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.
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.
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