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I found this interesting..
We know that the Colorado is facing competition, price compression and market consolidation. Dye said Colorado is worth fighting for. Well...
Colorado had $2.2 billion worth of marijuana sales in 2021. That sounds robust but the total marijuana sales in Colorado 'still make up less than 1 percent of total consumer spending in the state'.
Colorado marijuana sales taxes, excise taxes, and licensing fees in 2021, totaled more than $423 million.
Remember the days when people bad mouthed a company when 'term sheets' fell through? Now we have acquisitions getting close to the 12th hour, and terminating, and the industry praises the decision...to the point where even some 'analysts' even call it a smart move. The investors in this sector have a bass ackward understanding of the industry as their simple minds cling to bigger dreams, like SAFE, Institutional Investors, Uplisting and even a buyout by big Pharma, Alcohol or Tobacco. How long will it take to get cannabis investors to really dig in and understand the industry...appreciating the operators succeeding within their means?
Opens fine for me. If on Twitter the authors name is castor561:
The images didnt transfer. The only important one was a spreadsheet snapshot so I saved it and then embedded the image. I also removed the beginning summary, just leaving the article.
Impact Of 280E On MSO Income
This brief article shows the impact of 280E on the net income after taxes for 11 of the largest, vertically integrated, publicly held MSO companies. These 11 were selected because of their size and the fact that they disclosed the dollar impact of 280E on their taxes in their audited financial reports for the year ended December 31, 2021.
Biden Provides Catalyst
MSO stocks were setting new 52-week lows on almost a daily basis prior to 3:00pm on October 9th when President Biden announced a major change in the Administration's cannabis policy. Particular attention was paid to his call for an immediate review by the Secretary of Health and Human Services of marijuana's Schedule 1 drug status.
Investors hope marijuana will be descheduled and 280E will be removed. The onerousness of 280E has often been cited as the primary reason why MSO lack profitability and cash flow.
The president's speech sparked an immediate sharp increase in MSO stock prices and volumes. Most MSO stocks were trading near 52-week lows prior to the speech, but most closed up 30-50% for the day.
280E
In 1982 Congress created Section 280E of the Internal Revenue Code, IRC, which significantly limited the business expenses that a cannabis company could deduct. It states "no deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted."
The DEA has categorized marijuana as a Schedule 1 substance alongside, heroin, ecstasy and LSD enabling the IRS to apply 280E to cannabis companies. Numerous expenses that are normally deducted for federal tax purposes by companies are denied for cannabis companies. The list of expenses that cannot be deducted include advertising, marketing, bad debts, board meeting expenses, business association dues, vehicle expenses, charitable deductions, legal fees, office supplies, payroll processing, payroll taxes for employees (including Social Security, Medicare and unemployment taxes), parking, tolls, sales staff salaries and wages, equipment and repairs, furniture and fixtures, rent, home office expenses, insurance premiums, shipping costs, computer software and equipment, utilities, website, workers compensation, and many more things.
The negative impact of 280E is exacerbated by state taxation laws. Most states rely on company tax filings with the IRS; therefore, the negative impact of 280E is magnified. Cannabis companies pay higher federal and state taxes because of the existence of 280E.
The Data
The following exhibit shows the net income after taxes "NIAT" of 11 MSOs for their most recent fiscal year ended 2021. Earnings per share "EPS" are also shown and were calculated based on the weighted average number of fully diluted shares reported in the audited financial statements.
As revealed in the exhibit, only three of the 11 MSOs: Green Thumb (OTCQX:GTBIF), Trulieve (OTCQX:TCNNF), and TerrAscend (OTCQX:TRSSF) reported positive net income after taxes for 2021. Green Thumb's net income of $75.4M was over four times larger than Trulieve, which reported net income of $18.0M million. TerrAscend had the lowest net income of the three at $9.6M.
The 11 MSOs combined had a net loss after taxes of $712.6M in 2021. The largest loss was reported by Cresco Labs (OTCQX:CRLBF) -$319.6, because it took impairment charges of $305.9M in 2021. The second largest loss was reported by Columbia Care (OTCQX:CCHWF) -$143.1M. Interestingly, Cresco is supposed to acquire Columbia Care in Q4 2022.
Ascend Wellness (OTCQX:AAWH) reported the 3rd largest loss -$122.7M. It was followed by Curaleaf (OTCPK:CURLF) with a loss of -$102.7M.
Actual Reported Cost of 280E
The additional taxes reported because of 280E are shown in the exhibit as "280E Cost." The cost of 280E in 2021 ranged from a low of $12.732M million at Goodness Growth (OTCQX:GDNSF) to a high of $102.128 M at Curaleaf (OTCPK:CURLF). In total, the 11 companies in the exhibit reported $452,224M in additional taxes because of 280E. Even without 280E these companies would have reported a combined loss, but it would have been $260.404M or 36.5% lower than what they reported.
Impact of 280E on 11 MSOs
The exhibit shows what the net income after taxes would have been for each of the 11 cannabis companies without 280E. Ayr Wellness (OTCQX:AYRWF) and Verano (OTCQX:VRNOF) are the only two that would go from reporting losses to reporting gains in 2021 if 280E did not exist.
The largest potential improvement in the dollar amount of net income after taxes would be for Curaleaf and Trulieve. Curaleaf's 2021 income would go from a reported net loss after taxes of $102.7 million to a net loss of only $603,000, while Trulieve's net income would soar from $18.0M to $103.7M. In the absence of 280E, Green Thumb would have reported net income of $116.3M, which would have been the largest net income among the 11 MSOs.
Of the 11 MSOs included in this study, six (6) that lost money in 2021 would have also lost money even if 280E did not exist. Those six MSOs are Curaleaf, Cresco, Columbia Care, Planet13 (PLNTF), Ascend Wellness, and Goodness Growth.
Conclusion
President Biden has given hope to forlorn MSO investors by encouraging an expeditious review of cannabis as a scheduled drug. It is arguably one of the greatest roadblocks to MSO profitability, free cash flow, and rising stock prices.
Odd smoke screen to hide the fact that she "will remain with the Company as CFO for an indefinite period of time while an active search for her replacement is being conducted and to ensure an orderly transition of responsibilities". A red flag is when the CFO quits...or like another MSO...4 executive members choose to walk.
Good to see that he is bullish about the possibility of SAFE banking in the lame duck session. I have heard a lot of realists (middle of the road folks), as well as naysayers, change their turn recently. It is starting to make me believe that it might just happen. I am ready for ANY industry catalyst at this point.
From a Colorado state marijuana tax revenue perspective, I thought this was interesting:
https://www.cde.state.co.us/communications/2021marijuanarevenue#
On the flip side...must be nice to be Nirup Krishnamurthy. He has seen more promotions in the last 3 years than I have my entire career. I am curious as to the move. Is it just a title change or necessary to support their 'regional' strategy?
Nirup has played an integral role in building the Company and growing revenue from $9 million to a run-rate of $176 million and run-rate EBITDA of $60 million. Under his leadership, Schwazze has grown from less than 20 employees to over 725 today.
I really hope that is not the case, nor was the the impression that I got. Not that it couldnt be true, but her an Dye had a relationship that appeared genuine whenever the two would speak. It seemed deeper than just business level. I truly hope that it is not health (or family health) related and that she chose to enjoy retirement.
Nancy Huber, Chief Financial Officer, has announced that she will be retiring from Schwazze due to personal reasons.
Nirup Krishnamurthy, Chief Operating Officer, will become President of Schwazze effective immediately.
https://www.prnewswire.com/news-releases/schwazze-announces-management-changes-to-support-the-next-phase-of-companys-growth-301646925.html
I dont disagree. They have the US market cornered by being the only FDA approved cannabis medicine...and a year supply costs something like $30K. I listen to so many podcasts and not only do MSO investors want cannabis descheduled but also researchers (university researchers). They want to investigate the plant (and dispensary grade quality, not UMISS product), but because of it's schedule 1 status they (A) cant get govt funding to do so, but also (B) can't bring the plant on campus. That is why I think the most likely next step is to get the research bill approved. It was only being held up because a politician was upset none of his 'bills' were getting attention. I think that is the next logical catalyst...and the first cannabis bill Biden signs.
I agree Future, but coincidentally, the FDA recently hired a cannabis specific position. I wouldnt put it past the govt to continue to cater to Big Pharma. Still shocked that the Marijuana Research bill hasnt passed. IMO, I could see the govt decide to leave it as Schedule 1, focus on passing the Research Act and take a results based outcome to determine the 'appropriate' location to reschedule cannabis. As much as they stated that there is a significant amount of research information currently available, I dont think that they will use that information (because it is outdated and the IMISS product quality is lacking), but seek new information specific to products, and quality, found in the current market. I think if we see anything at all in the lame duck session it will be govt monetary/planning to assist with pardoning for low level cannabis offenders as well as banking and industry lending specific to social equity...like HUD for cannabis.
No wonder why the US companies held. Per jungle.java on Twitter.
$MSOS Friday Buys:
$VRNOF 1,000,000
$GTBIF 800,000
$CURLF 1,300,000
$TCNNF 400,000
$CRLBF 500,000
$TRSSF 700,000
$JUSHF 500,000
$CCHWF 999,999
$AYRWF 500,000
$GDNSF 999,999
$GLASF 200,000
$MRMD 600,000
Meanwhile SHWZ saw 138K shares trade on the US side and was up 8cents.
Thanks for the comments.
I see the 1.50 resistance. Too bad we didn't have the run seen by the others at the end of the day. Had we seen the same 35% spike we would already have tested that resistence. Either way, I am happy we are no longer testing the support near a dollar.
I assume your wife's statement was toward my post? I mean I have heard Biden say a lot of things...as for the date and time of the follow thru, that's the concern.
I hope it brings something, and I hope it has staying power, but IMO it now all depends on how quickly things start to move...or not move. Hopefully the rescheduling comment isn't something that they delay until it is politically convenient...like Biden held off on making this announcement until just before midterms. I am not trying to be negative, because this is big news...and a good first (long overdue) step...but the industry is still state run and the stocks barely move when governors comment about pardoning state level offenders. We need that next step to not just reschedule, but deschedule, and we need SAFE banking...and legitimizing the industry. Let's hope the excitement continues, shorts get burned, and the industry doesn't fall victim to the other economic issues currently going on. Looking forward to what tomorrow brings.
Algorithms triggered based on keywords. I wonder how long it will last?
I am sure their earnings will temporarily excite their base...as it usually does...because those shareholders arent too bright. Tilray is a flip stock. It runs better than any US company when there is US political news. As for the company, their stock went down over the last quarter...and significantly over the last year...so they should have derivative liabilities to help offset losses. Absurd that Simon made $19.5M in total compensation, for FY2022...up $6M from 2021...and the top 5 executives (including Simon) totaled $30.5M in compensation. Simon's base pay is set to go up $120K next year...and I believe he is supposed to receive a $10M bonus in December. However, their earnings will be terrible again, as the compensation report stated, "Fiscal Year 2022, the Compensation Committee determined Mr. Simon’s annual cash bonus to be $0." So obviously he has yet to hit whatever goals or benchmarks set to trigger this event.
Scott Adams, the cartoonist and creator of the comic strip Dilbert, went after ESG...and it recently got him removed from 77 newspapers.
How long will the IRS be patient? $500M is a significant debt and it's an easy target. If you think about it, the IRS could request them to pay up sooner rather than later. I mean the FDA appointed a new cannabis-oriented individual. If the rest of the govt is also progressing slowly they might want to level the playing field and collect what they can/deserve before establishing or reviewing a new industry tax baseline. Heck, better yet the govt might just do it to prove a point...that regardless of how large you are, you are arent exempt from the govt.
Huberman Lab Podcast: The Effects of Cannabis (Marijuana) on the Brain & Body | Episode 92
https://player.fm/series/huberman-lab-3308259/the-effects-of-cannabis-marijuana-on-the-brain-body-episode-92
Oh man that is terrible! Sending positive vibes Marillionaire!
IPS, dont worry, I am sure Verano will 'fix' this in a future (re)filing. LOL!
You bring up a good point. Companies could transition if/when the time comes. I know that there has been a concern recently about CBD being synthesized into D8, D10, THCO, etc. and this undermining the industry because of it's legal loophole. Products can be distributed nationwide (with the exception of 12-states) and they produce a 'weed-lite', D9 effect. Some say this is 'all that they are looking for' however these are unregulated products being 'cut' with harmful chemicals...and most of the people commenting (positively) are in states without an adult use cannabis industry.
LOL! Perspective. So basically they are selling hemp and highlighting the (limited) THC in the product.
I haven't read much into it but, on the surface, at least they selected a person who has a history of setting up a medical cannabis market. I am not saying that there wont end up being changes to the industry, but maybe the industry won't end up needing to make a complete 360 degree adjustment because this person has a background in the existing industry. At least they didn't pick a pharmaceutical figure head to the lead the charge...or it could have easily undermined everything that has been built since CA went medical in 1996. Now I certainly have no idea on the steps, or progression needed, before federal legalization, but I personally think the first two moves will be to establish govt funded research...hopefully using current dispensary grade cannabis and not the sticks and twigs of UMISS...and to establish a nationwide product labeling system/standard. Thanks Chichus for the post.
No argument there! The guy has like $800M invested across the industry, so he will always be optimistic. I could add several other names to the list of 'take what they say with a grain of salt'. However I hope for all of us that he is right because it will bring excitement back to the industry, even if it is only temporary, because it will take the banking industry a year...if not 2...to define requirements. Plus SAFE banking doesnt also include uplist...it just triggers FINCEN to re-evaluate their existing set of rules.
Not trying to be that person to drop the stock price...but think that with the current economy and lack of govt movement the stock will probably do that on its own ESPECIALLY if investors dont wise up and focus on company operations and efficiencies over state count, access to capital and liquidity. To answer your question, there is a little over 49M 'basic' shares outstanding and the company has $33M in cash and equivalents. Most are preferred shares, which I assume can be rolled into private preferred shares -- I honestly have no idea. However, if the stock price falls near the 52wk low, or under, the mathematics just might work out. The miscellaneous thoughts running through my head: A comment/discussion where the opportunity might arise where an MSO could consider taking the company private and then IPO again in the future, which was made by another (former) CEO about 6 months ago. The comment where JD said that the company is projected to be true cash flow positive by the 4th quarter -- which means they can fund their own CAPEX. The falling stock price. The lack of liquidity. The nuisance/burden on a CEO to keep a company public...and spend most of their time answering to shareholders, promoting the company and/or preparing sec reports/audits.
I mean, maybe JD says, screw the market grossly undervaluing this company, I rather focus my day on doing what I do best: streamlining the business, maximizing operational efficiencies, growing the company and turning it into a juggernaut for when the industry is in favor. Why stay public when the share price keeps falling to the point of a ridiculously low valuation...and only to see $50K of trading (avg) per day?
Now I hold JD to a higher standard, given his Albertson's experience and the reputation that he has built, but Albertson's also underwent a delisting from the NYSE, restructuring and IPO all during the time JD was part of the company. (I know two different companies/industries so you shouldnt compare them...however the cannabis industry is probably closer to the grocery CPG industry than any other industry.)
So my logic might be wrong from a 'that's not how businesses operate' standpoint...and probably makes entirely no sense to others, given the debt or whatever other reason (set of reasons)...but they were just miscellaneous thoughts floating around in my head, which garnered enough attention for me to raise this (as a personal) concern in hopes of this board helping me to (justify...or better yet) squash it.
***Side note*** Boris, from CURLF, was on a Twitter spaces last night and was extremely adamant that SAFE Banking was going to happen after the election and during the lame duck session.
Well DrugDoctor, that was my concern...or conspiracy theory, because I am not sure how possible...but the preferred shares would convert into private preferred shares and then the public shares would be purchased with the stock at, or below, all time lows -- essentially screwing over existing shareholders. Just seemed to me that the company could possibly consider it because the stock price isnt heading in the right direction, the valuation/respect isnt there, shares barely trade and the float is not that large right now. With them expecting to be cash flow positive by the end of they year, I just feared that out of all the cannabis stocks out there 'going private' could be possible...plus remove the expense/reporting burden. And then when the dust settles, and the industry finds govt favor, the company could return back to the public markets to benefit the insiders.
Thank you! That was the way I was leaning and needed the validation. I was just struggling to get that comment out of my head.
I want to throw this out for discussion...not for fear...but mainly to calm a voice in the back of my head. About 6 months ago there were (other company) CEO comments that if the industry continues to fall it may potentially cause companies to decide to go private. Now I brushed that off because cannabis is capital intensive, and with interest rates being where they are, dilution is a quicker way to capital. However, with a company actually becoming cash flow positive should we (existing shareholders) be concerned that, if the market/industry continues down this path...and the stock price continues to fall with liquidity being minimal, at best...the company might no longer want to deal with exchange fees and the other headaches that come with being a publicly listed company? I am probably overthinking this, and I am also assuming that it wont happen because of the debt that they have...and a cash position that doesnt exactly support it...but I am hoping someone can help me rationalize.
https://www.greenmarketreport.com/10-multistate-cannabis-companies-owe-half-a-billion-in-federal-taxes/
“They have to pay their taxes sooner or later,” the attorney said. “They’re going to fail, because so many of these managers are burying their heads in the sand, and what they should be doing is coming to grips with this and taking action. What they’re doing now is the worst of all possible worlds. They’re saying, ‘We admit we owe this tax, and we’re just not going to pay it.’
“That’s like alcoholic behavior. That’s like not opening your mail.”
Updated version of the May Seeking Alpha article referenced in the above article.
https://seekingalpha.com/article/4541957-cannabis-mso-bankruptcy-candidates
I did enjoy that part of the CRUX INVESTOR interview...but I really enjoyed the part where JD explained his go to market strategy. I thought it was 'different' compared to the other operators...and quite frankly...displayed his level of knowledge, expertise and passion as a CPG executive.
Interview:
That interactive map is great...and baffling at the same time!
Alto ($68K) and Ruidoso ($1.1M)...the distance between them is a 10 minute drive however the monthly cannabis sales between the two areas is vastly different:
Hobbs ($1.7M) and Lovington ($8.6K) -- 30min drive.
Clovis ($1.1M) and Texico ($78K) -- 15min drive...yet Texico is closer to the border.
Several people tend to follow pricing on Twitter. This was a recent post regarding NJ:
sad sample of NJ's adult-use cannabis prices today:
— Chris Goldstein (@freedomisgreen) August 29, 2022
Apothecarium (Terrascend) - $65 per 1/8
Cannabist (Columbia Care) - $55 per 1/8
Botanist (Acreage) - $60 per 1/8
CuraLeaf - $60 per 1/8
RISE (GTI) - $60 per 1/8
ZenLeaf (Verano) - $50-$60 per 1/8
Ascend - $60 per 1/8
That's because most cannabis investors can't see the forest for the trees. They are still stuck in the early Canada legalization mindset where footprint/scale matters. They have yet to draw parallels between Canadian sqft footprint and US state footprint. Just because you are in "X" amount of states doesnt mean you are an efficient operator. They dont see the larger companies turning off assets in competitive states as negative performance indicator....they see it as cost savings, margin protecting. IMO the lack of govt movement is both a blessing and a curse. It's a curse because the industry is not moving forward at the speed we investors wish it was and it is not level setting the industry...but it is a blessing because capital is not flowing as easily as it once was. As times goes on, and things get tougher (stock prices remain stagnant), it is slowly changing the investor mindset to focus on underlying company performance. I would like to believe that eventually this will play into SHWZs favor...but since they are not getting the flashy $100+ basket sizes, and $60 eights (for mids)...this transition could take longer than anticipated.
I agree with you olivernoyes. In addition, the only states pushing interstate commerce are the ones with glut: California and Oregon, mainly. They need IC in order for their industries to thrive because they are producing more than what is being consumed within their state. I think that the next logical, govt, step is to continue to focus on the research side of things. Regardless of how much research is already documented throughout the course of history (including all the govt funded studies that were done in Israel) the govt does not value the results. They will need to see University granted, federally funded/sponsored research. The catch-22 is that Universities cannot bring the product on campus due to its scheduling status. Cannabis will need rescheduled or they will need bills passed to allow the testing to commence. The House or Senate recently passed a research bill, which sounded like a great step forward, but I heard that the representative of Iowa forced them to change the bill so that the University of Mississippi remains the sole supplier of the product to be tested/researched. This is a step backwards, or at the very least a side step, because the University of Mississippi has been known for garbage quality product. What needs to be tested is the product that can be purchased at dispensaries...and the various forms. I agree tat decriminalization is not the same as legalization. Maybe we see some form of banking along with the HOPE Act. Most low level cannabis offenses are at the state level. The same cannot be said about the federal level incarcerations. In terms of the federal legalization of cannabis, I cant see a decision happening until there is 'adequate', and current, scientific research. Until then the industry will limp forward...or at best...baby step. That is why it is critical, as an investor, to know what you own.