As a Canadian, watching the US election results unfold is puzzling. That their society is so litigious, and that electoral rules appear ill-defined and subject to challenge….its’ not a familiar sight for Canadians in general.
Whether one supports Trump or Biden, my hope is that there will be relative stability in ‘murica….and that there’ll be a reduction in partisanship there. This is an analytical research centre for legal cannabis though, and voting took place for several initiatives across several states. What happened?
It was a sweep for the states that had recreational cannabis on the ballot, with Oregon continuing to prove it’ll do exactly what it wants to do:
Ignoring the mushroom side of things (don’t get me or Cyto started. It’s bad enough in my eyes that incremental psychoactive substances are being rolled in with cannabis….), it was a sweep as every state that faced a choice approved legal access. That Mississippi went live on medical – a deeply Red state – is an extra bit of positive news. <Marijuana Moment is a US media outlet run by activist Tom Angell. I don’t find his space terribly useful from a business/commercial standpoint, but it’s ground zero to gaze at the entrails of the US political process and daily wins/losses. I would caution the reader that activism has different agendas than the investor, but that any enthusiasm/’good’ news is usually reported with earnestness and optimism and emotion. It’s the nature of activists. An investor…I recommend being critical in your thought>.
One of the splits between reality and hype is in the details. Revenues aren’t going to be starting tomorrow. The state in best position – Arizona, due to having already been down several runs at legalization – likely won’t be issuing business licences until February 2021. Not long, but that period includes uncertainty as to the ultimate number of permits and the specific regulatory regime that’ll be applied. We’ve seen several states ‘do their own thing’ – and this has led in part to $TRUL success in Fortress Florida, as well as even supporting a $CXXI – who holds 2 very rare cannabis sale permits near Reno, Nevada. I expect unique situations in states to continue.
Or as I joked with GoBlue, the US just voted to create 5 more cost centres for MSO’s.
The investment and sell side of this sector is riddled with pump and hype at the moment. I am not cynical about the ultimate commercial potential and prospects of legal cannabis. I am cynical about timeframes inferred, and about assumptions around how MSO’s ultimate target operating state will look like. Most of all, I am cynical about the US Federal government changing a position it’s long held, and a whack of states that just don’t think that the devil’s lettuce is right. Oh, and the alcohol lobby. Definitely the alcohol lobby.
If the Democrats were going to do anything about federal legalization/de-crim…they needed the Senate, and a decisive majority. It doesn’t look like they’ve gotten either as of writing. And absent a federal meteor strike, I suspect the business climate for US MSO’s will continue to be an unevenly woven regulatory tapestry, with prohibitions on intra-state commerce, and a continuance of banking challenges for cannabis businesses.
All this adds up to is high cost structures, challenges to establish and enter new regions, being expensive to acquire existing/late stage properties, and, required duplication within operations.
Hey, weed is here, it’s profitable, and it’s growing in acceptance. Just don’t be surprised if a state clips an MSO’s wings for not playing nice, a vendor tries to unwind a deal blown up because of price or regret, or a change in the length of runway a superior location or brand may have grabbed….didn’t play out. Indeed, compare ‘certainty’ in the US with ‘certainty’ in Canada. Even with Ontario’s 3-Stooges routine on retail cannabis, there’s a process underway and a relative timeline for expansion. Of the 5 states just authorized, how many stores will be allowed? How large can grows be? Can wholesale transactions take place unfettered? Can corporate overhead be allocated from a different state, or would that be considered intra-state commerce?
If everything is a one-off, profitability will be muted for awhile. Just some post-election day thoughts. Weed’s here, and that’s great. Delays to profitability or revenue expansion will continue to insert volatility into share prices. At the level of volatility I’ve watched over the past year in MSO’s….make sure you have a handle on the risk your MSO investments carry. It’s very high, and given these preliminary results….it will likely continue.
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. The author holds no position in any of the companies mentioned.
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