You’re reading a copy of this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015. The newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news.
One of the biggest stories of 2021 for the cannabis sector thus far has been the change of control of the Senate, which heightened speculation that federal cannabis laws could change soon. Recall that this spiked the market early in the year right after the Democrats took the two Senate seats in the Georgia run-off elections. Between year-end and February 10th, the New Cannabis Ventures Global Cannabis Stock Index more than doubled.
While we continue to believe that hopes for federal legalization are a positive catalyst for stock prices, as this could lead to more favorable sentiment for the sector and attract additional investors, we have mixed views on what it might mean for the sector. Interstate commerce, which quickly became a hot topic with analysts, would certainly be a game-changer if it were part of legalization, with positive implications for some but negative for others. Currently, the state-by-state approach has resulted in extreme inefficiencies. A lot of cultivation assets would become unnecessary overnight should true interstate commerce open up. At the same time, some companies have prepared or are preparing for interstate commerce, touting their scale and low cost of production.
We continue to view the evolution towards federal legalization as likely to take place at a snail’s pace, so no matter what one’s views of interstate commerce, it’s not likely to matter for quite some time. Legalization legislation would require 60 votes in the Senate, something that isn’t likely to happen over the next two years and possibly beyond. What this means is that the fear of asset impairments and plunging prices as interstate commerce opens is likely overblown.
We remind our readers that the status quo has its challenges, with a high cost of capital, onerous taxation, inefficiency due to lack of interstate commerce and the challenges of complying with the differing regulations from state to state, but these roadblocks are barriers to entry that are enabling many MSOs to grow rapidly and profitably. Investing in these operators can yield success without progress on the federal front. Between now and then, we should see multi-state operators build successful brands. In the future, when interstate commerce opens up, they will potentially benefit from lower input costs.
Our advice to readers is to not get too far ahead of the current situation. Investors should always be looking ahead, but we suggest that everyone remember how slowly things tend to move in the cannabis sector. Interstate commerce will be here one day, just probably not too soon. Until then, pay attention to those companies that are best able to manage the challenging status quo. When interstate commerce arrives, they will likely be well positioned for that change.
Leading North American cannabis operator TerrAscend boasts vertically integrated operations in Pennsylvania, New Jersey, and California, with licensed cultivation and processing operations in Maryland and licensed production in Canada. TerrAscend operates the dispensary retail chain, The Apothecarium, which it plans to leverage its brand and store model across the U.S. The company has been developing protectable intellectual property assets and creating quality brands that resonate with both patients and consumers. TerrAscend is expected to generate revenue of $65.5 million in its upcoming Q2 report, up 23% sequentially and 88% from a year ago.
Get up to speed by visiting the TerrAscend Investor Dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button in order to stay up to date with their progress.
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Alan & Joel