Well, the long awaited CAOA has been filed after a year plus in draft form.

We covered the draft extensively.

Compare and Contrast Draft CAOA to FAA, SRA and MORE (done by James Rice and 3 decade veteran of alcohol distribution).

Verticality in the Crosshairs

MSOs Current Operating Models & Possible Future End States: In Pictures

Cannabis Administration & Opportunity Act: It could be worse, they could have the votes.

And the good news, for us, all the research remains valid with the final release.

Here are some sections of interest for investors.

Excise Tax: unchanged from draft

Percentage:

Initiation of Taxable items:

And note the tax is also a lien (not in crop above).  So, federal government will collect any excise before other secured parties in liquidation.

“Removal” definition: As it relates to the first sale of goods.

This will hurt all vertical sales as excise tax on full vertical will be at the customer sale and not at a much lower wholesale amount.

Unfair Trade Practices:

This is a section, especially “Tied House” restrictions that impacts verticality. Very similar to alcohol.

This removes ability to be a manufacturer and own any interest in a retail operation. This is stricter than alcohol, which allows a federal permit holder to own 100% of a retailer. Note: it is state laws on retail that actually prevent manufacturers and distributors from owning retail operations in alcohol more so than the FAA, with exception for small businesses (eg. Brew Pubs and smaller craft operators)

Permitting:

I did not catch this in the draft review.  But it looks like those that get a Manufacturing Permit are restricted from selling product and transferring product in interstate.  I’ll defer to Jim Rice on this and insert any comments I get from him.

I still have to go through the balance of the document, as first pass was simply limited to business items that impact business models.

The above are the obvious risk elements in the Act. Will it pass? That is a steep slope. BUT, and this is what will be downplayed by c-suites and carnies, this is an overhang to the durability of valuations. Just like if you owned a condo with ocean view two blocked from the beach, and all that was between you and the ocean view was undeveloped vacant lot. Well, that vacant lot is federal legislation and this is on the table until something replaces it. Your property will not be valued as “ocean front” until the future of that lot is determined.