Biden and States' Right
Cannabis stocks are in correction mode this week, as Todd Harrison (@Todd_Harrison) points out in his Cannabis Confidential that "chatter made the rounds mid-day that SAFE Banking may be pushed to 2H21." We agree that progress on reform coming out of the elections needs to be sooner rather than later. One thing that appears certain is that progress will be too slow for supporters and too quick for opponents. However, it appears that federal cannabis policy is continuing its inexorable, if deliberate, path towards loosening. As we head closer to the start of earnings season, the focus will shift toward fundamentals, which will continue to demonstrate unequaled growth across the consumer staples/discretionary names. As a reminder, President Biden has stated that he is an advocate for decriminalization and the removal of Marijuana from Schedule 1 drug classification throughout the course of his campaign. More importantly, Biden has indicated that he is a proponent for empowering states to establish their own cannabis regulatory rules (updated Cole memo?). This suggests that while timing matters, the current administration will protect the MSO's current licenses and enable strong operators to consolidate and grow their moats by growing their sales and margins. Bottom line the correction is the buying opportunity ahead of the inevitable change in the cannabis landscape.
A PURE PLAY IN ISRAEL
Subversive Real Estate Acquisition REIT LP (OTCQX: SBVRF; NEO: SVX.U), a SPAC, announced its qualifying Transaction to combine with InterCureLtd. (Canndoc), Israel's leading cannabis company. Canndoc is a wholly-owned subsidiary of InterCure Ltd., Israel's largest (GMP certified) licensed cannabis producer
.
According to the Press release, Canndoc has the largest distribution network, significant logistical capabilities, and a vertically integrated strategy that will have a "Q4 2020 expected EBITDA annualized run-rate of greater than US$10 million and positive free cash flow." The adult-use market in Israel, which is expected to be legalized in late 2021 or 2022. To date, Canndoc has been an early mover leading the cannabis wave in Israel and capturing significant market share. Canndoc's Chairman and former Prime Minister of Israel, Ehud Barak, said, "I'm extremely proud of the work we've done at InterCure and Canndoc, and I am looking forward to leading this new chapter. As we discover the scientific advantages in cannabis alongside new favorable legislation, the cannabis industry is unleashing its disruptive commercial potential. Israel became famous for its breakthroughs in cannabis research and has now become one of the world's leading medical cannabis markets."
Cannabis supportive comments from the new Senate Majority Leader
Senate Majority Leader Chuck Schumer reiterated that marijuana reform would be a legislative priority for the Senate. In his first public comments on cannabis policy since Democrats reclaimed the majority and put him in the top leadership position, Schumer said federal marijuana reform would be part of a racial justice agenda that lawmakers will pursue in the 117th Congress. The senator stopped short of calling for legalization.
