I presently have equal positions in both Trulieve and Green Thumb. A lesser position in Cresco.
I'm just wrapping my head around which I prefer to put new money into for the best 12 month ROI? Both are terrific companies. I'm not as excited about Cresco, so I'm just letting my shares there ride.
Trulieve has indicated they are taking M&A calls, and might grow that way. To me at this point, I think Green Thumb will be more economically efficient using their money to keep building out towards their current 96 licenses; scaling up in each of their 11 states to push each states' stores to higher gross profit margins.
That's why I won't be surprised if within 12 months they post GAAP Black profits, providing guidance before then.
I also expect as soon as the SAFE Banking Act is enacted into law, that all of the US MSO's will apply to NASDAQ to uplist. Bringing in institutional money will be a huge PPS stimulus.
Some people have questioned me and differ on that, saying that they cannot be listed on NASDAQ or the NYSE until cannabis is fully legalized.
I researched the NASDAQ rules. I couldn't find the prohibition regarding fully legalized. I bet it's a legal gray area. But once the SAFE Banking Act is passed, cannabis companies will start to rock and roll if for no other reason, investable and loanable money will be legally able to flood into the industry.
So be thrilled you are in it now!!
Currently, the USA legal cannabis market is 10 times bigger at $1B/month than Canada's $100M/month. Betting on the American MSO's is FUN.
Here is the link to the NASDAQ listing rules. Perhaps someone else can take the time to find the relevant rules that will apply to the gray area cannabis business will be in after the SAFE Banking Act is passed.
I could not find it inside of the 250 pages or so. Here it is:
Cannabis Tax Regimes Need To Change Before The Sector Can Take Off
Nov. 26, 2019 1:44 PM ET
By: Christiana Friedman
The government has to get their foot off of the cannabis industry's throat.
Summary
California's tax hike on legal cannabis to an 80% markup comes at a time when legal supply accounts for less than 30% of the market.
The situation is even worse in other states that have legalized.
Pot stocks are unlikely to turn around long term until regulators allow the industry to breathe.
Cannabis is not like other "sin stocks" that can compensate for taxes by consolidating since the barrier to entry is so low.
Despite the positive momentum made in legalizing cannabis in the United States over the last 5 years, we may ironically be right back where we started in terms of cannabis prohibition in 1937. The Marijuana Tax Act, which became law in the US on October 1 of that year, was designed to effectively make marijuana illegal on a federal level by imposing a prohibitive tax on cultivating and selling it. The taxes imposed by this legislation were an unbelievable $100 an ounce for anyone selling to an unregistered entity. Adjusted for inflation that is about $4,200 an ounce.
Essentially, anyone who wanted to make money in the cannabis industry was forced to break the law. It was on this basis that the law was declared unconstitutional in 1969 in Leary v United States because it violated the 5th Amendment of self-incrimination. The Act was ultimately repealed in 1970, replaced by the Controlled Substances Act that simply made cannabis illegal independent of any tax regime.
The Controlled Substances Act is still in force, though of course it is in practice ignored in states that have chosen to legalize. However, as far as markets go, for all intents and purposes the situation hasn’t changed all that much since 1937. That’s because the biggest and most consequential cannabis-producing state of California is structurally similar to the regime under the original Marijuana Tax Act. Granted, the penalties are more lax and the taxes are payable, but they are still way too high for the legalized market to function properly, and the situation is getting worse.
According to New Frontier Data, a whopping 82% of the 2019 US cannabis supply has come from illicit markets. That number is set to become even higher in 2020 when California is set to increase cannabis taxes even higher. The California Department of Tax and Fee Administration (CDTFA) has announced that cannabis taxes will rise to an 80% markup effective January 1, plus a 15% sales tax, plus a tax hike on dry flower to $9.65 an ounce from $9.25.
Ostensibly, the level of these taxes is set according to market data compiled by the State of California. This would theoretically keep tax levels in balance with market dynamics, except for the fact that the market data collected do not incorporate the illegal black market.
As can be seen from the New Frontier Data chart above, California is actually in a better position than other states that have legalized in terms of the percentage of demand satisfied by legal sources. Yet, I believe the numbers shown are even worse for the legal cannabis industry than it looks. In order for illegal supply in a state like California to so thoroughly trounce the legal supply, the price differential has to be so extreme between the legal and illegal markets that it compensates for the added risk, difficulty in procurement, and lower quality of the illicit supply. The fact that people would prefer going through the hassles and danger of the black market versus the convenience of buying at a licensed dealer shows just how extreme the tax situation is. Even if say the situation were reversed and 70% of supply came from legal production, that still means that 30% of consumers prefer the risks of the black market.
The cannabis market is not like other sin stocks that can try to compensate for higher taxes by consolidation, say in the gambling industry. The barriers to entry in marijuana are very low and almost anyone can join in.
The implications of these dismal numbers out of California are also quite negative for the medical cannabis market. Certainly, the fact that the legal market is such a small percentage of the overall cannabis market throughout the country attests to the efficient functioning of the black market in cannabis. It has been around for decades after all, more than enough time to organize itself into a well oiled machine. The reason this affects the medical cannabis industry is simple enough. Taxes on recreational marijuana are equivalent from an economic perspective to the cost of pushing a medical candidate through FDA clinical trials. Black market actors do not have to invest hundreds of millions of dollars pushing their products through FDA clinical trials. Regardless of what the costs are called, they must be recouped and therefore passed down to the consumer.
GW Pharmaceuticals (GWPH) for example is still struggling to sell Epidiolex in any numbers even close to making the company net positive. The daily cost of Epdiolex is about $96 a day, and the hassle of getting insurance to cover it may be enough to prevent GW from ever being profitable. The company is set to lose over $300 million this year and its accumulated losses have more than tripled from FY2016 to FY2018.
We often hear bullish projections of cannabis market growth going out to the late 2020s and the market opportunities available for new companies and new investments in the space. But not included in these projections is the percentage of demand that will be met by the black market rather than the investible companies that have, until now, been riding the wave of these bullish projections. If governments cannot drastically reduce their regulation and tax requirements on the industry, then most of the demand projected by bullish analysts will continue to be met by the black market. Hence, we are still in a similar state of marijuana prohibition as existed from 1937 to 1969 in the US.
Given the continued success of black market operators, the only companies in my opinion that have a chance of success in the current tax regime are companies that have truly differentiated and patented cannabinoid products that cannot be replicated by the black market. These are companies such as Corbus Pharmaceuticals (CRBP) and others developing cannabinoids that can truly be patented because they are chemically distinct from any cannabinoids that the cannabis plant naturally produces.
True, if California and other state governments do change their tax policies from their foundations and actually become friendly towards the companies they host, then perhaps things can change and pot stocks (MJ) could see a resurgence. However I see this possibility as remote, especially in high-tax high-spending states such as California whose state tax authority is generally considered even more fearsome than the IRS itself.
Overall, I see the recent decline among pot stocks not as a buying opportunity, but a sign of exhaustion among speculators and exasperation at how the companies in the space are being dealt with on a regulatory level. There could be technical bounces from here on short term oversold conditions, but a sustained rally in the sector looks unlikely at least until the tax and regulation issues in the most consequential states can be addressed at the root.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
CHICAGO and VANCOUVER, British Columbia, Dec. 03, 2019 (GLOBE NEWSWIRE) -- Green Thumb Industries Inc. (GTI) (CSE: GTII) (OTCQX: GTBIF), a leading national cannabis consumer packaged goods company and owner of Rise™ and Essence retail stores, today announced that its executive team will participate in the following conferences in December 2019:
Investor Intelligence Conference – Cowen Master Class, Las Vegas, December 10, 2019: Founder and Chief Executive Officer Ben Kovler will participate in a fireside chat with Cowen Managing Director and Senior Research Analyst Vivien Azer.
MJBizCon, Las Vegas, December 12, 2019: Senior Vice President, Government and Regulatory Affairs Dina Rollman will participate in the “Expansion: Winning Licenses in Multiple States” panel discussion.
About Green Thumb Industries:
Green Thumb Industries (GTI), a national cannabis consumer packaged goods company and retailer, is dedicated to providing dignified access to cannabis while giving back to the communities in which they serve. GTI manufactures and distributes a portfolio of branded cannabis products including Rythm, Dogwalkers, The Feel Collection, incredibles and Beboe, among others. The company also owns and operates rapidly growing national retail cannabis stores called Rise™ and Essence. Headquartered in Chicago, Illinois, GTI has 13 manufacturing facilities, licenses for 96 retail locations and operations across 12 U.S. markets. Established in 2014, GTI employs approximately 1,300 people and serves thousands of patients and customers each year. GTI was named a Best Workplace 2018 by Crain’s Chicago Business. More information is available at GTIgrows.com.
The SAFE Banking Act Up In Smoke While State-Wide Legalization Is Growing Like A Weed
This fall Investors were ‘a buzz’ surrounding the SAFE Banking Act, but all that excitement has faded, leaving some to believe they may be focusing their attention on the wrong cannabis news.
For those not familiar, The SAFE (Secure and Fair Enforcement) Banking Act was first introduced in 2017 and then revised in 2019 with a larger scope, to much fanfare. The Act was created to assist legal American cannabis companies in the complicated terrain they navigate working legally within a state, while simultaneously running into roadblocks, such as banks, insurers, and lenders not wanting to provide services for fear of federal retribution due to their affiliation with marijuana-based companies. The Act, if passed, will bar criminal and civil prosecution for insurers and banks for providing services to cannabis businesses, their owners, and staff.
Addressing how the current state of operations of cannabis companies doesn’t make sense, in an official statement, Senator Merkley said, “Forcing legal businesses to operate in all-cash is dangerous for our communities. It’s absurd that cannabis business owners have to shuttle around gym bags full of cash to take care of their taxes or pay their employees. Operating in cash is an invitation to robbery, money laundering, and organized crime. This is a public safety issue, and I hope that this will be the Congress when we build a bipartisan consensus to put this common-sense fix into law.”
Steve Hawkins, the executive director at the Marijuana Policy Project, said this fall that the vote surrounding the SAFE Banking act is an, “indication that Congress is more willing than ever to support and take action on sensible cannabis policies.” and added “The passage of the SAFE Banking Act improves the likelihood that other cannabis legislation will advance at the federal level.”
But the SAFE Banking Act may be parked indefinitely as impeachment proceedings take centre stage. Alan Brochstein, CFA, Founder at 420Investor.com and NewCannabisVentures.com isn’t holding his breath for the pending SAFE Banking Act to move forward any time soon. He told The Dales Report, “It is caught up in politics in my view, with the impeachment process as well as the election in 11 months likely to stall it. It’s an election year and the Senate may not want to hand the Democrats a victory (even if it is small).”
Brochstein is, however, more enthusiastic about the legalization of recreational marijuana for sale in Michigan on December 1st and in Illinois come early 2020. Brochstein said, “I think seeing two big Midwest states go legal is a major long-term positive that could influence further legalization. I am a bit more excited about Illinois, as it has a robust medical market, but it will be supply constrained. I believe this will be viewed as the best legalization since Colorado.”
In terms of when investors will see returns from the Midwest legalization, Brochstein cautiously refers to historical data on such returns saying, “These legalizations have not resulted in instant payoffs – the ramp in revenue is always later than anticipated.”
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