) providing further funding, and Smart & Safe Florida is already around 33% of the way to gathering enough valid signatures to take recreational weed legalization efforts in Florida to the next step.

New York's recreational cannabis market flooded with counterfeit products 

The litany of issues regarding New York's emerging recreational cannabis market is well documented. Most recently, a report in Bloomberg detailed rampant illicit importing of cannabis from California and the nonchalant counterfeiting of these brands. This isn't new news per se, as NYC has had a regular flow of this type of activity for years. But it seems to be getting more attention as the state struggles to get legal recreational cannabis doors open. 

The market is facing a significant imbalance which is leading to consumer confusion and could introduce additional risks. 

"Consumer perception and industry standards don't always meld," said Maddie Scanlon of cannabis industry data firm Brightfield Group. "And you're like, 'Oh my god, they all are thinking they're shopping recreationally?' They just don't know." 

It's also fairly clear where the ball has been dropped. 

If state regulators cannot see the damage of bad governance and taxation, we expect the industry to step up to force a proper course correction. Each passing week of ongoing issues with escalating magnitude is harmful for the legal industry. We want to see the legal cannabis industry thrive, and we need the states like New York to recognize when they have done wrong and make fast, necessary changes. 

FDA delays decision on CBD regulations 

It's no surprise that the U.S. Food and Drug Administration (FDA) punted on cannabidiol (CBD), delaying its decision-making until forced by Congress. The FDA doesn't shoot from the hip regarding consumer safety. With the administration setting its own bar on science, it doesn't matter much what evidence outside researchers or the general public find compelling. 

Despite anecdotal and observational evidence, there is a need for more safety and efficacy data for the FDA to move forward on CBD. As a primary concern, the FDA has cited a lack of data on CBD's impacts on fertility, but one has to wonder if there was a problem would they not have acted already?  

Advocates and some industry insiders believe the next Farm Bill could be an upcoming moment for CBD. Unfortunately, considering the recent history of inclusion in must-pass legislation coming up short (SAFE Banking Act, anyone?), the cannabis and hemp/CBD industry must wonder if any material deviation from language already in the 2018 Farm Bill will make the cut. 

"The lack of traction that's gone over in the intervening years since the first farm bill, it's led us all to conclude that [CBD] isn't something [the FDA are] trying to work towards finding a pathway to regulate," said Michelle Bodian, partner at the cannabis-focused law firm Vicente Sederberg.

There is a large dietary supplement industry that wants CBD to be regulated as part of 1994's Dietary Supplement Health and Education Act, but GW Pharma's approved CBD drug complicates this. In addition, the FDA may be wise in avoiding a debate about the intoxicating derivatives of CBD rising in popularity.  

With the legislative and executive branches of the federal government letting the industry down, it may be time to pursue legal challenges en route to the Supreme Court. The upshot is that higher priorities may act to maintain the status quo for CBD on the federal level. This opens up an opportunity for states to work together and harmonize regulations that create a quasi-national legalization framework.  

One thing about cannabis and hemp is that every day the federal government fails to regulate these categories, the states deepen their ties to the industry and further shape the future for these products and consumers.

Little to no hangover effects from cannabis 

Wouldn't it be nice if you could come home after a day of work, relax with a legal wellness-like product, get a good night's sleep, and go to work the next day without a nagging hangover? Most cannabis users are very familiar with this dynamic. It's nothing new to us. We have experienced the ability to have a work-life balance without the hangover, but have been told that our experiences are just anecdotal. 

Thankfully, research continues to grow for the legal recreational cannabis industry, and a new study from the University of Sydney has emerged regarding marijuana and its "next-day" effects. The data shows little support for next-day effects and limited evidence of impairment the next day. 

The industry badly needs testing that can determine active versus inactive THC without the need to draw blood. For example, a saliva-based test would be far less intrusive and costly. We would like to see if a solution is underway, as that could boost continued legalization progress, especially among more conservative groups.

January has come and gone with a winter flurry of state-level news regarding the legalized weed industry. Like the groundhog seeing his shadow, this February, the early news cycle is being dominated by another round of positive state-level legalization efforts. 

While we're usually stuck waiting for the positive signs of spring, the emergence of recreational weed sales in Missouri is set to add another exciting player to the legal cannabis landscape. In the November midterms, Missouri voters legalized recreational marijuana use under Amendment 3, and sales began on Feb. 6. 

Regular readers know that progress at the state level for medical and recreational cannabis is a major driver of growth in the burgeoning U.S. cannabis industry. Indications are that development in Missouri is going well. We remain firm believers in initiatives that will end the War on Drugs and create more legal and regulated markets. The people, not government officials, should have the right to choose whether they would like to consume cannabis, and we're thrilled to see another state make this great step forward. Congratulations, Missouri! We are confident, like in many other states, that you will quickly see the benefits that legalized weed brings to the table.

Medical Marijuana Dispensaries Open in Mississippi

This week, the weed legalization movement was blessed with another historic moment as the first legal sales of medical cannabis began in Mississippi. The state's medical cannabis legalization was signed in February 2022 by Governor Tate Reeves. 

Boasting a growing medical market that already has 162 licensed dispensaries with 1,700 patients, this market will likely have a much different trajectory to neighboring states like Alabama, which is slated to have only 37 dispensaries statewide. 

California to Review Possible Interstate Commerce for Recreational Cannabis 

We're surprised to see so much positive reaction to the news about the potential for interstate commerce coming out of California. Governor Gavin Newsom's office sent a letter to California Attorney General Rob Bonta asking for the review of a dormant clause that touches on the rights and risks for state-licensed operators engaging in interstate commerce. 

We see this as a political move. The big question for us is, how will interstate commerce operate when the industry has not gained access to legal banking, like what was proposed in the failed SAFE Banking Act? Because cannabis remains a Schedule I substance, cannabis companies can't be listed on exchanges and are still insanely burdened with 280e taxation. 

There is some merit in challenging the constitutionality of the dormant commerce clause. Cannabis, America's sixth most valuable crop, should be able to move across state lines legally. It's also fair to postulate that the 280e tax on cannabis companies is a violation of the constitution. 

We can see very simple steps forward for interstate commerce: Build out a regional license framework where a company is free to distribute amongst its licenses in other states. This licensing tactic would allow companies to centralize their cultivation, production, manufacturing and distribution of products to their own retail stores across multiple states. Regional licensing would also allow greater efficiencies for operators by streamlining capex in a more realistic way and avoiding the concern of "dumping" product on neighboring states.

Labor Shortages Caused by Unfair Cannabis Testing Procedure

Last year, tens of thousands of commercial truck drivers tested positive for cannabis during federally mandated screenings, and a large portion of drivers declined to return to work. Nearly 41,000 truck drivers tested positive for inactive THC, a 32% increase from 2021. However, because THC can still appear on tests up to a month after cannabis usage, the validity of the drug screenings is being called into question.  

"The Transportation Department's reliance on this outdated technology and upon these discriminatory policies is out of step with reality and is directly contributing to the trucking shortage crisis," said Paul Armentano, deputy director of marijuana legalization organization NORML.

Drug testing and employment have been a developing story over the past few months, and there are significant implications for the legal cannabis movement's progress. The issue of impairment testing goes far beyond cannabis. Unfortunately, cannabis continues to bear the burden as most industries test for the presence of THC over other substances that are far worse from an impairment perspective. These tests are very dated as they only present THC and do not discern active THC from inactive THC for a pass/fail. 

This is nonsense. People should have the right to choose how they want to spend their free time, especially in ways that provide wellness benefits. Before we formed Poseidon, we saw this as one of the most interesting opportunities for building confidence and trust in cannabis legalization. There has yet to be a viable solution for commercial purposes, but this is an area we continue to research with keen interest. We want people to be productive and safely employed without the fear of losing their job over archaic infrastructure from testing, insurance, stigma, etc. 

Republican-Led Congress Initiative Proposes to Reschedule Cannabis 

The 118th Congress continues its busy start with another Republican-led bill, the "Marijuana 1-to-3 Act." Unlike other recent bills, this one introduced by Rep. Greg Steube (R-Florida) makes a lot of sense. The name of the bill makes it super easy to understand as it is requesting that cannabis be rescheduled from Schedule I, among the most dangerous substances on the planet, to Schedule III. 

"As marijuana is legalized for medical and recreational use across the United States, it is important that we study the effects of the substance and the potential impacts it can have on various populations," Rep. Steube said. "By rescheduling marijuana from a Schedule I controlled substance to a Schedule III controlled substance, the opportunities for research and study are drastically expanded." 

Schedule III is still unnecessarily restrictive, but is a modest step in the right direction. It seems the path forward in D.C. is to keep cannabis legislation simple and not bogged down with too much garbage that wastes time for the supposed political value. This Republican-led initiative would remove the insane, questionably legal 280e tax on the industry, which would be an incredible win for cannabis operators of all sizes. This is advancement, but we will hold the celebrations until we see action and a floor vote in both houses of Congress.

The Southeast is warming to the legalization of cannabis, and approval surrounding medical and recreational weed is gaining momentum. 

Alabama's licensing process is underway, and efforts for weed legalization in Florida are building. South Carolina is making progress on its medical cannabis legalization program too.

Last week, Republican Senator Tom Davis introduced the South Carolina Compassionate Care Act, with adjustments to avoid problems that derailed the reform previously. An earlier version of the bill cleared the South Carolina Senate but failed to pass the House floor due to issues related to language on taxes. If the bill passes this time, patients in South Carolina will gain access to cannabis through licensed dispensaries with a doctor's recommendation. 

Weed legalization is already supported by most U.S. voters. And in November, a poll released by Winthrop University found that 78% of adults in South Carolina, including a majority of Republicans, would like to see medical cannabis reform. An additional 54% of voters were in favor of recreational weed legalization.

"The South Carolina Compassionate Care Act has been thoroughly vetted over eight years and incorporates numerous provisions to address concerns," Director of State Policies Karen O'Keefe told Marijuana Moment. "Sen. Davis's 2023 bill reflects years' of input and removes the tax and revenue allocation provisions that derailed last year's bill in the House."

We are especially keen on legalization efforts in the home state of Representative Nancy Mace, who has supported cannabis at the federal level and championed the States Reform Act, the best-looking piece of federal cannabis legislation we have seen to date.

New York Opens Second Legal Dispensary

Unfortunately, not all states have an even playing field in the U.S., and the rollout of the New York adult-use recreational market is stuttering along. The second legal door, Smacked, opened this week as a pop-up while they wait for their official location to be finalized. Located in Greenwich Village at 144 Bleecker St., Roland Conner's Smacked is the first licensed dispensary approved through the New York Social Equity Cannabis Investment Fund. Governor Kathy Hochul noted that this marks the state's first legal cannabis location opened by someone previously criminalized by cannabis prohibition. 

"I am so excited to become a part of history as the first individual to open a legal cannabis dispensary in New York City. Given my experience with cannabis, I never could have imagined that I would be opening a store like this," Conner said in a statement. "But this is not just about me and my family. This is about everyone who was harmed by the draconian drug laws of the past." 

We love seeing energy devoted to social equity in new markets and doors, and we wish all New York's social equity license recipients the best of luck. It is unfortunate that there is so much negativity around the state's Social Equity Fund and its complete mismanagement of the now estimated 1,400 illegal pot shops that have proliferated throughout the city. We are proponents of a thriving legal market, and it's difficult not to see an uphill battle for operators at the state and city level. The 280e federal tax is another burden the industry bears, including the emerging social equity doors in New York. 

Do your cannabis partners a favor and buy from legal doors if you plan to purchase cannabis in New York City. There are only two shops currently open, and both are located in highly trafficked areas of lower Manhattan, making them easy to find. We cannot currently vouch for the pricing, quality or product selection, but we can't expect the legal industry to win if we are not supporting those pushing it forward.

Legal Cannabis Lowers Demand for Codeine

Research can be a powerful tool for making useful changes in our industry and society. There has been anecdotal evidence pointing to cannabis' medicinal benefits for years, but almost as often we hear the uninformed parroting the line: "There is no research." Well, that stigma continues to erode as we see more and more research about the societal benefits of cannabis legalization. 

According to new research, states that implemented recreational cannabis laws through 2019 experienced less demand for prescription codeine. The data gathered showed a 26% decrease in the pharmacy-based distribution of codeine, and states implementing cannabis legalization before 2019 saw a distribution of codeine that was 37% lower. Codeine is known for having a high potential for abuse and causing thousands of overdose deaths per year in the U.S. Thankfully, residents in legal states have access to cannabis and therefore are seeing a notable reduction of codeine overdose deaths.

"A reduction in the misuse of opioids can save lives," said study author Shyam Rama, a doctoral candidate at Cornell University. "Our research indicates that recreational cannabis laws substantially reduce distribution of codeine to pharmacies, an overlooked potential benefit to legalizing recreational cannabis use."

Cannabis lobbying dollars are a drop in the bucket compared to Big Pharma. Unlike alcohol and tobacco, we are yet to see the pharmaceutical camp wanting to partner with cannabis. Instead, the cannabis industry confines its progress to Washington D.C. as pharma dollars crowd us out. There is plenty of work ahead for continued progress at the federal level.

Curaleaf Shuts Down Some Operations 

Survival and advancement by shrewd and optimal means are key themes for Poseidon in 2023. The cannabis industry is continuing its efforts to correct the challenging trajectory of 2022 as more distress comes to the surface, as seen in recent announcements from Bespoke Financial and Innovative Industrial Properties (IIPR). We've cautioned about debt issues in cannabis for several months, as there was too much money going under the sales pitch of debt as a "safer" way to invest in cannabis. That is generally nonsense and the results are sadly coming to fruition.

Former Intel (INTC) CEO Andy Grove once said, "Bad companies are destroyed by crisis; good companies survive them; great companies are improved by them."

This week, we learned of significant balance sheet steps taken by the industry's largest operator, Curaleaf (CURLF). The company is reducing its headcount by an additional 10% and shuttering operations in three states: California, Oregon and Colorado. These states were not making notable revenue contributions for Curaleaf and were operating at losses. The company claims these steps could generate $125 million in positive free cash flow in 2023, a significant shift for CURLF's balance sheet. 

The initial reaction to the announcement was adverse, which is to be expected when we are in a bad-news environment for marijuana stocks. We disagree with the overly emotional response; these are the necessary, difficult steps that will improve companies. We knew the first company to leap would get beat up, but it would not be a surprise to see others take similar steps to rightsize their operations on their journey to generating positive free cash flow.

Cannabis M&A Market Could Struggle This Year

The evolution of mergers and acquisitions (M&A) is a long-term theme in the legal cannabis industry. M&A is also cyclical across industries, and that is no different for cannabis. There have been eventful years, followed by quiet ones and the industry coming off a much quieter 2022. We are predicting M&A to reemerge in 2023, but signs of this are more likely to appear in the second half of the year. There is little urgency to jump as most companies focus on shoring up their balance sheets, reducing cash burn or getting cash flow positive. These actions are good for solvency and survival but come at the cost of growth. 

Many companies are likely running below industry growth rates, sacrificing market share for stability. This can only go for so long before M&A comes back into consideration – there is still too much growth for the industry to forgo. We are less bullish on the distressed roll-up strategies that have recently gathered capital. 

Frank Colombo, director of analytics at Viridian Capital Advisors, noted in the company's Jan. 13 newsletter that, "One of the largest MSOs [multi-state operators] recently told us that they expected most of their M&A activity to be purchasing distressed assets." 

As long time cannabis industry participants, we don't see the upside in distressed assets versus working with quality businesses that are growing and attractively priced. M&A will also look favorably, especially in the earlier part of an upswing, towards good businesses at great prices over struggling businesses at lower prices.   

Support among Americans for federal weed legalization continues to grow. According to a survey conducted by polling firm Data for Progress, most voters – be they Republican, Democrat or Independent – support legalizing recreational marijuana at the federal level. The survey found that 65% of Americans are in favor of the legalization of cannabis. And across the political spectrum, ending cannabis prohibition was supported by 75% of Democrats, 67% of Independents, and 52% of Republicans.

"It is time for the U.S. government to right its previous wrongs from the failed 'War on Drugs' and legalize recreational marijuana while giving back to those communities who were heavily affected," concluded Data for Progress in its survey. "Our poll shows that voters are ready for the U.S. government to finally legalize the adult use of recreational marijuana. It also shows that when the U.S. government does legalize recreational cannabis, voters support passing equitable policies with it that aid minority communities, including reserving dispensary licenses for individuals affected by cannabis prohibition and diverting portions of marijuana revenue to community grant funds." 

We have been following polling data on cannabis legalization before we launched Poseidon, and the movement has shown constant growth in support. While Democrats initially led legislation around weed legalization, we are seeing more Republican states take efforts that support cannabis – like those being made toward recreational weed legalization in Florida.  These legal medical and adult-use recreational programs will lead to a decline in stigma around the plant. It's great that, for the first time, we are seeing a majority of Republicans now supporting cannabis legalization at the federal level.

House Introduces Bill Allowing Gun Rights for Medical Cannabis Users

Unfortunately, it seems the wishes of the American people will continue to be ignored or controlled by the forces driving the agenda in our country. This week, we saw the first cannabis bill to be introduced by the 118th Congress. The bill is not about descheduling, banking (like the failed Safe Banking Act), social equity, expungement, capital markets access or even the pressing matter of resolving the 280e tax. These are the major pain points in the industry, so what else could be a priority? Well, I guess it would be un-American to overlook the importance of firearms, because that is what we got: A bill to allow medical patients to have the right to buy guns. 

GOP lawmakers in the House of Representatives are seeking to amend a federal law relating to gun sales and medical cannabis patients. Currently, medical and recreational cannabis users are barred from purchasing or possessing guns as the plant remains illegal at the federal level. The bill, sponsored by Rep. Alex Mooney (R-West Virginia), proposes reforms on the sale, purchase, receipt and possession of firearms or ammunition for medical marijuana users. 

This bill comes at a time when we are hearing about more organized crime groups sweeping through legal cannabis dispensaries in Northern California and Michigan, stealing their cash and even their ATMs. It is high time for a change in this country, and cannabis continues to be a positive change agent. We have reported on the economic improvements seen in communities that have legalized recreational cannabis. We are ready for Congress to do what the American people want now and not delay their decision until the 2024 election cycle, with the risk of seeing more failed promises. 

Lawmakers in Minnesota Are Eyeing Adult-Use Weed Legalization

Once again, we are seeing huge progress on the cannabis front at the state level. According to state-level data, Arizona and Illinois saw record cannabis sales in 2022. Lawmakers in Minnesota have seen the positive gains and are working towards legislating an adult-use recreational cannabis market in their state. 

"Minnesotans are ready," Rep. Zack Stephenson said. "Cannabis should not be illegal in Minnesota. Minnesotans deserve the freedom and respect to make responsible decisions about cannabis themselves."

There is quite a bit of work to be done with many committee hurdles to get the framework to finality, but there is real interest within the state to get it done. 

Connecticut Surpasses $2 Million in Legal Cannabis Sales 

The benefits of adult-use weed legalization are bearing fruit in the newly opened Connecticut market. The Constitution State broke the $1 million mark for recreational cannabis sales just 3.5 days after launch, and it seems like a pretty smooth transition from our contacts. We have not heard about any supply constraints like in the first days of New Jersey's adult-use opening. 

"We are proud to have overseen a smooth and successful launch of the adult-use cannabis market that provided a positive consumer experience, was not disruptive to our communities or to the existing medical market, and ultimately resulted in robust and consistent sales," said Michelle Seagull, commissioner of the Department of Consumer Protection, in a statement.

Connecticut is another excellent addition to the legal recreational weed market. After years of West Coast dominance, the Northeast is poised to be the nation's new national hub for cannabis. The combined populations of New Jersey, New York and Connecticut (33 million people) form a massive consumer market in the tri-state area and should generate many new opportunities for recreational cannabis brands. Perhaps this will force the issue of homogenization within the state regulatory structures, which would be a compelling idea for the industry and multi-state operators to force the federal government's hand before the industry moves further from its grips. 

Green shoots come in different contexts in cannabis – and recent news from TPCO Holding (GRAMF) and Jay-Z, its chief visionary officer, is just one example. 

We typically note the state level action, but there are plenty of opportunities for businesses to make good strides. We have seen wholesale price compression in certain state level markets, such as a legacy market like California. Some California cannabis operators have struggled with imbalanced supply relative to the local level rollout of adult-use access. Operators are also faced with high regulatory costs and a prolific illicit market. We have seen many businesses fail in California as a result of these known issues. 

However, plenty of operators are working very hard to build or rightsize fundamentally sound businesses. The most recent illustration of this is a restructured deal between Jay-Z and TPCO, also known as The Parent Company. As part of the arrangement, Jay-Z, Roc Nation and Monogram will return roughly 7.1 million GRAMF shares, which will help TPCO save around $33.5 million in top-line costs over eight years.  

We have much respect for CEO Troy Datcher, who has been working very hard to shed a lot of bad assets that were a part of the creation of The Parent Company. He has also been working hard to realign overhead and focus on the business. The worth of such a significant sum of savings expected through the restructuring deal with Jay-Z, Roc Nation and Monogram can not be overstated, as cash is a precious resource in the cannabis industry. 

This deal was a major undertaking and is another good step in the right direction. It's not easy to be a part of or lead a turnaround, so we tip our hats to Troy, Jay-Z and the team for their continued efforts. Hopefully, we will see more green shoots in the way of renewed growth for TPCO after all this work.

Adult-Use Cannabis Sales Begin in Connecticut 

The recreational cannabis market continues to expand at the state level as more states prepare to kick off legal adult-use sales. This week, Connecticut's first round of recreational dispensary openings began, with seven initial retailers starting sales in the state. As many as 40 stores and dozens of other cannabis-related businesses are expected to open by the end of the year. Over $250,000 in sales were generated on the first day of legal sales, as reported by state regulators in Connecticut.   

"We have had no reported issues at any of our retailers, and we are proud of the successful launch of the regulated adult-use market," said Michelle H. Seagull, commissioner of the Connecticut Department of Consumer Protection.   

New England is almost completely adult-use legal now, except New Hampshire – a somewhat sad and conflicting status for a state with the motto "Live Free or Die." For now, we are very excited for the good people of Connecticut to gain legal access to cannabis. We believe this will be a solid region for business due to limited licenses and tight capital markets constraining the buildout of too much capacity. There are also several publicly traded marijuana stocks with exposure to the state, such as Ayr Wellness (AYR), Acreage Holdings (ACRHF), Curaleaf Holdings (CURLF), Green Thumb Industries (GTBIF), Trulieve Cannabis (TCNNF) and Verano Holdings (VRNOF). 

High Demand for Cannabis in Maryland 

Continuing with the theme of state level action, Maryland's adult-use regulation framework is underway. The plan is to open the Maryland adult-use recreational weed program this year, and there is considerable anticipation from consumers. A study by Cannabis Public Policy Consulting found that Marylanders purchase and consume cannabis in higher volumes than residents in other states. While residents in states where cannabis is legal average around 20.2 grams per month, Marylanders averaged 25.4.

"That's actually a pretty big difference," says Michael Sofis, a researcher with Cannabis Public Policy Consulting. "Generally, we did see higher [numbers] particularly in terms of the total volume of the consumer – and what they're willing to give up, time and money wise. It was really impressive to us."  

The state currently projects that recreational cannabis users in Maryland will consume close to 1.8 million pounds in a year. Maryland projects to be another key market for U.S. cannabis, and at Poseidon, we have previously estimated the total medical and adult use market size in Maryland to reach $1.3 billion. Several publicly traded U.S. cannabis companies are looking to benefit from the additional growth and revenue added by the Maryland market later this year. 

Economic Improvements and More Jobs in States with Recreational Cannabis 

The National Bureau of Economic Research published a study finding that adult-use weed legalization is associated with economic improvements and increased job opportunities. Researchers at San Diego State University and Bentley University found little evidence that recreational marijuana laws adversely affect labor market outcomes among most working-age individuals. Instead, the research authors suggest that cannabis reform has introduced a new industry, which ultimately creates jobs and opportunities for the working class.

Truthfully, it is no surprise to hear about the economic gains seen with cannabis legalization. For hardworking cannabis industry folks like ourselves, we see progress every day. We see the jobs created, we see the drive, and we enjoy working with the countless very motivated and intelligent people within the industry. It is also very common to hear from people that they have reduced alcohol consumption, sleep better, and are higher functioning, thanks to the benefits of cannabis. Those individuals continuing to take strong stances against cannabis are sounding more and more foolish – like ostriches with their heads in the sand. The data continues to point towards a general improvement for society by ending the long, failed war on drugs. If only Washington D.C. could learn its lesson and follow suit.

While the federal government drags its feet on cannabis reform, the real action in cannabis continues to proceed at the state level. Most recently, this is being seen in efforts toward recreational weed legalization in Florida. 

Since 2014, the Sunshine State has been one of the most successful medical cannabis programs in the U.S. However, major opportunities available for legal cannabis are still brewing as those within the industry weigh up the potential for adult-use legalization in 2024. 

The proposed "Adult Personal Use of Marijuana," which supports recreational weed legalization in Florida for adults over 21, is building momentum. Already, the initiative has collected about 150,000 signatures since late last year. 

We are bullish about the prospects of adult-use cannabis passing in the state and see many benefits of weed legalization in Florida from a societal and economic standpoint, not to mention the political gains for the industry with another red state going adult-use. There's plenty more work ahead, but real money and attention are focused on making sure adult recreational cannabis use passes in Florida. 

Legal Cannabis Retail is Growing Rapidly in Vermont

Vermont's adult-use market is showing strong growth, with additional access opening across several jurisdictions. Weed legalization was signed into law in Vermont in 2018, but recreational sales in the state did not begin until October 2022. According to Vermont's state marijuana regulatory authority, 25 stores have already opened, with four more to open within a month. 

During its first month of sales, Vermont generated $2.6 million in adult-use sales and projects to make up to $65 million in 2023. Vermont does not get much media attention, given the limited ability of capital to participate there. However, this is yet another positive for the citizens and the tax revenues they will generate with their ability to purchase cannabis legally. Vermont has a long history with cannabis, and it is great to see this newer program thriving. 

Adult-Use Cannabis Sales Begin in New York 

The cannabis industry has another legal adult-use state, with New York's first legal cannabis retailer officially opening its doors as the ball prepared to drop on 2022. Housing Works Cannabis Company, located in Greenwich Village, became New York's first state-sanctioned dispensary. A series of dispensary openings are expected in the coming months following 2021's cannabis legalization in the Empire State. 

Housing Works is the first of 36 recently licensed dispensaries to open. In keeping with the state's social-equity efforts, its first-selected retailer, Housing Works, is a minority-controlled social-service agency serving individuals with HIV and AIDS, as well as the homeless and formerly incarcerated. 

"We're absolutely thrilled to be the first and hopefully setting a model that other folks will have to follow," said Charles King, CEO of Housing Works. "This location is a perfect location. We're between the West Village, the East Village. Tourists can come by here easily. So we think we're going to ring up a lot of sales here."

Team Poseidon has been on site for the launch of many adult-use states over the years. It's always exciting to see people celebrate cannabis legalization for the first time, and it's a great reminder of what this industry has accomplished since Colorado's first sales in January 2014. New York is off to a rocky start, but with the legal cannabis program underway, we will continue to watch its progress from here. 

Congress Explores Federal Tax Deductions for Cannabis Businesses 

After a year of growing momentum for cannabis in Washington, the Senate ultimately failed to pass, or even hold a floor vote, on the SAFE Banking Act in the final days of 2022. Passing SAFE Banking would have provided cannabis businesses across the industry with much-needed access to financial institutions and given a potential pathway to placement on the major equities exchanges like other marijuana stocks. With the painful memories of SAFE's failure to pass in the rearview, the cannabis industry must learn, unite and move forward.

The next possible step for seeing substantial improvement and growth across the cannabis industry would be to address federal tax reform in cannabis. The incredible tax burden levied on cannabis operators in the U.S. affects businesses of all sizes. Because of federal 280E taxes, legal cannabis businesses possess more significant tax burdens than most other companies, which remains a problem for the industry. The most powerful step forward in helping small cannabis businesses is to repeal 280E and replace it with a more modest federal tax rate. 

House Representative Nancy Mace, R-South Carolina, made a symbolic statement by filing H.R. 9702, a bill to address this very issue, on the last day of 2022. We appreciate this show of support, but the bill will have to be reintroduced in 2023 with an even less-appealing composition of House and Senate members. More work is needed from our industry to be united on this tax reform and to put real pressure on our elected officials to get things done. The industry's future is in its own hands, and we look forward to seeing what unfolds in 2023.

The most action in the march toward federal legalization of recreational marijuana typically occurs during election years – 2024 will be no different for one of the top cannabis trends. 

At the state level, Pennsylvania and Florida could potentially join the legal cannabis industry. Indiana, which did not appear to be entering the legal cannabis space previously, may also join the march toward legalization after introducing a ballot initiative for November. 

Regarding federal progress, let's not forget to mention the SAFER Banking Act. There is no indication that the Act will ever progress on Capitol Hill and the issues it hoped to address will likely be resolved through other channels. 

Politicians seeking reelection may continue to discuss SAFER to garner support, but that ship has sailed. As an American voter, it is embarrassing to see that our elected officials have been unable to get more done involving this act since it was introduced years ago. 

We are not the only ones frustrated about the lack of federal progress, leading others to explore separate channels, such as the judiciary branch. One example of this is the Boies Schiller Flexner lawsuit against Attorney General Merrick Garland. It would not be surprising to see Garland come forward with a memo similar to the Cole memo of years ago. If he does, it would be a meaningful step in the right direction.

We're watching a potential reclassification of cannabis at the federal level

Another meaningful step in the right direction would be the reclassification of cannabis under the Controlled Substances Act. There is a high probability that the Drug Enforcement Agency (DEA) will follow the Department of Health and Human Services' (HHS) recommendation to reclassify cannabis as a Schedule 3 substance. 

We are all waiting on this move and believe it could be announced on April 19, 2024, since the 20th is a Saturday. Democratic leaders like Senators Chuck Schumer and Cory Booker may hold press conferences and try to take a victory lap, but they haven't played a significant role in this moment. 

Will Congress pursue an excise tax?

We will also monitor Congress as federal lawmakers may attempt to pursue an excise tax once the 280e tax burden is removed. The potential excise tax is a political tool and we will ultimately see an unnecessarily punitive tax rate of 14%. 

Implementing an unnecessary tax such as this would be unfortunate because the legal industry is battling an illicit market and the exploding intoxicating hemp market that is free of excise or 280e taxes lacks regulation. We expect Congress to act here, forcing intoxicating hemp into the legal, regulated channels.

The progress that can be made in 2024 will revive the animal spirits of cannabis and a tidal wave of liquidity will pour in. An influx of liquidity will allow debts to get refinanced and equity-raising to return, saving companies that are not surviving otherwise. Not to mention, it may open the door for the first U.S. operator to appear on a major U.S. stock exchange. Assuming we see the above come to fruition, 2024 will be the most exciting year ever in the legal cannabis industry.

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The SAFE Banking Act failed to get through Congress this year, with Senate Majority Leader Chuck Schumer blaming Senate Republicans for keeping the bill from passing. Congress's failure to pass SAFE means that communities across the country are still vulnerable to crime and forced to operate as all-cash businesses. Not only that, many small cannabis businesses will still lack access to support from banks and financial institutions.

"We had very good bipartisan support. We had hoped to get it done. I worked for months with different Republicans, led by Senator Daines (R-MT) – but at the last minute, both Senators Toomey and McConnell opposed it," said Schumer. "It is bipartisan. It has the support of many groups. We're going to go back at it next year."

The cannabis industry will long remember Schumer as the worst Senate majority leader to date. He lied, wasted time, and has now crumbled to McConnell's pressure. Schumer holds arguably one of the most powerful positions in Congress and has nothing to show for it. We have a real problem in this country when elected officials do not uphold their primary function, which is to represent the American people. 

iAnthus Explores Takeover 

M&A news continues throughout the cannabis industry. The Canadian and U.S. cannabis company iAnthus Capital holdings is exploring a potential sale after receiving offers from prospective acquirers. The company operates dispensaries in New York under the Be. retail brand. We're not overly excited about these rumors of a group buying iAnthus as the marijuana stock, which trades on the Canadian Securities Exchange, is down 65% this year. 

Assets have degraded significantly over the years due to the many challenges iAnthus brought upon itself. Groups have tried to raise assets to buy distressed cannabis operators before, but the strategy is generally perplexing. Most of these distressed assets are not worth saving. Further, we see higher quality opportunities where new money goes towards generating growth versus paying off past issues. 

NYC Creates Task Force for Unlicensed Cannabis Stores 

New York City has started the game of whack-o-mole by trying to tamper down the numerous illicit retailers the city has let proliferate. Mayor Eric Adams announced the creation of a joint task force to weed out illegal dispensaries. More than 100,000 products worth $4 million were confiscated over the last two weeks. Adams also said that illegal store operators would be educated about how cannabis licensing works, but some still face a shutdown.

"To those who believe this is going to become the Wild, Wild West of cannabis sales, we are saying clearly and loudly 'No, it is not,'" Mayor Adams said at a press conference. "Our goal is not to incarcerate. It is to confiscate and educate."

We appreciate the approach of attempting to reset the landscape for New York's legal operators without using incarceration as their stick, but the city is very far behind. New York should also consider monetary fines against landlords that accept rent from illegal operators. We have seen this approach work in areas like Los Angeles to a lesser degree, but that seemed more related to a lack of enforcement efforts.

New Jersey Recreational Cannabis Sales Reached Over $100 Million in Q3

Meanwhile, New Jersey's legal cannabis industry continues on its positive growth trajectory. Third-quarter adult-use cannabis sales in the state exceeded $100 million for the first time. The New Jersey Cannabis Regulatory Commission (NJ-CRC) reported a 46% increase from the prior quarterly total. The state started adult-use sales in April and reported $5 million in marijuana tax revenue from the first ten weeks of sales. 

"We have now awarded 36 annual licenses for recreational cannabis businesses to New Jersey entrepreneurs, including 15 for dispensaries," said NJ-CRC Executive Director Jeff Brown. "Those businesses alone will be a significant growth of the market. With more locations and greater competition, we expect the customer base to grow and prices to come down."   

New Jersey has the chance to be a healthy market for a lengthy amount of time, given the continued growth of taxes generated and collected. The lack of capital flowing in our industry will keep the state's supply in check, and there is little to no interest in building excessive amounts of expensive cultivation. We are also seeing a decent progression of retail openings, which should keep a bid on wholesale pricing. This dynamic is a welcome divergence from other markets in the early stages of bringing supply offline. 

At Poseidon, we've long been proponents of the SAFE Banking Act, legislation that will improve cannabis companies' access to finance. The importance of SAFE lies more in what it represents for small businesses and possible changes at the federal level. 

The SAFE Banking Act is an unsophisticated bill that should have passed a long time ago. Somehow even with bipartisan support, Congress is struggling to get it done. After missing out on getting attached to last week's defense budget during the lame-duck session, SAFE's remaining opportunity to pass will be with the omnibus funding package before the year's end. 

This bill was not meant to be a comprehensive reform, but it was an important step forward in recognizing the risks that small businesses are facing in the industry. We also saw the benefits of increased liquidity because it would expand the potential capital pools. Sadly, many businesses will not survive this challenging period in the legal cannabis industry regardless of the SAFE Banking Act passing. However, the long-term benefits are very real, and we want Congress to support cannabis banking as many American voters do. 

Taxes Cause New York Legal Cannabis Prices to Soar 

The state of New York is off to a rocky start with its adult-use marijuana program. In addition to the challenges of the retail rollout and supposed funding mechanism, the state has also set a stiff tax rate. Green Market Report shared data from the New York State Bar's cannabis law section estimating that legal recreational cannabis will be sold at prices almost twice as high as what is sold by unlicensed dealers. With all of New York's taxes factored in, a legal eighth of cannabis flower will likely cost over $75.

"It just creates a scenario where small businesses, women- and minority-owned businesses, really struggle to compete," said Jason Klimek, tax lawyer and author of the white paper on New York's cannabis taxes. "That's really what it comes down to: allowing these entrepreneurs to compete against a very, very entrenched illicit market."

As we have seen in California, markets with strong illicit sales and high taxes struggle to thrive. The logical mind would think that new states would learn from the mistakes of previous adult-use cannabis programs in other states, especially when applied to their regulatory structures and tax rates. There are 20 other markets to look at, yet New York is setting examples of what NOT to do. We continue to see border states like New Jersey and Connecticut benefiting from the bad decision making in New York.

New York Announces its Cannabis Delivery Regulations

Adding to the chaos in New York is a new regulation that was approved, which permits cannabis delivery via bike, scooter, vehicle or by foot. The new regulation requires payments to be made online ahead of time, and no cash transactions will be allowed. It is still unclear how consumers will pay online without SAFE banking legislation. 

"We thought while we wait for some of these locations to come online, while people take the time to find space, we should give everybody an opportunity to get started on retail delivery," said Axel Bernabe, chief of staff of the Office of Cannabis Management.

Our initial read is negative and continued poor decision making by New York. It takes sensible regulation, taxation and licensure, with plenty of case studies. This surprise move feels rushed, and the implications will be seen in time. Like any state, we want to see a thriving legal cannabis market in New York. We want to see capital flowing into the industry, but capital wants to be treated well – something we all long for after a tough bear market in the cannabis industry.

TerrAscend Reduces Debt in Deal with Canopy USA 

Good management teams will continue to drive forward regardless of the negative headwinds in the macroeconomic world, such as those covered above. Marijuana stock TerrAscend (TRSSF) and Canopy USA – a U.S. holding company of Canopy Growth (CGC) – have entered into an arrangement where Canopy USA will convert CAD$125.5 million in TerrAscend debt to exchangeable shares at CAD$5.10 per share. This is a significant deleveraging event for TerrAscend as it has now retired $120 million of debt in recent weeks.

"Canopy USA continues to be a trusted investor and partner. We thank them for their continued support as they increase their conditional ownership in the Company," said Jason Wild, executive chairman of TerrAscend in a press release. "This transaction, combined with a recent $30 million pay down of our Michigan loan, materially improves our balance sheet and reduces annual interest expense by approximately $10 million." 

The team at TerrAscend has taken another positive step forward with their announced transaction with Canopy USA. Reducing debt and the subsequent benefits to cash flow by cutting the interest expense is meaningful for TerrAscend. Their balance sheet has seen considerable improvement, a big success in any environment and especially noteworthy in the current market.

This week, cannabis industry advocates were closely watching to see if the National Defense Authorization Act (NDAA) would be used as a vehicle to advance legislation on cannabis banking reforms such as the Safe Banking Act or Safe Plus. 

This pathway seems all but closed after legacy remarks from Republican Senator Mitch McConnellof Kentucky came back to the surface. Committee consideration of the large-scale defense bill was delayed amid disagreements among House lawmakers over several key issues. At the same time, several senior GOP senators filed concerns with the Department of Justice about the possibility of cannabis banking reforms. 

In this column, we've indicated for several weeks that the current lame-duck session is the best chance for D.C. to pass federal banking reform via either SAFE or SAFE Plus. However, the winds of The District's power circles shift quickly. Even as the odds are the best we have seen for cannabis, there are still so many other factors at work. The cannabis industry needs ongoing political initiatives, "horse trading" and other factors to fall in its favor. This year the cannabis industry has made real progress in D.C., and it would be a shame to see a repeat of last year when SAFE was removed from the legislation. There are other pathways to cannabis banking reform, and we will see what possibilities materialize next outside of the NDAA. 

Cannabis Stocks Rise on Reform Hopes

U.S. cannabis operators and cannabis exchange-traded funds (ETFs) made gains with the growing anticipation of federal reform. In terms of marijuana stocks, Green Thumb Industries (GTBIF), Curaleaf Holdings (CURLF), Trulieve Cannabis (TCNNF), Cresco Labs (CRLBF) and subsequent ETFs with those as primary holdings were each up as of Monday morning. 

Those gains have retraced after it seems clear that SAFE was removed from the NDAA. Continued efforts from Senate Majority Leader Chuck Schumer (D-New York) continued efforts to pass two cannabis bills – the SAFE Banking Act and the HOPE Act – before the holidays provided a brief boost in the marketplace, similar to other recent news on federal reforms. 

This new potential direction would be a welcome change after a brutal, almost two-year-long bear market for cannabis. The moves off the 52-week lows had been impressive in percentage gains. We saw another reversal mid-week as investors and traders quickly sold. 

This political theater is likely going to continue for a few more weeks, which is wearing thin on cannabis public market sentiment and there is risk of increased volatility until there is clarity. When former Attorney General Jeff Sessions rescinded the Cole Memo, the only existing federal guidelines for cannabis, capital markets were heavily impacted and saw limited trading access, custody, participation, and more. 

Each time we get close to federal reform, stocks rise as the market wants to see this change and the potential benefits gained. Many large operators have mostly found ways around banking issues, but getting cash into the banking system, removing capital market restrictions and the ability for stocks to list on major exchanges could produce a big lift for the industry.

The End of Cashless ATM Payments at Dispensaries

There has been a wave of cashless ATM crackdowns on the doorstep of potential federal banking reform. Cashless ATMs allowed consumers to use a debit card at dispensaries instead of cash. The payment method mimics a typical ATM exchange to get around the federal illegality of cannabis transactions. This year, nearly $7 billion was moved past the usual money-laundering controls of the U.S. banking system. We understand this cleanup has been underway for a while, but so has the progression of federal banking reform. 

Previously, it was very common for providers to have ATMs onsite and set up payments via debit at cannabis retailers. ATMs were a revenue source for both the providers and the retailers and a means of offering a more normalized customer experience since traditional credit card transactions were unavailable. The cashless ATM payment method has been turned off for now and possibly for good. 

We expect a short-term disruption for retailers, as it is estimated that 25% of transactions in the $26 billion U.S. industry, per Headset data, were done this way. Assuming federal reform passes, there will likely be a gap in time before traditional payment platforms for Visa (V) or Mastercard (MA) can participate in cannabis. If federal banking reform does end up passing in the lame-duck session, major financial institutions may begin participating in cannabis by Q2 next year. Otherwise, the onus remains on the industry to navigate forward as we have been doing all along.

President Biden Signs Medical Marijuana Research Expansion Act

The final months of 2022 have been historic for the continued progress of U.S. cannabis. President Joe Biden has signed the Medical Marijuana and Cannabidiol Research Expansion Act, marking the first time an American president has signed cannabis-specific reform legislation into law. The bill makes it easier for researchers to study the plant and calls for the federal government to look into the potential therapeutic benefits of cannabis with a rescheduling review in mind.

We were excited to see this bill work its way through the House and quickly through the Senate because it was a simple piece of legislation. Simple seems to work in D.C. when you have bipartisan support. Many in the industry want to see more, but this is a great starting point for increasing the U.S. government's understanding of the plant. This could be one of the most underappreciated gains our industry has seen, and we expect its importance to gain attention in the years to come.

Leafly released its annual Cannabis Harvest Report revealing an unparalleled analysis of the last year of cannabis farming in the U.S. Cannabis surpassed potatoes and rice to become the sixth most valuable domestic crop, with Leafly estimating the value of legal cannabis at $5 billion. 

Adult-use cannabis is grown at more than 13,000 farms and is the leading cash crop in Alaska, Massachusetts and New Jersey. The U.S. legal cannabis industry continues to grow each year as more states vote to legalize and regulate marijuana. Cannabis tax revenues have exceeded other industries like alcohol in states such as Illinois and Massachusetts. 

Regardless of wholesale prices declining in various states, we expect cannabis to continue marching up this list, potentially becoming the second or third most valuable crop by the end of the decade. The trend is our friend as more legal access continues to open nationwide. 

International Market for Medical Cannabis to Reach $40B by 2028 

We talk a lot about the U.S. cannabis industry given its current size and maturity relative to global markets. However, we are starting to see meaningful progress globally with better visibility into its growth trajectory. 

Analysis of the international medical cannabis market shows that it is projected to experience an estimated compound annual growth rate of 19% from 2022 to 2028, reaching $40 billion in value. The World Health Organization also reported that 80% of the world's population utilizes cannabis or hemp for medical treatments. The increase in global acceptance of medical cannabis is a big reason for the market's expansion, and international companies will now garner increasing attention and capital. 

At the moment, international annual growth rates are more robust than the projected growth rates in the U.S. There are several public marijuana stocks and cannabis exchange-traded funds (ETFs) that have exposure or have the capabilities of investing in international companies as that market continues to grow rapidly. It is exciting to see the combined legal U.S. and international cannabis industries likely to exceed $100 billion annually by the end of this decade. 

New York Denies Dispensary Access to MSO's

The long-term growth opportunities in cannabis are very attractive, but state regulations are halting development in some cannabis markets and causing uneven progression. 

In New York, regulators released new guidance for dispensary operators, including provisions restricting vertically-integrated multi-state operators (MSOs) from opening dispensaries. The new guidelines state, "Retail dispensaries, their true parties of interest, passive investors, and any management service providers cannot have any interest in any businesses anywhere that cultivates, processes, or distributes cannabis." However, there is a potential that dispensaries will run low on inventory and still require help from MSOs to obtain products. This patchwork policymaking combined with the less-than-ideal implementation and structure of regulations can result in quite a range of market dynamics. 

New York is a newer adult-use legal market, and they are off to a poor start. Right now, there is a danger of rampant illicit market activity with no enforcement. We expect to see challenges similar to the issues seen in markets like Los Angeles. The state is finally starting to explain its regulatory dynamics, and the first read is going to deter capital flows and a thriving adult-use market. As longtime industry participants, we believe this will result in a slower trajectory for New York versus a neighboring state like New Jersey.

Any of the securities identified and described herein are for illustrative purposes only. Their selection was based upon non-performance-based objective criteria. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities identified.

This week, Canopy Growth Corporation made another major move. The struggling Canadian cannabis company announced the creation of Canopy USA, a new holding company which will consolidate its U.S. assets, reduce costs and clarify their entry into the U.S. market. Previously, Canopy had paid significant sums to acquire Wana Brands, Jetty, and stakes in Acreage and TerrAscend under conditional ownership terms that have not been met. 

At the same time, its stakeholder Constellation Brands, the largest beer import company in the U.S., announced it will convert its existing common shares in Canopy into new exchangeable shares. 

“We believe that the conversion of our ownership interest will maintain Constellation’s ability to realize the potential upside of our investment in Canopy,” said Bill Newlands, CEO of Constellation Brands.

Canopy’s announcement seems to be driven by Constellation Brands’ interest in protecting these U.S. assets from the rest of Canopy. The Canadian business is showing continued stress, and we would not be surprised to see Canopy Growth face issues with creditors in the coming months. Constellation's desire to create a separate entity for U.S. assets does show confidence in the potential for SAFE banking to pass in the U.S. as early as next month during the lame-duck session. 

Canadian Licensed Producers outperformed US operators following the announcement of Canopy USA, and Cannabis ETFs and their underlying exposures also rallied. Canopy shares led the day’s rally with a gain of ~27%. U.S. cannabis participated in the rally to a lesser extent, which we see as largely attributable to the structural imbalances created by Canadian LPs with access to listed exchanges versus their U.S. operating counterparts. 

Charlotte’s Web Links Deal with Southern Glazer’s

Denver-based Charlotte’s Web was a real first-mover brand in the CBD category. Now the market leader in hemp extract wellness products, they’ve made headlines the past couple of weeks by becoming the official CBD sponsor of Major League Baseball and signing a distribution agreement with the major liquor distributor Southern Glazer’s Wine and Spirits. 

"This exciting relationship [with Southern Glazer’s] is another step in delivering on our promise to shift our model to key multi-state distributor relationships in new industry verticals," said Jacques Tortoroli, CEO of Charlotte's Web.” 

The normalization of cannabis and hemp continues, and mainstream industries want to tap into long-term growth potential that industry participants have been building on for many years. Charlotte’s Web is pushing the growth envelope after the CBD category went through a major boom or bust cycle. Oversupply in the market caused significant price compression and left many brands and operators out of business. 

We understand the drive for growth from Charlotte’s Web as its balance sheet was not immune to the challenges noted above. It will be interesting to watch how this strategy pans out for the emerging brand as the current market environment is focused on fundamentals and balance sheet over brand narrative. 

Support for cannabis legalization is skyrocketing

At Poseidon, we regularly comment on how cannabis relates to other social trends and moments in history. Over the years, support for cannabis legalization has been consistently growing in the polls, and same-sex marriage has been a regularly cited progression for how voter support can turn into federal action. 

New polls from Monmouth University found that 7 out of 10 Americans are for legalizing small amounts of cannabis for personal use. Twenty years ago, those poll results would’ve been flipped, with only 3 out of 10 participants supporting legal cannabis. The numbers represent a large shift in voters’ feelings in a relatively short span of time, and same-sex marriage is the only cultural trend to produce such a strong shift in views from voters over a similar time period. 

We think it is exciting to see cannabis reaching a very similar amount of public support as same-sex marriage. It’s not a coincidence that President Biden stepped forward as polling reached such strong support. The American people need to keep pushing forward to ensure that positive federal action is solidified. 

Two In Three Americans Want SAFE Banking

Industry trade groups like the NAACP and the American Bankers Association are speaking out in support of SAFE Banking. The ABA conducted a poll showing that two in three Americans support Congress passing legislation allowing cannabis businesses to access banking services where cannabis is legal.

“Americans firmly believe that now is the time to resolve the ongoing conflict between state and federal law to allow banks to serve legal cannabis and cannabis-related businesses,” said ABA President and CEO Rob Nichols. “We urge Congress to pass the SAFE Banking Act this year to enhance public safety in the 38 states where cannabis is legal in some form.

Last week, the NAACP’s board of directors approved a resolution calling for the immediate passage of SAFE Banking.

“The SAFE Banking Act could enable cannabis businesses with social equity licenses, diverse ownership licenses, or other licenses made available by states with medical- and adult-use cannabis laws that aim to foster a diverse and equitable industry, to better compete in the industry if it was coupled with the federal descheduling of marijuana and explicitly provided for fair terms and rates for Black-owned and social equity licensed cannabis businesses,” the resolution says.

It is high time for Congress to act or face getting voted out of office. The voters are the boss, not elected officials, and elections are our opportunity to remind them that they are accountable for their actions. The message has been clear to Congress and the Senate to get the job done, or we need to vote-in officials that will. We look forward to seeing Americans turning up to the polls and making their voices heard. 

The first generation of cannabis operators in Canada, including Canopy Growth (CGC, $3.75), made a number of unreasonable and costly investments during a frothy period of cannabis capital markets. 

Canada's so-called "Green Rush" was mischaracterized and most of those transactions failed to provide accretive value. We're continuing to see significant write-downs and shuttering as a result of these hasty decisions. Now that the bluster has given way, Canadian companies are adjusting their expectations. 

After business-to-consumer revenue fell by 28% in Q2, Canopy Growth sold off all its retail operations in Canada, including its corporate-owned stores under the Tweed and Tokyo Smoke retail brands. 

Canopy Growth is divesting from retail to extend its timeline for profitability as a "premium brand-focused cannabis and consumer packaged goods company." The company noted the operational savings from these transactions in an effort to improve CGC's projected general and administrative cost savings. 

Growth opportunities continue to exist for Canada's operators, but the competition in established U.S. markets has stifled their expansion. The U.S. has experienced a lesser degree of frothy capital allocation, and the large operators are demonstrating a difference in fundamentals by increasing gross profits, operating cash flow and securing free cash flow.

Insiders Back Passage on SAFE Plus 

The cost of doing business is much higher for cannabis companies than for other businesses because of the plant's federal illegality. Excessive taxes and a lack of access to banks or financial institutions hamper many up-and-coming cannabis businesses, but change could finally be on the horizon.  

"SAFE Plus," proposed legislation ensuring equitable access to financial services for cannabis businesses, has some probability to pass later this year in the lame duck session. Passing SAFE Plus could open a pathway for US multi-state operators to uplist to major U.S. exchanges.

There is a growing consensus amongst industry insiders that real headway is being made regarding amendments to cannabis policies. This commentary comes from parties working in Washington D.C., and reporting directly about what will be different this time. 

Our enthusiasm remains high for the value of this type of federal action given the potential outsized benefits the U.S. cannabis industry stands to gain. For example, we would not be surprised to see a loosening of capital flows disproportionately benefiting U.S. companies over the listed Canadian companies sidelined from direct U.S. exposure.

Marijuana Stocks See Movement as Biden Issues Cannabis Policy Review

Cannabis investing news made major headlines this week after President Joe Biden pardoned federal cannabis offenses and instructed federal officials to review how marijuana is classified. 

These are historic steps forward for the cannabis investment community. Poseidon has invested in cannabis since 2014, and this is the most important step forward to date. For the first time, we are seeing action from the executive branch on cannabis, and the announcement from Biden could be significant to more progress coming from the legislative branches. There is still so much opportunity for the cannabis industry to grow and changes at the federal level are crucial to the industry's maturation and longevity.

Over the years, we've spoken to countless institutional and strategic capital providers, and the vast majority have been waiting for a federal catalyst before deploying capital. The catalyst provided by Biden's announcement has considerable potential to unlock capital flows in the cannabis space. Shares of cannabis ETFs and marijuana stocks responded strongly, and most hit their highest trading volumes of the year or ever, with only one hour of trading left in the day.

As more investors start to act, there is the potential for continued gains across the industry in the upcoming days and weeks. 

Fervor for Cannabis Beverages Continues to Grow 

Growth in the cannabis beverage category continues with Cann's recent acquisition of CBD drink maker Sweet Reason. The deal is the next step in expanding Cann's brand and reach internationally. 

Beverages are poised to become a much more significant category in cannabis as technology continues to advance. Data from research firm Headset indicates that the U.S. cannabis beverage market share has grown by more than 20% in the last two years.

Operators also continue to further the development of their distribution and retail infrastructure to drive better economics. Per reports, the global cannabis beverages market is anticipated to grow to $2.9 billion by 2028 at a compound annual growth rate (CAGR) of 24.5%, according to global market research firm The Brainy Insights.

At the Benzinga Capital Conference last month, Boris Jordan, founder and executive chairman of Curaleaf (CURLF), expressed serious enthusiasm for cannabis drinks. "Beverages are the big prize ... Personally, five to 10 years out, I think cannabis beverages will make up 50% of the industry.” 

Curaleaf plans to unveil its first cannabis seltzer in Massachusetts and is well positioned in the high-growth product category in one of the East Coast's most mature markets.

Cann also secured $27 million in Series A venture financing from a consortium including Imaginary Ventures and Green Thumb Industries (GTBIF) earlier this year, the biggest Series A financing of a venture-backed cannabis company. 

"The cannabis beverage category is poised for growth," said Green Thumb founder and CEO Ben Kovler. "Consumers are increasingly entering the market seeking alternatives to alcohol with familiar consumption experiences."

Cann's plans to expand into New York, New Jersey and Connecticut in the coming year.

Voters in several states will decide in November whether to legalize recreational marijuana for adult use. If all the initiatives pass, nearly half of all states will allow their residents to legally use marijuana for recreational consumption.

Ballot initiatives that would set up legal markets for recreational marijuana sales have been approved, or are awaiting expected final approval, in Arkansas, Maryland, Missouri, North Dakota and Oklahoma.

South Dakota voters will face a ballot initiative that would legalize personal possession and home cultivation, but it wouldn’t create a regulated commercial market, similar to that of Washington, D.C.

Meanwhile, a medical marijuana initiative stands a good chance of getting on the ballot in Nebraska.

Ballot referendum efforts this year have focused on recreational marijuana, given that most states already have legalized medical cannabis.

Currently, 19 states plus the District have legalized marijuana for adult recreational use.

Based on increasing public support for legalization, the ballot initiatives all have a strong chance of passing. More than two-in-three Americans (68 percent) support legalizing marijuana, according to a November 2021 Gallup poll. That’s up from 48% a decade ago.

Still, it’s not a given that all the initiatives will quickly become law, as legal challenges could delay or derail their rollout.

Legalizing marijuana has become a bipartisan issue (and a new opportunity for investors to consider). While Democrats generally support legalization at a higher rate than Republican voters do, most of this year’s ballot initiatives are in states where Republicans control the state legislature and the governor’s mansion.

If you're wondering whether Congress will step in and just make pot legal nationwide, forget it. Senate Majority Leader Chuck Schumer (D-NY) has introduced such a bill in the Senate, but it has zero chance of passing. Plus, President Joe Biden has said he opposes legalization.

The U.S. cannabis industry is growing at an unparalleled pace. Cannabis sales for 2021 are estimated to finish at $31 billion, an increase of 41% over 2020. And yet, despite this positive sales growth, the outlook for investing in cannabis is mixed.

Cannabis stocks slumped in the second half of 2021 after diminished prospects of near-term U.S. federal regulatory reform extended barriers to broad ownership of cannabis equities by institutional investment managers. At the same time, mergers and acquisition (M&A) activity in private markets reached record levels as the industry grappled with increased competition and other byproducts of its latest expansion cycle.

While near-term federal regulatory reform remains in question, three trends are set to play a critical role for those investing in cannabis in 2022.

Financial Optionality Improves

The Secure and Fair Enforcement (SAFE) Banking Act will not pass in 2021 after it was removed from the National Defense Authorization Act (NDAA). Nevertheless, SAFE's initial involvement in the NDAA shows there is bipartisan support to pass federal banking reform.

While politicians' future actions on SAFE are unpredictable, it would seem the November 2022 midterms represent a line in the sand for political leadership to definitively take or not take action on the bill.

While SAFE plays out, companies will continue to rely on alternative financing to fund expansion. Lenders are becoming increasingly comfortable with cannabis businesses' financial sustainability and are accordingly offering better terms. In May, Green Thumb Industries (GTBIF) secured a sub-10% coupon – a first for a large public U.S. multi-state operator. These rates may be high by traditional industries' standards, but cannabis companies were subject to rates closer to 15% just a couple of years ago.

Credit markets are often a better judge of underlying business fundamentals than equity markets. With industry sales set to soar again in 2022, we expect alternative financing terms to also improve.

Notably for those investing in cannabis: Equities tend to follow credit over time, and as institutional capital gains access to the industry, we expect cannabis will be no different.

M&A Activity Will Accelerate

Cannabis-sector advisory firm Viridian Capital Advisors says a record $8.5 billion worth of M&A transactions closed as of mid-November, compared to roughly $3 billion last year and $3.7 billion in 2019.

That included a number of major deals, including:

• In September, TerrAscend (TRSSF) acquired Michigan leader Gage for $545 million.
• In October, Trulieve (TCNNF) acquired Harvest Health and Recreation for $2.3 billion, creating the largest and most profitable U.S. cannabis operator.
• Over the year, Harborside (HBORF) purchased leading California pre-roll brand Sublime for $43.8 million and announced a three-way merger with retailer Urbn Leaf and operator Loudpack, thus creating StateHouse Holdings. As with landmark deals in other states, these mergers signal the consolidation of California's fragmented market.

The latest consolidation push signals that investors are confident about the industry's future, and that confidence will continue into 2022. Competition remains fierce and consolidation will facilitate companies grabbing market share and building scale ahead of legalization and traditional industries' flooding into cannabis.

Established players have cash on hand, partly due to strong cannabis sales throughout the pandemic, and recent capital raises will help buoy M&A further. Viridian says that as of Q2 2021, the 10 largest U.S. cultivators had an average of $193 million in cash – triple the amount they held last year.

Canadians Bet on U.S. Legalization

Canadian licensed producers (LPs) started investing in U.S. cannabis operators in earnest in 2021. In June, Cronos Group (CRON) paid $110.4 million for an option to acquire a 10.5% stake in PharmaCann upon U.S. federal legalization. Then in August, Tilray (TLRY) acquired convertible bonds issued by MedMen in a deal that would allow Tilray to take a 21% ownership interest if, or when, the U.S. legalizes cannabis federally.

Such investments allow Canadian LPs to take part in U.S. cannabis without breaching restrictions on plant-touching companies listing on U.S. exchanges.

According to cannabis data and analytics platform Headset, Canadian sales will only reach $4 billion this year, significantly lower than the $31 billion projected for the U.S. With cannabis already federally legal in Canada, there is less room for growth in the Canadian market. In fact, excluding acquisitions, the largest LPs have seen their adult-use cannabis sales decline in the last year. Canadian companies will need to leverage the U.S. as a means for expansion that they can't achieve at home.

Recent news that the Canadian Securities Exchange (CSE) is considering creating a "senior tier" of companies on the exchange to make public LPs more attractive for inclusion in U.S. small-cap or mid-cap indexes bolsters our perspective on Canadian companies using U.S. markets to access liquidity and scale.

Investing in Cannabis? There's Growth Ahead

Federal reforms to cannabis could turbocharge the industry in 2022. But strong business fundamentals and positive trends will see the industry continue its rapid development regardless.

The federal reform holding pattern provides investors the opportunity to structure attractive deals and deploy capital at a compelling entry point. What's more, a longer regulatory timeline provides incumbents an extended runway to cement moats ahead of the tidal wave of competition that federal legalization will inevitably bring.

Multi-state operators (MSOs) are an intriguing model for many cannabis investors. But are these conglomerates evolving into a position at the top of the cannabis investment food chain?

Let's first briefly review what MSOs are, and the pros and cons of investing in them. Then we'll explain how you can go about dipping your toe into MSO stocks.

Pros of MSOs

A multi-state operator helps a brand expand nationally while carefully remaining within federal laws limiting interstate commerce. In short, cannabis grown in one state must remain there.

Yet a single brand representing a collection of operators can grow and gain brand recognition when sold locally under the same product name – but by legally distinct entities. This tactic means the MSO can build a loyal customer base, and prepare financially and operationally to go national when federal laws do, one day, allow it.

In the meantime, they function and aim for profitability through local, state-by-state "branches" offering seemingly identical products, but all locally grown, processed and distributed.

Challenges of Investing in MSOs

There are three obvious challenges to the MSO model:

• First, complying with varying and inconsistent state regulations means that economies of scale are tough to achieve; there is no single, optimized end-to-end manufacturing process for all products.
• Second, due to the geographical and environmental limitations, product consistency is hard to maintain because of variations in the raw materials. Part of the power of any brand is its consistency, but you can't achieve that when flowers grown in Southern California differ from those grown in, say, Pennsylvania.
• Finally, many investors are hesitant to invest in such a complicated entity, which is technically a conglomerate of many subsidiaries. The red tape and local license/tax requirements mean that an MSO presents a more complex financial structure than many investors have the stomach for.

Are these problems insurmountable? Certainly not.

While the challenges are real, multi-state operators have significant leverage in the market. Well-planned and managed MSOs are flourishing and providing attractive returns and are outperforming the market. In fact, multiple MSOs are reporting year-over-year growth with line of sight to $1 billion in annual sales.

They're clearly doing something right.

So, how can investors invest in multi-state operators?

Publicly Traded Companies

For most investors, the most feasible route to MSOs is tapping the public markets.

Several MSO stocks – such as Curaleaf (CURLF), Trulieve (TCNNF) and Green Thumb Industries (GTBIF) – are traded publicly. Because cannabis is still illegal on the federal level in the U.S., several of these companies can be found on Canadian stock boards and may require investors to use a special brokerage account to purchase. But in some cases, you might still be able to buy their over-the-counter shares in traditional brokerage accounts.

For investors that want to diversify, it's also worth looking at cannabis exchange-traded funds (ETFs). The AdvisorShares Pure US Cannabis ETF (MSOS), for instance, holds a number of well-known MSO stocks (hence the ticker).

Recently, cannabis companies have also been taken public through publicly traded special-purpose acquisition companies (SPACs), that make private-equity investments in undervalued private companies. For example, in January, The Parent Company (GRAMF) was formed when the SPAC Subversive combined the assets of Caliva, Left Coast Ventures and Jay-Z's cannabis company, Monogram. Other SPACs have announced similar deals. For instance, Silver Spike announced last December that it would take public WM Technology (MAPS), the entity behind Weedmaps.

Private equity exchange-traded funds (ETFs) and publicly traded investment firms could also be a viable option for investors who don't meet minimum thresholds. These publicly traded options allow investors to benefit from the private investments these firms make through the public market. The downside? They're likely to be diluted with many non-cannabis investments.

A new crop of publicly traded cannabis investment companies, lenders and even real estate investment trusts (REITs) such as AFC Gamma (AFCG) and Innovative Industrial Properties (IIPR) are coming to the markets. These publicly traded equity and investment firms can be accessed through an online brokerage.

Private Investment Strategy

The private investment market can provide much more explosive returns – but the bar for entry is much higher than in the public markets.

A private, single-state cannabis company is an acquisition target for an MSO (like the recent acquisitions of Blue Camo for more than $75 million, HMS Health for $27.5 million, and Dharma Pharmaceuticals for $80 million). The roadmap by which today's cannabis producer establishes itself and expands operations is heavily influenced by the guidelines in place to make itself attractive to an MSO.

The upshot? Investing in the early stage of one such "puzzle piece" means that your return is based on a much steeper growth rate than were you to invest in the "mother ship," who is paying a premium for such companies, then laboring to drive the success of the entire conglomerate. What's more, private equity investors often have influence on strategic decision making including catalyzing organic expansion and consolidation through acquisitions.

Next is the issue of risk. The three MSO challenges we opened with don't exist for the private company, focused in a single state, that can capitalize upon the economies of scale of cultivation and production:

• State regulations are clear and easy to adhere to.
• The financial structure is easier to manage and explain.
• The technologies and branding strategies are now mature, proven, and predictable (when executed well)

Finally, the simple fact that private companies can do business outside of the public eye is also an advantage. Many public firms overly focus on quarterly results. This makes public companies less risk averse and can cause them to miss out on long-term value opportunities.

In contrast, private companies that aren't beholden to short-term expectations from shareholders have a stronger appetite for long-term investments that will produce competitive advantage down the road.

How to Invest in Private Targets

For those who want to invest in private targets, look for a reputable professional fund manager. Any fund worth investing in will have disclosure documents that should be read closely.

The most important thing to note is that there are minimums for private equity investors. Some firms require as much as $25 million while others require as little as $100,000. These investors also need to meet income minimum or have a net worth of typically $1 million or more, excluding primary residence.

Angel groups are another way to invest in private targets. Angel investing can be made up of friends and family that want to invest in a startup. There are also lists of local angel groups that can be found online. Angel investing can start off with much lower minimums since people pool their money. For instance, 10 friends can each contribute $10,000, making a $100,000 investment in a company.

Regardless of how you make private equity investments, the same investment principals stand: Look for funds and targets with strong growth. When supported by experienced, creative, aggressive management teams, they join more traditional early-stage startups as clear acquisition targets for an expanding industry.

Cannabis stocks have heated up in recent years. But investing in cannabis companies isn't as straightforward as your traditional blue-chip stocks.

Since cannabis is still illegal at the federal level, U.S. stock exchanges like the Nasdaq and New York Stock Exchange that are overseen by the Securities and Exchange Commission (SEC) – a federal agency – can't list marijuana stocks that "touch the plant." Instead, cannabis companies that go public often list on Canadian exchanges, making it difficult for typical brokerage accounts to trade.

Regardless, there are several ways to invest in cannabis without actually investing in cannabis companies. Ancillary firms provide cannabis businesses with materials, technology and services but don't deal in the plant itself. That allows them to profit off the growing pot business and stay listed on U.S. stock exchanges.

Read on as we look at several ways you can invest in cannabis without owning a pure "plant-touching" cannabis stock.

Data is as of July 1.

To consume cannabis, you have to put it in something. That's where accessory and hardware companies come in. These companies make vape and smoking hardware, as well as other devices and packaging for consumers.

KushCo Holdings (KSHB, $1.21) sells vaporizer hardware and technology, child-resistant and fully customized packaging solutions, as well as complementary solvents and natural products. (Note: KSHB trades "over-the-counter" and thus isn't subject to the same reporting requirements that Nasdaq- or NYSE-listed stocks are.) Greenlane Holdings (GNLN, $4.72) distributes vaporizers and smoking accessories across the world through dispensaries, smoke shops and through its own e-commerce stores. The company has partnerships to distribute well-known brands such as Marley Natural, K. Haring, Pax and Vibes.

Companies like Greenlane and KushCo manage to stay free and clear of federal drug paraphernalia laws since most smoking accessories can be used dually for cannabis or tobacco.

Cannabis is really nothing more than another cash crop, like coffee or sugar. While it's only a weed, the commercial cultivation of the plant is highly complex; it's difficult to get a plant to express the right properties to deliver the desired effect. In several states where growing seasons are short and/or unpredictable, cannabis is likely grown indoors, which requires greenhouses, growing containers, dirt, fertilizer and the like.

Several publicly listed companies provide these materials.

Engineering companies such as Urban-gro (UGRO, $9.20) design high-performance grow facilities across the horticulture sector, including cannabis. Agrify (AGFY, $12.96) provides vertical grow solutions, which maximize space, as well as sophisticated indoor environment regulation technology. Scotts Miracle-Gro (SMG, $191.02), one of the biggest sellers of lawn and garden products, offers its products and services for cannabis growers without being directly involved in the industry.

Once cannabis went legal in California, adult-beverage makers took note. Several of the largest brewery stocks quickly partnered up with Canadian cannabis brands to get a foothold in the industry.

Anheuser-Busch InBev (BUD, $71.51) partnered with Tilray (TLRY) to develop marijuana-infused drinks. Constellation Brands (STZ, $232.43), the beverage maker behind Corona made an ownership stake investment in Canopy Growth (CGC), and Molson Coors Beverage (TAP, $54.15) gained entry to the cannabis market through a joint venture with HEXO (HEXO).

Beer makers aren't the only ones who are hedging their future on cannabis drinks. Coffee Holding (JVA, $5.19), a nearly 50-year-old coffee company, bought a stake in privately owned CBD beverage firm The Jordre Well.

Cannabis is touted for its healing properties. In fact, it gained its foothold in the U.S. through state medical-use programs. Yet, clinical research on cannabis and its utility for medical conditions has been limited. What's more, the U.S. Food and Drug Administration has not approved a marketing application for cannabis for the treatment of any disease or condition.

The agency has, however, approved one cannabis-derived drug product and three synthetic cannabis-related drug products.

AbbVie (ABBV, $115.25) creates a synthetic form of marijuana, Marinol, used to treat nausea and the loss of appetite in patients suffering from AIDS. Jazz Pharmaceuticals (JAZZ, $180.40) announced in May that it had completed its $7.2 billion acquisition of GW Pharmaceuticals (GWPH), which makes the cannabis-derived seizure treatment Epidolex. The premium price for GW demonstrates that pharmaceutical companies recognize the value and future potential of cannabinoid-based medicines.

Real estate has long been a way for the rich and connected to grow their wealth. Investors can get a piece of the action by investing in holding real estate investment trusts (REITs). Cannabis REITs were been the best-performing property sector for the second year in a row in 2020, soaring more than 150% despite the ongoing pandemic.

Check out companies such as Power REIT (PW, $40.27), which owns real estate assets related to controlled environmental agriculture, including greenhouse cannabis cultivation, and Innovative Industrial Properties (IIPR, $193.59), which focuses exclusively on the acquisition, ownership, and management of specialized properties leased to medical-use cannabis facilities. Together, these two account for nearly $5 billion in market value.

Investors who want to take advantage of the growth in the cannabis industry don't have to only choose traditional marijuana stocks. Adding companies that service the sector can complement cannabis investing or be a standalone strategy. After all, as more states flip from medical to rec, ancillary companies that support cannabis companies will continue to see major growth.