Cannabis Thought Leaders on Sell-Off + Tax +Uplisting + New Mexico

The TDR Three Key Takeaways from Cannabis Thought Leaders:

  1. Executives advise against daily overreaction to the sell-off in cannabis stocks.
  2. Large exchanges will likely advocate for cannabis companies to have the opportunity to list as they seek financial benefits.
  3. Seizures similar to those in New Mexico also occur in California.

In this TDR Exclusive, we interviewed three cannabis thought leaders yesterday to gather their thoughts on the recent sell-off, the DEA’s reclassification from Schedule 1 to Schedule 3, its impact on company taxes, and comments on New Mexico.

Cannabis Thought Leaders – Verano (CBOE:VRNO, OTC:VRNOF) – President Darren Weiss and CIO Aaron Miles

Regarding the recent sell-off, when discussing the importance of not overanalyzing daily stock movements, he stated: “We don’t track the industry’s trajectory on a day-to-day basis. This is a complex process. It’s entirely possible that news released yesterday is seen as a final decision, and then we realize this is actually just the first or second step in the process. It is a significant step, and it’s difficult to understate its impact, but it won’t affect the bottom line immediately. It doesn’t mean we’ll be uplisted tomorrow, or that we can start using credit cards, or that all restrictions will be lifted immediately. There’s still work to be done, but our position has never been stronger. This is probably the most significant news in the history of cannabis, and we are thrilled to be part of this historical moment.”

This quote from Darren was complex, but accurate. It is a major advancement in what happened this week, akin to having a business idea. The idea is merely the first step; executing it is the challenging part that takes time to unfold. Even when the news is finalized there is going to be other steps in the process to have everyone receive the benefits.

Aaron gave some great perspective on the stock movements as well; he said, “Canopy is up 70% yesterday. It’s a Canadian operator that reaped the benefits. Obviously, they have some US components to it, but that shows you the strength of institutions being able to invest in this space. When you actually think about what the floodgates could look like once that opens up, it can be massive for this industry. Vernao traded 5.4 million shares yesterday. That’s over $30 million in notional value. I’ve worked at companies where certain firms have established $5 billion positions, just one firm in a company. You start to put that into perspective, and you start to see it was a huge volume day yesterday, but in comparison to a tried and true, like Bank of America, trades 30 million shares a day. I don’t think people actually understand how thinly traded we actually are as an industry.”

When you think about that it is huge to think about how much volume could come in to push up stock prices, it is a long game, but it really is early days and the the last two days taught us it will be a bumpy ride, But in order to get the volume, what about uplisting?

Aaron used to work at the US NYSE and said, “As an exchange, you have to be doing your homework on what the next big thing was, right? It was biotech, you know, technology, then biotech…..this is a slam dunk for any exchange that’s going to open the doors to cannabis. I mean, they’re going to have a massive amount of companies coming in. And it doesn’t matter what your revenue levels are. You obviously have to hit the listing requirements. But, you know, it shares outstanding and it’s, you know, it’s listing fees.”

It’s important to consider how exchanges are interested in the business of cannabis company’s; they need to pursue new opportunities each quarter. Just like any large company, the business development team members are responsible for generating ideas and opportunities. These then need to be vetted by legal and compliance departments. This process is similar for exchanges, but overall, they are motivated to work with cannabis companies due to inherent incentives.

The tax benefits following changes to Section 280E are very important, and the group looks forward to them. They see it as a way to strengthen their balance sheet by using the funds they would have paid to the government to pay down debt instead. This represents a tremendous change for the industry and is expected to significantly improve company financials.

Cannabis Thought Leaders – Emily Paxhia from Poseidon Investment Management

When asked about federal authorities seizing cannabis in New Mexico, Emily shared significant news, including a related incident in California. She explained, “This has actually been happening in California for some time. One of our private companies experienced a very similar situation. They were merely delivering product to a dispensary, and despite having the manifest, dash cam, all tracking requirements, and the van, the product was seized.”

This tidbit is interesting: while most of the news has focused on New Mexico, the fact that seizures also happen in California is very concerning to everyone involved.

Emily echoed Aaron and Darren’s view that exchanges are eager to engage with cannabis companies. She mentioned, “The exchanges really want to do this and have put efforts in Washington D.C. to include capital markets language in some bills, like SAFER. They are very keen to see what happens with rescheduling.”

This would be a great opportunity for cannabis companies to uplift, allowing more institutional funds to flow into their stocks.
The discussions with cannabis industry leaders indicate the sector is on the verge of significant transformation. The DEA’s reclassification of cannabis and the possibility of uplisting provide notable opportunities for growth and investment. Despite the volatility and complexities, these developments signify a historic change in the cannabis sector. Industry leaders suggest that although progress may be slow and detailed, the groundwork for a strong and successful market is underway. The focus is now on adapting to the evolving regulatory environment and leveraging new financial opportunities to enhance the industry’s future. Want to keep up to date with all of TDR’s research and news, subscribe to our daily Baked In newsletter.

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