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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
-
Stock Market Today: Dow Logs Longest Losing Streak Since AprilThe November Producer Price Index showed that inflation remains a tough beast to tame.
-
Why Uber Stock Is Volatile After GM's Cruise AnnouncementUber stock is swinging this week following news that General Motors is restructuring its Cruise unit. Here's what you need to know.
-
Future U.S. Economic Growth Hinges on ImmigrantsThe Kiplinger Letter With the native birthrate slipping, employers are increasingly relying on foreign-born workers to staff up.
-
Farmers Face Another Tough Year As Costs Continue to Climb: The Kiplinger LetterThe Kiplinger Letter Farm income is expected to decline for a second year, while costs continue to up-end farm profitability.
-
15 Cancer Drugs Are in Short Supply, FDA reports: The Kiplinger LetterThe Kiplinger Letter The U.S. is working to address cancer drug shortages caused by manufacturing and supply chain woes.
-
Is the Economy Inching Toward a Recession?: The Kiplinger LetterThe Kiplinger Letter The odds of the U.S. tipping into a recession could depend on how a few key issues are resolved in the coming months.
-
Investments In U.S.-Made Drone Technology Are Gaining Strength — The Kiplinger LetterThe Kiplinger Letter The U.S.-Made drone aircraft, software sector has been boosted by a crackdown on Chinese drones amid security concerns.
-
The 10-Year Rule for Inherited IRAsKiplinger Tax Letter The IRS’ interpretation of the 10-year clean-out rule on inherited IRAs can be complicated.
-
Stock Market Today: Meta Earnings Spark Major Rally on Wall StreetThe Facebook parent's quarterly results overshadowed a worse-than-expected reading on Q1 gross domestic product.
-
Germany's Weed Legalization Efforts Progress: This Week in Cannabis InvestingWeed legalization efforts in Europe's second most-populous country received "very good feedback" from the EU.
