CNPOF - The States Go Marching On

Summary

• As states continue to make progress around cannabis legalization, California furthers the conversation around interstate commerce.
• Missouri set to go online as other states hit sales highs.
• This week's Scotts Miracle-Gro's earnings call and what it means for cannabis investors.

In our last article , we discussed the progress of the states in legalizing cannabis while federal development sputters along. California cannabis regulators this week furthered the conversation around interstate commerce by putting the spotlight on its Attorney General:

...there’s a newish light at the end of the tunnel, at least for California and other states that are game: interstate cannabis agreements. If interstate cannabis agreements open up between cannabis states, then maybe just maybe the cannabis industry can be pulled back from the brink of its hard landing in 2023...

Interstate cannabis commerce would be a dream for many licensees, and especially this kind of interstate commerce which would only: (A) be between cannabis states; and (B) involve existing state licensees (and not, let’s say, Costco ( COST ) or Amazon ( AMZN ) (yet)). But the passage of SB 1326 didn’t automatically create interstate cannabis commerce for California licensees...

In all, interstate cannabis agreements may be a political win for California, they will mean nothing if the DOJ doesn’t also play ball when it comes to enforcement.

It will definitely be interesting to see how this plays out. As Hirsh Jain , Founder of Ananda Strategy , put it :

The value of this is in the signal that it sends... This starts the mechanics of a process, but the real value is it gets the attention of other states, it gets the attention of the federal government.

We also mentioned in our previous article that Minnesota is doing its best to roll out a successful adult-use market and that Missouri is coming up next, namely, this Monday, February 6.

BDSA had this to say about the Show Me State:

While MSO interest in the Missouri market is high, a thriving number of home-grown brands have risen to the top in the roughly two years that the state has had an operating cannabis market. In October 2022, eight of the top ten brands in the Missouri market were independent local brands.

Compared to other markets that have either recently launched adult-use sales, or are on the verge of launching legal sales, Missouri may have a lower total addressable market due to a considerably smaller population and lower number of annual visitors than New Jersey and New York; however, Missouri holds several distinct advantages.

Missouri benefits from the foundation of a strong medical program, with a long list of qualifying conditions, broad retail availability, and competitive brand landscape made up of MSOs and local brands alike. Another factor expected to give the Missouri market a strong adult-use launch is its proximity to states with limited cannabis access. While Missouri does border the adult-use Illinois market, it is also bordered by seven other states with a 21+ population of over 19 million, suggesting that cross-border shoppers will give a strong boost to the initial years of legal sales.

MariMed ( MRMD ), a multi-state operator discussed in this week's episode with CannaVestments ("They have been since the start just focused on measured growth and profitable growth."), will be using some of its recent funding for building out its presence in Missouri:

Funds will be used for completing the build-out of a new cultivation and processing facility in Illinois and a new processing kitchen in Missouri, expanding existing cultivation and processing facilities in Massachusetts and Maryland, funding other capital expenditures, and repaying in full the Kind Therapeutics seller notes from the Maryland acquisition in April 2022, with the remaining balance to be used for acquisitions.

And while the industry has been hit by price compression, single state adult use sales have been promising .

Michigan marijuana sales reached a record high in December, state data shows.

While medical cannabis purchases have gradually declined, the adult-use market has more than made up for that drop, with total sales hitting $221.7 million last month. That’s about $9 million more than the previous record set in September .

What’s more, the state is experiencing this total sales surge even as the average cost of marijuana has continued to dip, with the price of an ounce now hovering around $90. In December 2021, by contrast, the cost of an ounce was about $180.

Arizona’s marijuana market has seen similar trends, with the state recently announcing that cannabis sales reached a record high in October . Medical marijuana purchases are also declining in the state, but the recreational market is on an upward trajectory.

Illinois marijuana sales hit a record high of more than $1.5 billion in 2022 —and this past December marked the strongest sales month to date—officials announced earlier this month.

If you recall Colin Ferrian's advice to investors last year:

Listen to Scotts Miracle-Gro ( SMG ) conference call every quarter. Jim Hagedorn will not lie to you about where crop prices are because he doesn't have to. And it's the easiest way to get a sense of where they are without hearing somebody trying to spin a narrative around why the prices are where they are.

Well, Scott's Miracle Gro released earnings yesterday and here's what CEO Jim Hagedorn had to say:

One final point on the cannabis industry, when it does recover and it will, growers will be ready to invest in CapEx. We will be there to support the turnaround. Consolidation is happening in the industry and we see opportunities for high-value no-cash partnerships to further strengthen Hawthorne’s ability to provide value-added and innovative solutions to growers.

For further details see: