CBD Regulation Plans.
In October, president Biden made a massive move in the cannabis space by federally pardoning cannabis-related crimes as well as having his administration research cannabis to see if it should be rescheduled/descheduled. Based on Congress not passing SAFE Banking in the Lame Duck session and now Congress turning red, it looks like the only cannabis-related reform will have to come from the President and the President only. Top officials at the FDA are now saying they are months away from releasing their regulatory assessment for hemp-based products (CBD). Hemp was legalized in 2018 as part of the Farm Bill, but the FDA hasn't taken any steps in that time frame to put together any regulatory frameworks to keep people safe and police this new industry. It is good to see that the FDA seems focused on this subject; whether they get it correct or not is a whole different question.
Pricing Pressures Across the U.S.
The biggest headwind to the cannabis industry in 2022 has been pricing power. We have been writing about this a lot since the summertime, and the end is still not here. We are starting to see signs that the pricing deterioration is peaking in a Rate of Change sense, but in the midst of a global slowdown, signs of unit volumes seem to be now slowing, which could drag prices down with them and across this pricing power phenomenon to continue for longer. Michigan sees the harshest pricing pressures, with cannabis prices being down over 30% YoY.
Access To Capital.
Access to capital is very tough right now to come by for cannabis companies. Canadian companies are turning to their country's corporate insolvency law called the Companies Creditors Arrangement Act in order to access capital and stay afloat. 40% of the companies that have applied for the CCAA this year in Canada have been cannabis companies. “And because they have no cash now and this is a relatively thin-margin business and (a) capital-heavy business at times, they have no more means of being able to raise cash anymore or pay back debts. And that’s why you’re seeing this increase in CCAA.” said Ranjeev Dhillon, a partner with Canadian law firm McCarthy Tétrault. There are a lot of struggling cannabis companies in Canada right now, and many that we believe won't be around in the coming years, so actions like the CCAA are bandaids of a Canadian market that needs a complete regulatory overhaul.
