I bought a book a few weeks back – a political book written by Jody Wilson-Raybould (JWR), Canada’s former Justice Minister. It’s one I normally would give a hard pass. Politics is a vulgar pursuit to myself, and I see little need to examine it in detail, nor presented in full colour.

Yet, she was born and raised where I live, and I’ve seen and spoken with her a few times in passing. It’s a small place after all. She strikes me as a person of character and integrity. Which, is probably the reason she got fired, thrown out of the party, and ultimately left politics altogether.

I mention JWR’s book – because she touches briefly on the legalization of cannabis: about getting a task force together…. and working with Ministers of both Organized Crime and Health (Blair/Philpott) to get legal weed in Canada off the ground. She mentions that about halfway through their gig, several unelected muppets from the Prime Minister’s Office (PMO) had come in and told them individually they’d have to pull a 180: that weed wasn’t going ahead. They were told this was from the top, full stop. The Ministers talked to each other, and refused. They’s heard the opposite all along, and asked for a meeting with the Prime Minister himself.

The reason legalization happened at all – she believes – was simply to catch more of the youth vote. She believe when the now PM brought it up in 2013, it was unscripted fishing. That it was never a sincere policy objective, just a political calculation. Yep. To myself, political parties in Canada are effectively private corporations: closed shops where money and access are tightly controlled. Winning is the only objective, and the vast majority of economic policies are developed to reward the funders and folks who made the win happen. I’m that cynical. And there’s enough oligopolies and guarded-fortress industries in this country for me to be pretty confident about that cynicism. That a political party would promise weed to bolster the youth vote isn’t exactly a stretch, especially when seeking power.

At any rate, over the next few days, the PMO scolded each of those Minister’s Chief’s of Staff for daring to ask for a meeting. And besides, Ministers shouldn’t be talking to one another anyway <NB: boy, that’s rich>.

Nevertheless, a meeting occurred about 10 days later – with a cast and crew from the PMO, the Ministers and their staff, and the PM himself no less. .

She was told everything was hunky dory, to keep doing their thing, and that was that. Everyone nodded, all good. She surmises that the un-elected PMO fart-catchers who worked the angles was passing it along from Party HQ. That likely one (or several) special interest heavies were trying to move the dials. It happened twice more she says, but nothing came of it.

Aside from proving out my beliefs of what politics in Canada really is behind the curtain – it got me thinking about the US.

If there’s a perception that special interests run Canada (see: oligopoly), then there is also a perception that US politics is susceptible to the influence of cash. That the politics and its’ actors are bought and sold for cash. Whether in re-election contributions or stock trading (there’s plenty of examples of each), if my cynicism is warranted – I can easily see weed going nowhere for awhile at the federal level in the US.

It’s one thing not to have the votes in the Senate. That’s all part of the horse-trading within the American system of governance (see: earmark). It’s another for the sector to order up a specific policy (SAFE) or perhaps the removal of the 280e- that’s what lobbyists do anyhow. The existence of both of those things are brutal to profitability within the sector though. It’s yet another thing to have existing sectors (booze, gaming, religious groups et al) lobbying against federal legal weed…..for purely competitive reasons.

But. The Biden administration is up to its’ neck in domestic (budget) and international (China) issues. I can envision legal weed pretty far down the totem pole in terms of priority at the moment. Heading into an election year no less – where individual seats are micro-targeted by a thousand political analysts and volunteers chasing votes with big data. There are many big-‘C’ religious conservatives in the US, and dope isn’t among anything they want to see in their lifetime. And if you believe as Richard Carleton does (President of the CSE) – and as both Blue and myself are becoming more convinced of – that legal weed ain’t gonna happen in the US for awhile – I think it is worthwhile to look closer at the prospect that it might remain status quo for awhile yet.

I recall sell-side bleating back in the summer that the worst thing that would happen is status quo. This was after NY State pulled it’s jump-scare legislation capping canopy and storefronts (and most recently, appearing to back legalization up for yet another year).

I’ve an old saw I use whenever somebody says “it couldn’t possibly get worse”. I remind the speaker that yes. Yes it can. It can always get worse. The old risk manager in me coming out I suppose.

What about that status quo?

280e. Siloed production. Duplicated corporate overhead. Increasing competition over time. Pockets of superior profits (Florida), that will inevitably (?) fall. Cost of capital higher than existing rates of return. No-one but a few are making out ‘well’ at the moment….and much of the ‘value’ in the cannabis sector is predicated upon expansion, and scaling down cost.

If the ramp last fall was due to the prospect of Dems getting the Oval Office and de-scheduling – what does 2020 say about asset valuation? COVID’s a mess to be sure, but if these companies are indeed siloed and scalability is chained securely to a wall, I can’t help but wonder if weed’s asset valuations will be similarly shackled. I’m gonna be noodling around this notion this week, not because I’m wearing a sandwich board with ‘The End is Nigh’ painted on it. I’m doing it because if the prospect that weed is going to remain where it is in the US – a semi-legitimate quasi-legal sin product – I think it’ll be a useful exercise to go back to valuation ‘as-is’ – and not on the basis that someone’s gonna turn the lights on.

I saw prices last summer as not being too far out of line with underlying fundamentals. The longer this regulatory constipation goes on, the longer uncertainty will exist. If there is a single ‘worst’ factor that business people and formal commerce can face – I’ll suggest ‘uncertainty’ would be it.

I’m certainly not saying the CAOA is dead, but the possibility of it getting done in the near-term may be becoming more remote. If that’s the case, I don’t think it’ll be a ‘positive’ for MSO holdings.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative..