Cannabis Update
This Management Series is a transcript of our fireside chat from September 20. It was hosted by Water Tower Research’s Head of Business Development Tim Regan. Those interested can listen to the fireside chat here. Cannabis stocks have surged since the US Department of Health and Human Services (HHS) recommended rescheduling cannabis to Schedule III on August 30. This is in response to Biden’s request for a scheduling review on October 6, 2022. Moving to Schedule III removes the burdensome 280E tax code that prevents US plant-touching operators from taking ordinary deductions. 280E only applies to Schedule I and II drugs. Removing 280E drastically changes the profitability and cash flow of US multi-state operators (MSOs). SAFER Banking is an additional catalyst that has been driving cannabis stock returns. This bill has successfully exited the Senate Banking Committee and is awaiting a floor vote in the Senate. If SAFER passes the Senate, it would then need to be voted on by the House and finally signed into law by President Biden. Along with the positive political progress, Maryland recently opened for adult-use sales and Ohio, Pennsylvania, and Florida may approve adult-use by the end of 2024. Maryland sales have more than doubled since June. There are 34 MSO-owned stores in Maryland, which should boost 3Q earnings. There has been a significant dispersion in stock returns since the HHS announcement on August 30. The Tier 2 MSOs have had the strongest returns, followed by Tier 1s and Tier 3s. Tier 3 has more companies that generate cash flow, hold less debt, and on balance are less dependent on federal reform. The Tier 2 basket has been the strongest performer, led by 4Front Ventures (CSE: FFNT, OTCQX: FFNTF) +118%, AYR Wellness (CSE: AYR, OTCQX: AYRWF) +115%, and Jushi (CSE: JUSH, OTCQX: JUSHF) +109%. Broadly speaking, the names that have gone up the most were down significantly YTD before August 30 and have more debt on their balance sheets.
Water Tower Research is built on the foundation of democratizing information flow. We bridge the growing information gap between companies and investors through our investor engagement strategies and open-access research platform.
Our research analysts are Wall Street veterans with the experience and knowledge to work with companies and investors in tandem. We provide access to the information and content that anchors the due diligence process for both professional money managers and individual investors. We leverage traditional research distribution channels and the best of modern digital strategies and tactics to amplify this information flow globally to engage all categories of investors and stakeholders.
Information flow is the foundation for creating investor awareness, knowledge, and engagement. Our mission is to help companies and investors have the tools they need and achieve their goals.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.