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This is not going to work!

This is not going to work!

Shadd Dales, William McNarland & Anthony Varrell
July 05, 2024

GM Everyone,

It looks like Round 2 is coming up between the DOJ vs. Major Marijuana companies, as an appeal is now in the works in what has been one of the most eventful weeks for the industry when it comes to the judicial system. As much as many want to push the narrative forward on this industry, there are many that still do not, but this is party of the process, right? As a wise person once told me in life, if it was easy, then I wouldn’t need you. Keep fighting the good fight on this Independence Day weekend.

Today’s letter can be read in 5 minutes and 4 seconds.

What's Driving the Market Today?

The US market is open today after the holiday, but the direction is undecided as traders await the job data. Here is what is else is expected to move the market today:

US labor market data shows significant cooling.
UK Labour Party wins by a landslide, boosting British stocks.
The US dollar drops for the fourth straight day.
Brazil's real rallies after fiscal policy changes.
China stocks fall to a 4.5-month low.

💸 High Impact

The Legal Battles Continue

The What: Major marijuana companies, including Verano Holdings Corp. (OTCQX: VRNOF, CA: VRNO) and Canna Provisions, are appealing a federal court ruling that dismissed their case against federal prohibition enforcement on in-state activities.

The Highlights:

The Department of Justice (DOJ) argued that in-state cannabis activities influence interstate commerce by drawing out-of-state tourists. This, they argued, falls under Congress’s authority to regulate such businesses.

Marijuana companies are appealing this decision, arguing that the federal government lacks a rational basis for banning state-regulated marijuana. The plaintiffs believe that federal intervention in state-regulated marijuana markets is overreach, especially when these activities are confined within state borders. They aim to convince the higher court that the DOJ’s enforcement disrupts state autonomy and local economies.

The Why:

The marijuana companies argue that the federal prohibition infringes on state-regulated marijuana activities, invoking the Commerce Clause. The Department of Justice (DOJ) argued that in-state cannabis activities influence interstate commerce by drawing out-of-state tourists. This, they argued, falls under Congress’s authority to regulate such businesses. The plaintiffs countered that the Commerce Clause should prevent DOJ interference in state-legal cannabis activities regulated within state borders.

My Two Cents:

The outcome of the appeal is likely to result in the U.S. Court of Appeals upholding the district court ruling. Despite acknowledging the plaintiffs' arguments, existing Supreme Court precedent supports federal regulation of controlled substances, even within state borders, citing interstate commerce influence.

Read about all the details at this link:

📈 Dog Walkers

EBITDA Margin Trends in the US MSO Cannabis Market

EBITDA margins have been improving as a whole for Cannabis MSOs over the last year; this has lowered the risk of cannabis company’s operations compared to the previous year. Here are some observations:

Average Margin: The average EBITDA margin for US MSOs was 10.7%, with a median of 13.9% over the last twelve months.
Improvement: Compared to the previous 12-month period, where the average was 9.1%, and the median was 9.8%, there is a clear improvement, indicating better operational efficiency and profitability.
Industry Ranking: The table below ranks the top-performing MSOs by EBITDA margin. A higher margin reflects better operational profitability.

Global Cannabis Medical Market Predicted to Soar!

What happened: Yesterday, a report by Straits Research stated that the global medical cannabis market was valued at USD 17,075.39 million in 2023. It is projected to reach USD 77,134.83 million by 2032, with an annual growth rate of 18.24% from 2024 to 2032.

History: Previous estimates from Emergen Research had predicted an annual growth rate of 11.6%.

Why it matters: Investors and public cannabis companies have mostly been focused on the US and Canada and now can focus on the global opportunity for cannabis!

New Study Highlights The Environmental Impact of Outdoor Cannabis Cultivation

The What: A study available on Science Direct seeks to understand the environmental impact of growing cannabis. The study, “Greener Green: The Environmental Impacts of the Canadian cannabis industry,” provides insights into this issue, especially in Canada.
Our Take: In some ways, the study is early, as current Canadian Federal Cannabis Legislation and the weather require highly secure indoor cannabis facilities, but it is interesting to note the findings.