The cannabis hype cycle is over. That's a good thing.
Plus, US cannabis companies march toward the TSX, and much more.
I’ve been struggling to put together a newsletter this week given recent events.
It feels a bit silly to focus on our little corner of cannabis news when human lives are at stake, but sometimes work can be a good distraction from mainlining images of war.
It’s not my place to take a position on Israel-Palestine, so I won’t. You’ll read me being quite opinionated here when it comes to cannabis business and policy, because these are things I’m an expert on.
I’m not an expert on geopolitics or military strategy or the role of religion in society and I won’t pretend to be.
I’ll save those conversations for my close friends and family, but if any of my readers want to hear my perspective please reach out and we can have a private conversation. I’m also happy to share a reading list and the level-headed experts I follow for accurate, cogent information.1
As a Jewish person with a connection to Israel my heart breaks for everyone affected, on both sides, and the best I can do with my little platform is emphasize our shared humanity.2
The rise of anti-Semitism here at home has been palpable. I worry about it. I worry about Israel’s retaliation on innocent lives in Gaza.
Terrorism is wrong, killing civilians is wrong, and I hope cooler heads can prevail and we can someday have lasting peace.
The last thing I’ll say is that I’m concerned for Jewish people everywhere, I’m concerned for children and innocent civilians in Gaza, and I hope this war comes to a swift conclusion.
On a more cheery note, check out my appearance on PBS’s MetroFocus with Politico’s Mona Zhang where we discussed New York’s challenged cannabis legalization rollout, what the state tried to do differently than those that came before it, and why it's not yet working.
These are complex issues, so please do let me know what you thought of the segment.
Today’s Cultivated is sponsored by Castetter Cannabis Group.
The Castetter Cannabis Group was founded by Kaelan Castetter, who has worked in New York’s budding cannabis industry since 2015.
Kaelan has real bona fides: His father was a legacy grower in the 1990s. I’ve found Kaelan’s expertise and writing to be invaluable for my reporting on New York’s legal cannabis rollout.
The Castetter Cannabis Group has years of experience working directly with the Office of Cannabis Management, helping clients navigate the licensing process.
They’ve worked with 40% of New York’s operational dispensaries, finalizing compliance to help them open their doors.
They have a laser focus on New York — reach out today.
💡What’s the big deal?
I’ve been doing the rounds at cannabis conferences over the past few weeks, and I can tell you one thing: The cannabis industry’s mood is slowly but surely shifting in a positive direction.
We’re far from the irrationally exuberant days of 2018 and 2019, when flashy cannabis retailers like MedMen, now on the verge of collapse, received multibillion-dollar valuations.3
Or when US-listed shares of Tilray — now a conglomerate of craft beer brands, pharmaceuticals, and mostly medical cannabis — were nearly $150 a pop. Those same shares are worth less than $2 today.
While that immense destruction of shareholder value is fresh in people’s minds, excitement is returning, at least anecdotally.
Investors are once again looking to deploy capital and some actually, shockingly, have the capacity to do so. These aren’t mega rounds, but capital is starting to find its way to cannabis and cannabis-related startups again.
But investors aren’t looking to bet on any company that puts cannabis in their pitch deck.
The hype is over, and that’s a good thing.
Most of the companies that have been able to survive are diligent with their capital, responsible in their allocation, and understand how crucial profitability is for continuing to operate.4
And they’ve done that with one hand tied behind their back.
Payment providers shut down accounts with little warning. Companies pay absurd taxes and can only borrow money at usuriously high rates. There are still too few banks and institutional investors who are willing to loan to or invest in the industry.
They’re mostly shut out of major stock exchanges, and there are practically no exit opportunities besides other indebted cannabis companies.
It’s a tough business to thrive in — let alone continue to exist as a going concern.
Maturity is what led many of these companies to survive the tough times, and we’ll start to see the other side soon.
Imagine what the balance sheets will look like once they’re able to pay down debt, borrow money at normal rates, and stop paying the 280E tax.
They’re like the tiny mammals, hidden in their burrows, that survived the asteroid that wiped out the dinosaurs.
And like these mammals that eventually came to rule the world, they’ll emerge stronger for it.
Let’s be a little bullish for once
For those of us in the industry for the long-game, I think the value proposition remains.
Cannabis is not crypto.
It is a real product that people consume and love and have consumed and loved for thousands of years.
We’re at the beginning of an explosion of research into the therapeutic effects of rare cannabis compounds, and researchers are finally unshackled to study and understand them in rigorous, scientific ways.
Countries around the world are weighing legalization proposals. North America’s biggest cities and many of the US’s most economically powerful states have legalized cannabis.
Cannabis legislation cleared the powerful Senate Banking Committee, and the federal government is moving towards cannabis reform.
It’s not the legalization we all hoped, but far more than baby steps, as I’ve written.
Even the United Nations is finally singing a different tune about drug prohibition more broadly.
On the back of that momentum, good things are happening. Selfishly, people from outside cannabis are once again interested in what I’m writing.
More seriously, smart companies and smart people are back to snooping around these conferences. They’re quietly hitting me up looking for a signal in all the noise.
Hype isn’t back, and that’s a good thing.
The interlopers, the quick-money people, have been weeded out.5 I’d like to think real people trying to create valuable things are what remain.
🗣️ Quote of the week
Two weeks ago I moderated a panel at the Benzinga Cannabis Capital Conference in Chicago.
Happy Munkey CEO Vlad Bautista, a legend in New York City cannabis circles, had an astute comment on my panel about making the switch from legacy to legit on the panel:
"The majority of the big players were playing monopoly," Bautista said. "They would buy everything they land on, do another round of raising, and buy whatever else they land on. And the only thing they had to produce was projections, and growth.""Investors aren't rewarding that anymore. The game has morphed more into a game of Risk, and investors looking for profitability."
“I didn’t come from Wall Street. I don’t know how to operate off of growth and projections. I only know how to operate off of profitability, because in my old career, I couldn’t go back to my distributor and say but look, my stock price is going up.”
It’s a really useful piece of advice for surviving and thriving in the difficult cannabis industry.
🥊 Quick hits
After a troubled start, New York opened up a 60-day window to apply for general cannabis licenses on October 4.
The license types include retail dispensary, cultivator, processor, and vertically-integrated “micro-business” licenses.
The application window will close on December 5, and the state expects to issue 1,000 licenses.
Ohio residents are set to vote on cannabis legalization in the 2023 general election.
New York cannabis policy architect and former top Cuomo aide Axel Bernabe is joining professional services firm Manatt to help lead their cannabis practice.
Nonprofit Marijuana Policy Project director Toi Hutchinson quietly stepped down and was replaced by Matthew Schweich on an interim basis, Marijuana Moment reports.
📈 Market moves
What happened: Curaleaf is applying to list on the Toronto Stock Exchange, following competitor TerrAscend’s footsteps.
Curaleaf Executive Chairman Boris Jordan said the move would give the company access to a “broader set” of global institutional investors, help solve custody issues, and reduce volatility in the stock, and let the company get included in major indexes.
Why it matters: TerrAscend’s creative deal to list its shares on the TSX may have opened the floodgates for US cannabis companies looking to list on Canada’s premier exchange, as I wrote in July.
Any company that grows or sells cannabis in the US wants, desperately, to “up-list” to a major exchange to access deeper-pocketed investors and more liquidity.
Right now, these companies — TerrAscend, Curaleaf, and their competitors, known as multi-state operators or MSOs — are forced to trade over-the-counter in the US, and on the secondary Canadian Securities Exchange (CSE).
A TSX listing brings both credibility and liquidity, and gives major investment banks and custodians more cover to work with the industry.
Wait, there’s more: Verano Holdings, another US cannabis company, received approval to list on the CBOE Canada and will delist its share from the CSE.
While it’s not quite the TSX, it’s still a far more mature exchange than the CSE. Expect other US cannabis companies to look at this as an option.
🚨 Cool job alert
New York cannabis shop Gotham, founded by investor Joanne Wilson, is looking for a Chief Operating Officer to help the company manage a period of rapid growth.
They’re looking for someone with 15+ years of experience with accounting and finance knowledge, and the job will involve financial planning, analysis and risk management.
📚 What I’m reading
NY's cannabis rollout could destroy a legal entrepreneur (Bloomberg’s Odd Lots)
Cannabis in Canada: Debunking myths about the real impacts of legalization (The Conversation)
How a cannabis bill stopped being about weed (Politico)
Commentary: Corporate interests are trying to distort intent of cannabis law (Albany Times-Union)
The complicated, risky—but potentially lucrative—business of selling cannabis (Wall Street Journal)