We started writing on the Cannabis industry over two years ago for exactly this opportunity - the end of Prohibition!
What we have begun to see unfold at the end of 2020, and now what appears to be the Democrats controlling the Senate, 1/6/2021 looks to be shining brightly on the Cannabis Industry as the end of Prohibition may be near. While there is so much to consider given the news overnight, there is still a long road ahead. If there is one immediate takeaway from Democrats control of the Senate and the potential for the end of Prohibition, according to Politico, 7 of the 10 (likely) committee chairs would hail from legal Cannabis states: "Leahy, Menendez, Wyden, Sanders, Cantwell, Murray, Peters" and two are from legal, medical marijuana states "Brown and Warner." All of these committee chairs understand the need to have the industry move forward in a responsible way to end prohibition.
On January 14, we will be publishing a new Cannabis industry Black Book. Our focus will be on the implications of last night's GA elections and what appears to be a significant shift in the outlook for the cannabis industry. Also, we will be doing a deep dive on three companies GTBIF, CCHWF, and AYRWF. As a result, we are adding CCHWF to the Best Idea LONG list.
We are also adding an "under the radar" name FFNTF to the Best Idea LONG list. FFNTF's muscle memory from operating in a challenging Washington State has significant implications for future profitability across all the markets it operates in. Importantly, FFNTF is a lost cost producer and has the #1 ranked edible product in Washington State. We also see a significant improvement in profitability in new markets that 4Front has entered, including California, the country's biggest Cannabis market. At the end of last year, the company repaired the balance sheet with sale/lease-back transactions with IIPR. We see the IIPR due-diligence process lending credibility to the management team and a significant improvement in the profitability of FFNTF. The company will not need to tap the capital market to deliver 2021 guidance as profitability will improve significantly in 2021.
We will be hosting a Black Book on FFNTF at the end of January.
Today we will be talking about the Cannabis industry with Jonathan Sandelman, CEO of Ayr Strategies (AYRWF)
AYRWF is a Hedgeye Best Idea LONG.
We will be hosting a conversation with Jon Sandelman, the CEO of Ayr Strategies, today at 2 PM ET.
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CLICK HERE for event details (includes video, dial-in info, and materials link) |
Topics of discussion and questions will include:
- Thought on the potential outcome of the GA elections?
- With a Democrat-controlled Senate, how do you see legalizations unfolding?
- The commerce clause remains undefeated; how do you think about interstate commerce and the cannabis industry?
- What are the characteristics of an AYR acquisition target in the Cannabis industry?
- You started 2020 operating in 2 states and now starting 2021 operating in 7 states pending the recent acquisitions' closure. What's next, or is it time to pause on the M&A front?
- Can you talk about the due diligence process around the Liberty Health Sciences acquisition? How long was the due diligence process? Was it a competitive bidding process?
- How did you arrive at a valuation for Liberty, given the market share losses in the Florida market?
- Do you think you will need to spend more than $15 million in cap-ex to right-size Liberty's operations?
- How vital was the AYR currency (stock) is closing the deal?
- The outlook for FLA in 2022 and beyond? FL Supreme Court may eliminate vertical requirement and allow wholesale and recreational on 2022 ballot initiative or sooner caused by a budget crunch.
- What product/operational expertise can be deployed across the existing portfolio to improve profitability? What functional holes need to be filled in, if any?
- Where can operational efficiencies be realized in the current portfolio?
- What is the MA and NJ conversion from medical to recreational opportunity?
NY lawmakers prefile a recreational legalization bill.
State Senator Liz Kreuger (D), along with 18 cosponsors comprising close to a third of the state Senate, has pre-filed a bill to legalize recreational marijuana. The bill would allow adults 21 and over to legally purchase cannabis and cultivate a max of six plants for personal use. The bill would also levy an 18% tax on cannabis sales. With the resulting tax revenues, 25% would go to the state lottery fund, 25% to a drug treatment and public education fund, and the remaining 50% for a community grants reinvestment fund.
In an interview last month, New York Assembly Minority Leader Will Barclay (R) stated that he believes adult-use legalization will come to NY in 2021, saying, “There’s still back and forth, but I suspect this year this will actually get done.” It’s an encouraging sign from the state’s top Republican lawmakers. He further commented that he initially thought legalization would come in 2020 but suspects it was delayed due to the coronavirus pandemic. Senate Majority Leader Andrea Stewart-Cousins (D) has expressed expectations for adult-use legalization to come in the new year. Axel Bernabe, Assistant Counsel for Health to NY Gov. Andrew Cuomo, said in October that cannabis legislation would be brought up again through the state budget in January – the goal being to enact recreational legalization by April.
In his past two annual budget requests, NY Gov. Andrew Cuomo (D) has included proposals for adult-use legalization, however, failed negotiations between his office and the state legislature have stalled those efforts. Adult-use legalization coming to NY increasingly appears possible with bipartisan support from the state government's highest levels, the pandemic’s economic fallout pressuring state tax revenues, and New Jersey green lighting legalization this past November.
Scotts Miracle-Gro partners with Canadian LP for cannabis R&D (SMG, FLWPF)
Through its hydroponics subsidiary Hawthorne Gardening, Scotts Miracle-Gro manufactures equipment, potting soils, and fertilizers for cannabis growers. The lawn and garden care giant stands to benefit from legalization trends nationwide due to a likely increase in the number of consumers cultivating their own marijuana. The company has partnered with Canadian LP The Flowr Corporation to establish the first of its kind cannabis R&D facility in North America.
Chris Hagedorn, SVP & general manager of Hawthorne, commented: “Completing the industry’s only dedicated R&D facility gives us a distinct advantage. We will leverage Flowr’s cultivation expertise and our technical capabilities into real-world testing and results to make a difference to growers. Flowr is also one of a few companies that have had experience growing diverse genetics in different countries.”
Flowr’s facility, which began construction two years ago, includes laboratories and indoor grow suites. Through their partnership, Flower will test Hawthorne’s cannabis cultivation products. Flower has received the necessary licenses from Health Canada, and the facility is expected to be fully operational later this spring.
