CANNABIS BLACK BOOK DATE & TIME CHANGE
Glass House Brands (GLASF) is a Hedgeye Cannabis Best Idea Long.
***We were originally scheduled to present on Glass House Brands tomorrow, October 27th, but we are going to push that date back. The new date and time will be announced in the coming days.
Overview:
The cannabis industry has seen nothing but headwinds for the last couple of years, but momentum is starting to build, with the MSOS up 25% since September 1st. This all started when the HHS made a recommendation that cannabis should be rescheduled from a Schedule 1 drug to a Schedule 3 drug. Rescheduling is not a path to full legalization, but it could be the catalyst needed to push Congress to look at the SAFE Banking Bill on its merits and not as a political headline. Our Hedgeye Macro Team has also recently gone LONG cannabis during their 4Q23 Themes Presentation. There are still many structural issues with the cannabis space, but we believe that Glass House Brands (GLASF), the lowest-cost cannabis cultivator in the world, is the best way to have exposure to this industry.
INCLUDED IN THE PRESENTATION:
- California Retail & Whole Prices
- California Customer Demographics
- Current State Of California Dispensaries
- The Lawsuit Brought Against GLASF
- Where We See GLASF If Schedule 3 Happens?
- What Would Full Legalization Mean?
- SAFE Banking
- Interstate Commerce
- How GLASF Has Become The Lowest Cost Cultivator
SHADOW CANNABIS IS A GROWING PROBLEM IN RI
In my home market of Rhode Island we are now seeing cannabis regulators warn against the ‘incredibly problematic’ shadow market. This just can't be a Rhode Island problem.
Upon signing the 2018 Farm Bill into law, President Donald Trump legalized hemp and its derivatives, like CBD, nationwide. This legislation catalyzed a new market, inspiring farmers to cultivate hemp and retailers, including gas stations and bodegas, to offer a range of products, from edibles to hemp flowers, provided the THC content remains below 0.3%. However, five years post-enactment, Rhode Island's cannabis regulators express growing concern over potentially hazardous, unregulated products. These items, often highly potent and appealing to teens, are accessible to all ages due to the lack of oversight. Erica Ferrelli, Chief of Strategic Planning, Monitoring, and Evaluation at the R.I. Office of Cannabis Regulation, talked about how hard it is to get around in this unregulated market, especially when it comes to products whose levels of THC and ingredient profiles are still mostly unknown because they have not been tested enough or converted well enough.
A notable issue lies in the chemical alteration of low-THC hemp to create substances with significantly heightened psychoactive effects, often marketed as "delta-8" or "delta-9". Despite companies asserting the legality of these products under the Farm Bill, regulators argue that the absence of stringent controls, like those governing the state's cannabis industry, poses substantial risks. Without regulated testing, these products might contain hazardous chemical agents and undisclosed levels of psychoactive compounds. This scenario was exemplified when a Target 12 investigative reporter procured hemp-derived edibles online and had them tested by PureVita Labs. The results disclosed a discrepancy between the advertised and actual psychoactive compound content, with one product vastly exceeding Rhode Island's legal limit. Stuart Procter, co-founder and lab director at PureVita Labs, emphasized the grave risks posed by such high doses, which could lead to severe adverse reactions, including hospitalizations, particularly in minors.
In response to these growing concerns, Rhode Island regulators have embarked on an educational campaign, visiting various retailers to enlighten them on the associated risks of these unregulated products. Some progress has been noted, with certain retailers ceasing the sale of these items post-engagement. Nonetheless, a loophole in the 2018 Farm Bill undermines the legal robustness of state-level interventions. The shadow market's dissolution remains uncertain, with no ongoing public initiative to address this federal loophole. Erica Ferrelli urges individuals to educate themselves, their families, and their communities on the potential dangers posed by products from this unregulated market. The lack of reliable labeling and testing and the unknown adverse effects necessitate a cautious approach and an open dialogue surrounding these products.
The forthcoming 2023 Farm Bill holds significant implications for the future of the U.S. hemp industry, particularly the regulation of cannabinoids like delta-8 and delta-9 THC. However, there's uncertainty surrounding its timely passage. Despite the delay, efforts are ongoing to ensure its passage to address contemporary agricultural and food policies, including those impacting the hemp industry.
Stories like this underscore the need for the regulated cannabis industry to fight for the closure of the Farm Bill loophole ASAP.
HHS Cannabis Rescheduling Letter
Last month, the U.S. Department of Health & Human Services announced its recommendation to the Drug Enforcement Agency that cannabis should be rescheduling from a Schedule 1 drug to a Schedule 3 drug. As we have previously stated, rescheduling is not an act that gets us any closer to full federal legalization. Reschedulings biggest benefit is that cannabis companies in the U.S. would be exempt from tax code 280E, and Canadian cannabis companies could enter the U.S. market on the medical front. The DEA still needs to review the recommendation from HHS. Yesterday, the HHS released part of its letter to the DEA, but they redacted all the information of interest, like the substance of the message, such as the scheduling recommendation itself. They also redacted the scientific review portion that was attached to the letter. Only time will tell what the DEA's decision will be, but they are seeing pressure from both sides of the aisle.
