SPEEDWELL REPLAY
Please watch the replay for our informative Cannabis Industry insights featuring Brian Moonan and Heather Molloy of Speedwell Partners.
Cannabis Subscribers CLICK HERE for event details.
We recently enjoyed chatting with Brian and Heather, the dynamic duo behind Speedwell Partners. These two industry veterans have been around the block, and they've founded Speedwell Partners to support and invest in the growth of the legal cannabis industry. During our call, Brian and Heather gave us the inside scoop on private market investment opportunities in the cannabis sector. We dove deep into the world of hemp-based THC beverages, genetics, and the potential impact of rescheduling cannabis. It was like a masterclass in cannabis investing! Heather, who sits on the Gold Flora (GRAM) board, gave us a fresh perspective on this exciting company. With her industry knowledge and keen insights, she shed light on the unique opportunities and challenges that Gold Flora faces in the ever-evolving cannabis landscape. It's always a treat to hear from industry insiders like Brian and Heather; this call was no exception. Their passion for the cannabis industry is contagious, and their expertise is unmatched. Please listen if you want to stay ahead of the curve in cannabis investing.
Liquid Gold?: Navigating the Thin Liquidity of Pink Sheet Cannabis Stocks
The AdvisorShares Pure US Cannabis ETF (MSOS) took a 9.5% hit yesterday, but surprisingly, it still managed to attract $11.4 million in inflows. We believe that suggests that Schedule 3 still has real potential.
Amid all this volatility, it's crucial to remember that investing in the cannabis industry is a binary event, similar to what we witnessed in 2021. Remember when whispers of safe banking legislation passing sent the MSOS soaring to $55? Well, the MSOS hit rock bottom in April/May 2023 at $5, but it's now back up to $9.45 following the DEA's suggestion to reschedule cannabis to Schedule 3. Now, if the HHS decides not to move cannabis to Schedule 3, we might see the MSOS dip to $6-7 instead of $5. However, this could mean being in purgatory for at least two years until the next election cycle rolls around. On a positive note, if cannabis does get rescheduled to Schedule 3, it would eliminate the dreaded 280e taxes, improve cash flow, and likely encourage a resurgence in growth capital expenditure in 2025. That's something to look forward to!
Unfortunately, the current industry fundamentals are a bit soft. The top MSOs only saw a 1.4% revenue growth in 2023, with some margin improvement thanks to cost-cutting measures. The outlook for 2024 is more similar, as most growth capital expenditure has been cut. New York, which should be a multi-billion dollar growth market, is currently a mess. And despite polls showing that over 60% of Floridians want adult-use cannabis, Ron Desantis recently announced that Florida is unlikely to pass a measure approving it in November. Even if it does pass, sales won't begin until the second half of 2025.
To make matters worse, these stocks trade on pink sheets, where liquidity is scarce. The MSOS ETF is designed to provide investment exposure to US cannabis companies, including those directly involved in the cultivation, production, and distribution of cannabis. The ETF operates under a legal framework that allows it to hold these assets and trade on the NYSE without violating federal laws. A reclassification of cannabis to Schedule III, which would acknowledge its medical utility and lower abuse potential, could significantly alter the regulatory landscape and allow for MSOs to be listed on the NYSE:
Reduced Federal Barriers: This would likely have the potential to lower federal barriers for cannabis businesses, potentially allowing for more traditional banking, financing, and interstate commerce.
The NYSE Is In The Listing Business: With the reduced legal friction, if the NYSE does not allow Cannabis companies to be listed, other major exchanges may begin to list individual cannabis companies directly, recognizing them as legal entities under federal law and eligible for broader investor participation and liquidity. The NYSE is likely to strike first.
Increased Market Visibility: Direct listing of cannabis companies on the NYSE would enhance market visibility, liquidity, and accessibility to a broader range of investors, potentially leading to increased capital inflows and valuation adjustments.
As a reminder, we've recently focused on companies like Glass House Brands (GLASF), Grown Rogue (GRUSF), and Gold Flora (GRAM). Their investment thesis isn't reliant on 280e disappearing but rather on the growth of West Coast cultivation. GLASF is expecting 30-40% revenue growth in 2024, we see GRUSF at 40% revenue growth, and GRAM could see 20-30% revenue growth.
So, while the cannabis industry might be experiencing some turbulence, there are still plenty of opportunities for growth and success.
