Friday's rally of U.S. Cannabis names (MSOS +9.53%) was likely a result of a Republican-led congressional marijuana legalization bill led by Rep. Nancy Mace (R-SC). The measure can be seen as a compromise between simple descheduling (proposed by the GOP) and wide-ranging comprehensive legislation that @chuckschumer is running on. It's early days for the new proposal, so the 9% move in the MSOS is less about the substance in the bill than it's about republicans coming together and proposing a bill. The new "States Reform Act" measure is currently being circulated for feedback and is preliminary; a final version is expected to be filed later this month. After that, time will tell if the committee votes to advance the bill. Getting Republicans onboard with Cannabis Legalization has been the biggest hurdle to pass even something common sense and the SAFE act. The outline of the Mace bill is aimed at appealing to the states' rights and business interests of conservatives while also incorporating some restorative justice and tax elements favored by progressive Democrats.
A compromise, maybe? The odd of some Cannabis reform happening in 2022 just went up significantly, even if it stop-gap measures like SAFE, which probably explains the price action today. At the very least, we have likely seen the bottom in the MSOS.
Here's a rundown of the more significant issues in the draft legislation (116 pages) and summary documents obtained by Marijuana Moment:
- First, cannabis would be federally descheduled and treated like alcohol.
- A 3.75% excise tax would be imposed on cannabis sales. Revenue would support grant programs for community reentry, law enforcement, and Small Business Administration (SBA) aid for newly licensed businesses.
- The Treasury Department's Alcohol and Tobacco Tax and Trade Bureau (TTB) would be the chief regulator for marijuana concerning interstate commerce.
- The Food and Drug Administration (FDA) would be limited in its regulatory authority, with the intent being that it would have no more control over cannabis than it does for alcohol except when it comes to medical cannabis. For example, the agency could prescribe serving sizes, certify designated state medical cannabis products and approve and regulate pharmaceuticals derived from marijuana. Still, it could not ban the use of cannabis or its derivates in non-drug applications, like in designated state medical cannabis products, dietary supplements, foods, beverages, non-drug topicals, or cosmetics.
- Raw cannabis would be considered an agricultural commodity regulated by the U.S. Department of Agriculture (USDA).
TWO NEW LONGS
We are adding VRNOF and TCNNF to the long list.
We have been cautious on TCNNF of late and still believe the 3Q21 earnings will be sloppy with the accounting for the Harvest acquisition. On the other hand, VRNOF is a new name on the list. VRNOF, like GTBIF, hails from Illinois and is one of the most vital operators in space. George Archos is the CEO and founder. Unfortunately could not have come public at a worse time, February 17, 2021; with the MSOS having peaked on February 10, 2021, the stock is down 55%, underperforming the MSOS by 10%. Verano is an impressive operation with 124 facilities in 14 states, over 3,000 employees, and nearly 850,000 feet of canopy. The company has a strong balance sheet (net cash position of $20 million), strong margins (2022 EBITDA Margin of 44%), and generated $5.6 million in FCF in 2Q21. We estimate the company will generate over $1.2 billion in revenues and $550 million EBITDA in 2022.
More in an upcoming TCNNF/VRNOF Black Book.
