Cannabis Musings - November 29, 2022

Friends – I hope your MJBizCon was as productive and fun as mine. The conference remains vital, still being the only one that seemingly the entire industry attends (in an industry that still has way too many conferences). It makes for a busy week.

At breakfast one morning with a keen observer of the hustle and flow of the cannabis business, my dining partner commented that it seemed to them like a number of the bigger deals lately have been geared towards pushing the NYSE and the Nasdaq to finally open up listing to cannabis companies. Sadly, I can’t take credit for this astute observation, but I’ll expand upon the idea. To me, a number of things have happened lately that are testing the limits that have constrained cannabis companies for years. We’re indeed primarily seeing this in deal activity:

• Canopy’s very highly structured transactions to consolidate the Acreage and TerrAscend assets into its financials while trying to maintain TSX and Nasdaq listings.

• GTI’s deal to co-locate dispensaries in Florida with Circle K gas stations, although one has to wonder how Circle K’s Canadian parent, Alimentation Couche-Tard, stays listed on the TSX if it’s a landlord to a US-based cannabis company, directly violating the Controlled Substances Act (the reason US exchanges and the TSX won’t list US cannabis REITs).

• British American Tobacco’s large and curious investment into CBD-manufacturer Charlotte’s Web, which I assume was made because Charlotte’s Web has an option to acquire cannabis MSO Stanley Brothers.

• Cresco’s agreement to sell a bissel of cannabis assets to A-list celebrity Sean “Diddy” Combs, which made national news well beyond the cannabis press.

Each of these transactions seems to be pushing the envelope – against the exchanges, against federal legal risks, against public perceptions. However, I think a recently-filed lawsuit highlights best this trend of rejecting the status quo. Recently, an Oregon-based wholesale cultivator filed a federal lawsuit challenging the constitutionality of Oregon’s laws prohibiting the interstate transport and sale of cannabis products.

We’ve been talking about the challenge/opportunity of interstate commerce in these Cannabis Musings for years (most recently a few weeks ago, and certainly well before it was cool). I’ve always been a little skeptical that someone would actually file this lawsuit, given the substantial cost of fighting the state through appeal and the existential cost of suing your regulator, as well as the fact that I’m not sure anyone really wants to know what happens when the dog catches the car it’s chasing. Interstate commerce is inevitable, but I think it’s going to dramatically alter the national marketplace, particularly for cultivators, so it surprises me that someone (the plaintiff here is a wholesale cultivator) would actively want to (metaphorically) summon Gozer the Gozerian in its destructor form at a time when yields are high and prices remain seriously depressed. And yet, here we are.

All of this tells me that companies are getting bolder in their actions and pushing the limits of lawyer creativity to try to make things work and gain an edge – they’re not gonna take it anymore. Granted, poking the bee’s nest to get honey of course always comes with the risk that the swarm gets angry and attacks – the Nasdaq delists Canopy; the TSX delists Couche-Tard; the federal government slows down investment activity (like what happened under Attorney General Bill Barr); the federal courts decide that, even though state laws prohibiting interstate commerce violate the constitution, for policy reasons they’re not going to strike them down. And it’s always good to remember that this industry exists solely as a result of the grace of the federal government. But without bold action, nothing can change.

Be seeing you.

© 2022 Marc Hauser and Hauser Advisory. None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form. Subscribe to Cannabis Musings at hauseradvisory.com.