Author: Joy

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

From March 31 to May 31, the US plant touching operators on my comp table taking the sums on 2022:

• The stocks are down an average of 28% since March 31, while the NASDQ 100 (growthy tech) dropped 15%, and the Russell 2000 (small cap) dropped 10% and S&P500 (large cap) dropped 9%.
• The Canadian LPs are down 41% since March 31 and 22% in May; the average Canadian LP is trading at 3.9X sales. Remember that I do not deduct the net cash balances since the capital is being invested and FCF is negative, so my Canadian operators look more expensive. Though Cronos has a $1.1 billion market cap and $981 million of cash, I doubt that cash will ever be directly returned to equity holders via dividends or buybacks rather than used to fund losses and acquisitions of assets.

What does this all mean for cannabis? The key questions are:

Are reductions to EBITDA estimates finished? While the valuations are low, continued cuts to estimates that were too-aggressive last year make multiple expansion difficult. Margin expectations are still robust at 27% for the publics overall, but there is a range here from 23% to 38%. But with low multiples on reduced estimates, meeting or beating those estimates in 2Q results reported in August would generally lead to rapid multiple expansion.

How long can those mid to high 30s margins last? While shorter term investors focus on margin expansion and contraction as this can drive multiples higher, longer term equity investors ultimately focus on the free cash generated, and that is driven by the profit dollars, not percentages – as the old saying goes “you can’t eat margin”. A 25% margin on $1 billion of revenue ($250 million of profit) is larger and ultimately preferable to a 35% margin on $500 million ($175 million).

Shift to Cyclical from Growth investors: Though multiples are low, the industry generally needs a shift in the investor base from those view these like tech names for “fast growth at any cost” and higher multiples, to investors more used to cyclical names like consumer and industrials. These investors typically focus on the drivers of growth (organic vs acquisitions, price vs volume), incremental margins and incremental dollars, and can look through lower prices to also see higher volumes, and lower total margins amidst higher profit dollars.

Is Legal Cannabis a consumer defensive if the economy enters a recession, or is it consumer discretionary? So far there has been little experience with legal cannabis in markets amidst a recession. Alcohol profits have historically done fine in recessions, but there can be trade down to cheaper versions of products. Cannabis has the unique competitor of the unlicensed market, which is typically cheaper. Investors must remember that while cannabis may be recession resistant, purchases of legal cannabis can shift back to the unlicensed market.

MJResearchCo conducts rigorous investment analysis of the legal cannabis industry to help professional allocators of capital make better investment decisions.

To learn more visit https://mjresearchco.com/

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

Nowadays, it’s tough to be a cannabis operator. Wholesale prices are crashing, there are increasing levels of competition, an ever-changing regulatory landscape, an unfavorable and unsafe tax regime, and a dozen other major thorns on your side. And now we appear to be in or headed towards a global economic recession some macroeconomic analysts are predicting to be quite severe and long-lasting. Inflation, supply chain breakdowns, higher interest rates, low economic growth, and high unemployment are either on the horizon or are already in place..

Will we get something positive out of DC in 2022? Maybe.It’s always hard and often frustrating to predict positive cannabis legislation passing federally. Pressure and momentum continues to grow on SAFE Banking Act or similar omnibus legislation that falls short of federal legalization passing this year. If passage does occur it will act as a massive stimulus to the entire industry; lowering operating costs and opening up new flows of capital and financial opportunities currently unavailable due to federal legal restrictions.

States are continuing to act and move forward, here are some highlights:

• Rhode Island just legalized adult use cannabis sales.
• Illinois just announced they will double the number of cannabis retail licenses.
• Maryland, Missouri and other states may pass adult use or medical cannabis legislation through the ballot box or state legislatures this year.
• Pennsylvania and other states are acting to provide state level 280E tax relief.
• A three-year cultivation tax holiday is about to kick off in California.
• More and more local municipalities are opening up opportunities for cannabis businesses to establish..

Also don’t forget where we’ve come from. In 2011 the Arcview Group released a first of its kind report on the State of the Legal Cannabis Market in North America –

Historically, it’s never been easy to operate in this space.

This was only 10 years ago. Going from $1.7 to $24 billion in total sales in a decade is impressive in anyone’s book, and we know 2022’s total market size will be bigger still. What can we realistically imagine the cannabis industry will look like 10 years from now in 2032?

• Federally legal cannabis market with interstate commerce
• Plant touching companies listed on US stock exchanges
• Major cannabis brands recognizable to most Americans
• Hundreds of billions of dollars in M&A activities
• A $40 billion+ annual global market in the US, Germany and other markets around the world

In short, a dramatically different US and global cannabis environment will exist. Take the long view on the cannabis industry and you can only be optimistic. What can you contribute to make this dream a reality in your own business, your own cannabis dreams, your own positive cannabis advocacy?

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

What Disconnect?

Cannabis products are sold from coast to coast. However, it is increasingly clear that the consumer community is not happy.

Cannabis has already become a multi-billion-dollar industry. Cannabis products are sold from coast to coast. However, it is increasingly clear that the consumer community is not happy, and many are leaving the regulated market because they experience Inferior products. These products are perceived as too expensive and burdened by excessive tax rates. Efforts to apply national standards are still in discussion, while the Cannabis industry is mired in a patchwork of state-by-state safety regulations and a lack of interstate commerce. The Cannabis consuming public deserves a solution.

As co-founder of the CESC, a nonprofit Cannabis Science organization, Dr. Jean Talleyrand, M.D. recently visited the Flore Dispensary in San Francisco’s Castro District.Flore Dispensary is a newly opened medical Cannabis retail store located at a historic corner. At this corner more than 25 years ago, Brownie Mary handed out Cannabis infused “treats” to AIDS patients. Just down the street, Dennis Peron’s Cannabis Buyers Club became the world’s first medical Cannabis dispensary since prohibition. A few years later, Dr. Talleyrand evaluated his first medical Cannabis patients, also down the street. Dr. Talleyrand now represents a pressing need for the scientific exploration of Cannabis products. The CESC is coordinating a launch of Version 2 of The Dosing Project with the Flore Dispensary. The Dosing Project investigates community-accessible Cannabis products to discover optimal doses and efficacy. What better venue than this: a historic community that provides a natural resource for research? The Flore Dispensary along with other CESC strategic partners are the proving grounds for this CESC initiative.

“The Cannabis community is thirsty for knowledge.  They are curious to know what and how much works for their aches, pains, and stressors.  They want to know what gives energy or relaxes them.  What makes them hungry, sleepy, or (yes, even) aroused”

Dr. Jean Talleyrand, Chief Medical Officer of the CESC

How have we landed in the present situation: a largely unmet need for Cannabis product surveillance for both safety and efficacy for consumers?

At a recent (June 14, 2022) meeting of the FDA, after soliciting public comment it was clear that consumers expect regulators not to prohibit, but to monitor Cannabis product efficacy, safety, and content.

The CESC’s Solution:  Establish a Cannabis product ecosystem.  The CESC is building a product formulary comprising a validated set of Cannabis products that consumers can rely on.  Furthermore, the CESC is developing an application that predicts dose and outcomes from products across all categories.  This model is anchored to community assessments derived from the Dosing Project and powered using AI, machine learning algorithms engineered by top-tier Cannabis data science professionals. 

For further information, please contact The CESC at [email protected] at the end in the available white space at the bottom of the 2nd page. Also, can we add a link to our website in this sasme space. Visit The CESC

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

1 23 State Attorneys General Call On Congress To Address Marijuana Copycat Products That Resemble Common Food Brands>

2 ⚾ MLB Allow Teams to Sell CBD Sponsorships

3 Thailand rushes to rein in cannabis use a week after decriminalisation

4 MILLENNIALS as CANNABIS CONSUMERS

5 FDA takes another look at CBD, but insiders are skeptical much will change

6 Arkansas Supreme Court blasts failings of state medical marijuana regulators

7 Johnson & Johnson asks FDA to ‘chip away’ at cannabinoid regulations

8 New Jersey Adult-Use Sales Predicted to Remain Strong After Successful Launch

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.

Editors’ Note: This is an excerpt from our Monthly Playbook. If you would like to read the full monthly playbook and join the thousands of others you can sign up below.