Weed legalization scored some solid wins in the 2022 midterm elections. Maryland and Missouri legalized cannabis for adult-use, and internal estimates at Poseidon note that those two markets could generate $2.6 billion in legal cannabis sales.
According to cannabis research firm Headset, the additions of Maryland and Missouri to the market would add about 10% growth over the $26 billion that U.S. adult-use marijuana sales are predicted to earn in 2022. There were also decriminalization initiatives passed in Ohio, Texas and Wyoming.
California voters had the opportunity to generate growth via ballot initiatives to open adult-use businesses in municipalities across the state. For context, only a third of cities and counties in California currently allow cannabis retail operations. This election cycle could prove quite impactful to that state’s market.
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Republicans are on track to gain control of the House, and the Senate may stay split with Vice President Kamala Harris as the tiebreaker. We see this as the highest probability outcome for federal progress on cannabis during the lame-duck session. Passing the SAFE Act or the SAFE+ Act would be the first positive federal action taken since Poseidon was formed. We continue to say this is the dawn of federal legalization, and the day is young!
Diddy Enters Cannabis Industry It was another historic week in cannabis with the announcement that Sean “Diddy” Combs is forming the largest minority-owned multi-state operator (MSO), as well as the world’s largest Black-owned cannabis company.
In a deal worth up to $185 million, Combs agreed to acquire cannabis operations in Illinois, Massachusetts and New York from Cresco Labs (CRLBF (opens in new tab)) and Columbia Care (CCHWF (opens in new tab)). Combs’ new MSO will be able to manufacture branded cannabis products and distribute them to dispensaries in major cities like New York, Boston and Chicago.
Earlier this year, Cresco Labs agreed to purchase Columbia Care in a $2 billion deal that would’ve made Cresco the top cannabis producer in the U.S. We have been closely watching the pending merger of Cresco and Columbia and the requisite divestiture of licenses. Investors have become increasingly focused on the balance sheets of cannabis operators. The industry needs to see M&A proceed versus busting like other transactions in 2022. We look forward to seeing the Combs team continue to build on their footprint.
Tilray Brands Purchases Montauk Brewing Company Tilray Brands (TLRY (opens in new tab)) continues to acquire U.S. beer brands with this week’s announcement of its purchase of Montauk Brewing Company. TLRY has recently focused on building a portfolio of beer brands, noting the potential accretive value of this transaction. However, the company continues to struggle with rightsizing its cannabis operation in Canada.
Headset data shows that TLRY is losing market share in Canada, and there is likely quite a lot of work to further improve the overall enterprise. This week’s Highrise podcast (opens in new tab) provides a good rundown of the transaction.
Senator Hickenlooper Introduces PREPARE ActDemocratic Senator John Hickenlooper from Colorado announced his plan to introduce legislation that would provide a framework for the federal government to legalize cannabis. The PREPARE Act would require the U.S. Attorney General to convene a “Commission on the Federal Regulation of Cannabis” if the federal government passes cannabis legalization. The commission’s role would be to make recommendations related to cannabis policy, though it would not have the authority to institute any new policies.
“This bill will provide lawmakers across the ideological spectrum the opportunity to engage on cannabis reform by creating a fair, honest, and publicly transparent process for the federal government to establish effective regulation to be enacted upon the termination of its 85-year prohibition of cannabis,” wrote Hickenlooper’s office in a summary of the bill.
As we noted, this is a big week for U.S. cannabis, with many focused on the outcome of the midterm elections. We try to focus on companies and fundamentals, but progressive federal action could help take tremendous strides in normalizing the cannabis industry. The SAFE Banking Act is still top of mind as it would open access to banking for cannabis companies and result in subsequent implications for capital flows and stock prices.
We have heard much talk from the Democrats and additional bills, including Hickenlooper’s PREPARE Act initiative, which is potentially helpful for starting the conversation of a federal regulatory regime. Discussions around cannabis legislation continue, but we all need and want SAFE to get passed in the lame-duck session as a starting point of federal action.
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