- The Grass is Greener (On Both Sides of the Fence)
- Bring In The Feds
- Green Shoots, Fertile Soil
- Curaleaf (OTCQX:CURLF)
I pulled my Jeep into my kids' Elementary School parking lot and was greeted with a line of men and women that snaked along the old brick building.
Bleary-eyed, coffee in hand, I prepared to join my fellow citizens and perform my sacred, civic duty…
Voting.
Yes, it’s that time of the year when the leaves are changing, the air is cool, and we can all rally together to judge one another and do our damnedest to “Create Change,” “Leave No One Behind,” or “Make America Great Again.”
Political slogans are some of the most pandering and reductive language in our collective vocabulary.
Editor’s Note: My favorite Presidential campaign slogan is “We Polked you in '44, We shall Pierce you in '52”. That’s from the 1852 U.S. presidential run from Franklin Pierce. The '44 referred to the 1844 election of James K. Polk as president. Funny stuff.
Here in Maryland, however, it wasn’t even the slogans that were funny. It was the candidates themselves – the signs all read MOORE or COX. Just what we need in our politicians these days. I had to chuckle to myself – in politics, these jokes seem to write themselves.
I digress…
While I waited, I studied my sample ballot for the third time. Like many voters, I had already made up my mind before arriving. What I was really digging into was the Constitutional Amendments. Many voters take these items as an afterthought, but I firmly believe these are the votes that matter in elections.
I’m not here to argue about why and whom you should vote for. I abide by the famous Tip O’Neill quote, “all politics is local.” And this year, Marylanders had a window of opportunity to vote on a subject that has been one of the shining gems in my investment crown: cannabis legalization.
The Grass is Greener (On Both Sides of the Fence)
I voted for cannabis legalization on Question 4 of the ballot, and my vote was counted along with many like-minded Marylanders: it passed overwhelmingly. Come March, adults can decide to purchase cannabis products at their local dispensary legally.
Keep in mind Maryland is a rather blue state, so I wasn’t terribly surprised at the result.
What was more interesting for legalization on election day is the other state that approved it: Missouri.
Missouri is a strongly Republican state that voted overwhelmingly for Donald Trump and Mitt Romney and has also held the state house since 2003. It took a bipartisan approach to legalize grass in the Show-Me-State.
Votes like the one in Missouri put an exclamation point on the popularity of cannabis legalization. According to a Gallup survey, a record high 68% of adults in the U.S. said marijuana should be legal. That includes 51% of Republicans.
Ballot initiatives like these have slowly turned America into a big, happy green country.
With Maryland and Missouri joining the party, now 21 states and Washington, D.C. have legalized recreational cannabis. 37 states allow legal, medical use of cannabis products. You can see just how far cannabis legalization has come so far:
These new laws have unleashed thousands of jobs and hundreds of millions of profits into American-run cannabis businesses. For us investors, cannabis companies have made some of us millionaires – and it’s about to get even more lucrative.
Bring In The Feds
One of the biggest impediments to the cannabis industry in America is the current Federal classification of cannabis as a Schedule I drug under the Controlled Substances Act. Schedule I is defined as “drugs with no currently accepted medical use and a high potential for abuse.”
Cannabis sits alongside serious drugs like heroin and LSD. To put that in perspective, cannabis is classified as more dangerous than Schedule II drugs like cocaine, methamphetamines, and fentanyl.
Obviously, that classification is as archaic as the “Reefer Madness” craze of the 1930s. During that time, government propaganda painted cannabis as a devil-spawned weed that turned everyday people into this guy:
Cooler heads have finally prevailed, and the government is finally acknowledging the simple fact that cannabis does indeed meet the medical needs of people suffering from PTSD, epilepsy, multiple sclerosis, and a litany of other ailments. It’s also proven to be non-addictive and safe – especially if you compare it to legal drugs like cigarettes and alcohol.
Nobody has ever died from consuming too much cannabis.
Even President Biden, who has been steadfast against legalization for his entire political career, has come around. He’s widely expected to sign The Medical Marijuana and Cannabidiol Research Expansion Act, which may coincide with removing cannabis from its absurd Schedule 1 designation.
The Senate has already passed the bipartisan cannabis research bill. Now, with the stroke of a pen, the President can sign it into law.
That will be one boon for pot stocks.
Another will be the passage of the SAFE Banking Act – another bipartisan bill with broad support.
You see, since cannabis is still deemed federally illegal, the industry is stuck in regulatory limbo. Currently, marijuana businesses don’t have access to banking services, leaving most dispensaries to work completely in cash. The designation prevents them from accessing loans and capital through traditional banking outlets.
Passage of the SAFE Act would pull these cannabis companies out of the dark and allow them to operate like any other business in the country: in other words, a legitimate business. The legislation would also protect banks that service state-legal marijuana businesses from being penalized by federal regulators.
The SAFE Act has already passed through the House in some form six other times. Now it is set for a Senate vote that has never looked more confident. Senate Banking Chair Sherrod Brown (D-Ohio), Sens. Steve Daines (R-Mont.), Pat Toomey (R-Penn.), House Financial Services Chair Maxine Waters (D-Calif.) and House Financial Services ranking member Patrick McHenry (R-N.C.) met with Senate leader Chuck Schumer to iron out some final details this week.
Schumer recently said that Congress is “very, very close” to passing the cannabis bill with this bipartisan approach. One that will go a long way to treating it as agriculture more than anything else.
That — in and of itself — is a huge step forward. These types of incremental changes will unshackle the industry and finally allow it to grow. As for the companies currently out there – to put it in the parlance of cannabis users – there will be “more buds and less shake…”
Green Shoots, Fertile Soil
The regulatory turmoil has been sending pot stocks on a rollercoaster ride over the past few years — and not the fun kind. When I first started covering cannabis investing, you could easily get double and triple-digit gains without even knowing anything about the company.
I know this because my readers and I lived through it.
I happened to be the first newsletter writer to visit Tweed – now well known as Canopy Growth Corporation (TSX: WEED, NYSE: CGC) – at their headquarters in an abandoned Hershey Chocolate plant in Smith Falls, Ontario.
I was so impressed with the management and facility that I quickly recommended the company to my readers at $1.80, and I expected big things, but nothing like this:
That recommendation made some of my readers 3,200%. I was floored and began covering the industry very closely.
A few years in, I noticed some cracks: Canadian regulators were dragging their feet, the U.S. government fought hard against attempts to reschedule it, and the companies themselves were sitting on a glut of supply – and debt – without enough avenues to sell their products.
Like reggae legend Jimmy Cliff once said, “The harder they come, the harder they fall.”
The cannabis boom was most certainly a bubble. The fallout hit every single cannabis company over the past few years. To put it bluntly, it's been a disaster.
But the good news is that the market has finally bottomed out.
In Canopy’s case, they have already started to claw back some of the losses from this year. They are up a whopping 45% in the past month. That is partly due to the rosy-looking political situation and the fact that Canopy is creating a holding company to speed up its entry to the United States, in addition to buying out U.S. partners Acreage Holdings Inc., Wana Brands, and Jetty Extracts. Those moves are widely expected to make the company profitable for the first time finally.
If Canopy can expand its footprint into the states before any major legislation is passed, it will be in a prime position to take a large share of the growing U.S. market.
Two other major players on American exchanges – Tilray (NASDAQ: TLRY) and Aurora Cannabis (NASDAQ: ACB) – are up 9% and 19% over the last month. A rising tide is indeed lifting all boats.
However, I think another U.S. company will quietly outpace those three big names when legalization finally shakes out.
Curaleaf (OTCQX: CURLF)
While Curaleaf isn’t a household name like Canopy or Tilray, they have quietly built out the most impressive operation in the U.S. today.
Curaleaf is a multi-state operator in the cannabis sector. They cultivate, process, market, and dispense a wide range of cannabis products through its branded Curaleaf dispensaries. Curaleaf’s national retail footprint consists of 136 dispensaries across 22 states.
Curaleaf also has a presence in eight European countries and Israel.
They are perhaps the most well-balanced of all multi state operators: they have exposure in highly populated states, including Arizona, Florida, Illinois, Massachusetts, New Jersey, New York, and Pennsylvania.
Curaleaf doesn’t mince words: they want to be the largest cannabis company in the world.
They are already off to a great start…
The company’s revenue is up for the year, with Q3 revenue coming in at $339.7 million compared to $317 million last year. 20% of that revenue was generated by new products launched last year. Curaleaf also has one of the strongest balance sheets in the industry, with total liquidity of $187 million.
Another reason to like Curaleaf is that the company has consistently reported positive adjusted EBITDA. For Q3 2022, the company’s adjusted EBITDA margin was 25%. Their operating cash flows were $60 million.
The stock itself has climbed 16% in the past month, and its 52-week range has been more stable than most pot stocks, settling in at $4.46 – $10.48. It currently trades around the $6 mark.
Curaleaf is already making money even without Federal legalization, but their cash flows will begin to swell if it happens.
I believe they are the single best-positioned company to thrive in a post-prohibition U.S.
Also, something to keep in mind: Curaleaf still trades over the counter. As they expand, they are a prime candidate for an uplisting to a major exchange — which would send the stock soaring.
As I mentioned, I think that pot stocks have finally bottomed out. As the country continues to vote for its support for federal legalization and politicians continue to join those ranks, we could be looking at the next green rush.
Make sure you don't miss it this time around.
Godspeed,
Jimmy Mengel
The Profit Sector
