Jay-Z and TPCO Restructure Partnership: This Week in Cannabis Investing

Consumer-focused cannabis company TPCO will see significant cost savings thanks to a new deal with Chief Visionary Officer Jay-Z.

(Image credit: Getty Images)

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.  

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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.

Morgan Paxhia
Contributing Writer

Morgan Paxhia is Managing Director and Co-Founder of Poseidon Investment Management. With over 10 years experience in investing and finance, Morgan has developed a deep understanding of individual company analysis, portfolio construction, and risk mitigation. This content is not intended to provide any investment, financial, legal, regulatory, accounting, tax or similar advice, and nothing should be construed as a recommendation by Poseidon Investment Management, LLC, its affiliates, or any third party, to acquire or dispose of any investment or security, or to engage in any investment strategy or transaction. An investment in any strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. This content should not be considered as an offer or solicitation to purchase or sell securities or other services. Any of the securities identified and described herein are for illustrative purposes only.  Their selection was based upon nonperformance-based objective criteria. The content presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Past performance is not indicative of future results.