Are the political winds shifting in D.C.?
The MSOS was up 13% last week, with the ETF seeing significant inflows, and the AUM now sits at $1.2B. On Monday, the world of Cannabis will be focused on a 2 PM press conference held by Republican Rep. Nancy Mace, who will introduce federal marijuana legalization called #StatesReformAct. We are about to find out how influential a freshman Republican from S.C. is to Cannabis Reform. On the back of the developments in D.C., we took the chances that SAFE is in NDAA up by 50% to a 75% chance.
Our optimism was met with some critical feedback from clients, noting that tacking on a non-defense-related amendment for marijuana banking to a national defense spending bill, which some might argue would be politics and legislation at its worst. The fact that politicians are trying to attach marijuana banking to a "must-pass" defense bill could indicate there is no support for SAFE in Senate Senate, not that there is support. If there were Senate support, SAFE would have already been moving in the Senate. Although our Hedgeye SAFE Vote tracker shows, the bill is only one vote short and should pass easily.
It was pointed out that the interpretation of the NDAA and its boundaries will be up to the "Parliamentarian." As Wikipedia describes it, "the Parliamentarian of the United States Senate is the official advisor to the United States Senate on the interpretation of Standing Rules of the United States Senate and parliamentary procedure. This could make the current Parliamentarian Elizabeth MacDonough, the most important person in the short-term Cannabis trade? Ms. MacDonough's job is to interpret the rules, and could strip SAFE from NDAA because "it doesn't belong there!"
The Parliamentarian is appointed by and serves at the pleasure of the Senate Majority Leader. So all roads lead to @senschumer!
Cannabis valuation
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Columbia Care Earnings
CCHWF is a USA Long.
Columbia Care reported Q3 21' revenues of $132.3M vs FactSet $142.3M. Revenue was up 21% sequentially and 144% YoY. They reported adjusted EBITDA of $31.0M vs. FactSet $30.7M. EBITDA (A) was up 89% sequentially and 205% YoY. Non-GAAP gross margin were 49% vs. year-ago 39%. The company revised revenue guidance from $470M-$485M vs prior guidance of $500M-$530M. Adjusted EBITDA is now $85M-$95M vs prior guidance of $95M-$105M. Non-GAAP gross margin guidance is 46%+% vs. prior guidance 47%+%. The primary reason the company cited for the revision is unanticipated regulatory delays. These delays include opening dispensaries in New Jersey, West Virginia, and Massachusetts. Also, the delay of the implementation of adult-use in New Jersey was a cause of this. In addition, pricing dynamics in both California and Pennsylvania and increasing competition in Florida hurt future revenues. The company reported the following states as their top revenue states: California, Colorado, Massachusetts, Ohio, Pennsylvania. These are their top 5 markets by Adjusted EBITDA: Illinois, Maryland, Massachusetts, Pennsylvania, Virginia.
The company provided updates on its top markets. California had a sequential slowdown of 10% due to wholesale pricing pressures. This is a theme being heard in the overall cannabis sector of the struggles of operating in California. The illicit market is alive and well and has driving prices down. In Colorado, sequential revenue decreased just slightly with gross margins stable. In Massachusetts, the company had sequential growth of 6% and 19% YoY. In Illinois, their most profitable market, revenue increased 14% sequentially and 159% YoY. This increase was driven by sales volumes up 23% sequentially. Maryland, their second-largest EBITDA producing market had sequential revenues increase more than 380%.
