Well, if you did not believe our thesis, and you did not think that NY State’s legislation (as well as Illinois, NJ and Virginia’s) was leaning heavily into the alcohol-like environment, maybe this paper from Professor Mikos’ of Vanderbilt University Law School on “Interstate Commerce in Cannabis” might convince you of where we might be heading.

His paper reveals his thoughts that the states that allow cannabis sales are PRESENTLY unconstitutionally not allowing other states where cannabis sales are allowed from selling into their states, and are therefore breaking the Dormant Commerce Clause.

“Neither the federal marijuana ban nor any other federal action provides the “unmistakably clear” congressional approval required to uphold otherwise invalid state regulations of interstate commerce.”

He also goes onto suggest that interstate commerce will lead to a change in the locus of cultivation and processing, just as we surmised in our thesis.

If in a Discounted Cash Flow valuation, the Terminal Value starting five years out accounts for 75% of the DCF or 50% of DCF if Terminal Value starts ten years out… what is the true value of these “moats” if interstate commerce happens five years from now?

Assuming a fracturing of the vertical, which will happen in non-cultivation and processing friendly states at the commencement of interstate commerce even if verticality is permitted in-state, revenue will be divided amongst the three tiers. In alcohol it is divided fairly evenly.

No question the pie will be bigger with federal regulation, but how many pieces will it be broken into? Do these DCF’s that the sell side analyst’s tout account for the verticality being stripped or gross margin compression from more competition or license devaluation do to more competition or cultivation asset devaluation? Total Addressable Market is a far different beast when verticality has been removed.

We have witnessed the value of Ontario Retailer licenses plummeting from the original 25 lottery winners to today (Value held until the Ontario government announced license limitations were removed, and then it was a free for all). Even once valued Canadian cultivation licenses are a fraction of the value they were three years ago.

Investors would do well to keep an eye on the horizon, even if that is five years from now.