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  • 🚨 Welcome To "Cannabis Derangement Syndrome" 🚨

🚨 Welcome To "Cannabis Derangement Syndrome" 🚨

Author

Anthony Varrell
November 11, 2024

GM Everyone,

It seems investors in the cannabis industry have caught a bad case of what I'd call "cannabis derangement syndrome." In the past week, we've witnessed a scenario where Donald Trump is back in the White House, a red wave has swept through Congress, and Amendment 3 in Florida was stopped dead in its tracks. Some believe this reshuffles the deck for the cannabis sector, potentially fitting it with cement shoes for the next four years.

Perhaps it's time to sample the products you're so proudly investing in and let things unfold. The current rescheduling initiative is gaining momentum, and we're moving into the most pivotal phase of the process. So, take a deep breath—maybe even inhale—and watch as the industry progresses.

Cheers to another week and chaos in the cannabis industry.

A little longer than a 5 minute read.

💸 The Tape

Who Is Rick Scott?

If you haven't heard of Rick Scott, you've probably been living under a rock—or perhaps just outside of Florida's ever-sunny political spotlight. Rick Scott is the junior United States Senator from Florida, a position he's held since 2019 after serving two terms as the state's governor from 2011 to 2019. But before he donned the political cape, Scott was a healthcare executive who knew a thing or two about turning a profit, sometimes controversially so.

Accomplishments: Profits and Politics

Scott co-founded Columbia Hospital Corporation in 1987, which later merged to become Columbia/HCA, the largest private for-profit healthcare company in the U.S. Under his leadership, the company grew rapidly—but not without hiccups. In 1997, Columbia/HCA was investigated for Medicare and Medicaid fraud, eventually resulting in a $1.7 billion settlement, the largest in U.S. history at the time. Scott stepped down as CEO amid the controversy but managed to exit with a golden parachute that would make any Wall Street executive nod in approval.

Transitioning to politics, Scott ran for governor of Florida on a platform emphasizing job creation and tax cuts. He touted his business acumen as the remedy for governmental inefficiency, and to his credit, Florida's economy did see growth during his tenure. He was a champion of conservative fiscal policies, pushing for reduced government spending and lower taxes—a tune that plays well with the fiscally conservative choir.

Cannabis Stance: Not Exactly 420-Friendly

When it comes to cannabis, Rick Scott has been about as warm as a cold front in the Sunshine State. During his time as governor, Floridians passed a constitutional amendment in 2016 to legalize medical marijuana. However, implementing the will of the people seemed to move at a glacial pace under Scott's administration. Legal challenges piled up like unfiled taxes as his team resisted various aspects of the medical marijuana program.

For instance, his administration appealed court rulings that would have allowed patients to smoke medical marijuana, arguing against the expansion of consumption methods. It was a classic case of giving with one hand and taking away with the other—a move that left patients and investors alike scratching their heads.

In the Senate, Scott hasn't shifted gears much. He's maintained a skeptical view of cannabis legalization at the federal level. While other politicians see green in the burgeoning cannabis industry, Scott seems to view it as a risk not worth taking, at least not yet. This cautious stance puts him at odds with the growing number of states embracing cannabis reform and the investors eager to capitalize on this new market.

Final Thoughts

Rick Scott is a complex figure—a businessman turned politician who has navigated scandals and economic upswings alike. His accomplishments in expanding business and advocating for conservative fiscal policies are notable. However, his staunch resistance to cannabis legalization highlights a cautious, perhaps outdated approach in a rapidly evolving industry. For investors eyeing the cannabis sector, Scott's stance serves as a reminder that regulatory hurdles remain, especially when key policymakers are slow to embrace change. It is also very possible that Trump and his advisors will fall in favor for the plant and advise Mr Scott to fall in line as it relates to cannabis reform.

📈 Dog Walkers

MindMed Reports Q3

Village Farms International's Canadian Cannabis segment is flourishing like a well-tended greenhouse. Net sales blossomed by 27% to $36.5 million (C$49.8 million), up from $28.8 million (C$38.7 million). It appears the Canadian cannabis market is as vibrant as ever, with retail branded sales growing 22%, international medicinal sales skyrocketing 111%, and non-branded wholesale sales surging 68% (all in Canadian dollars). Clearly, the world is craving what Village Farms is cultivating.

However, not all leaves are without spots. Gross margin dipped to 26% from 35%, thanks to sales of non-branded spec inventory weighing down the numbers. But if we weed out those sales, the adjusted gross margin perks up to a healthier 31%. Net income took a trim, landing at $1.2 million (C$1.6 million) compared to $2.9 million (C$3.8 million) previously. On the bright side, adjusted EBITDA grew to $4.8 million (C$6.5 million) from $4.6 million (C$6.2 million), and cash flow from operations remained robust at $4.5 million (C$6.1 million).

South of the border, the U.S. Cannabis segment, Balanced Health Botanicals, is experiencing a bit of a dry spell. Net sales wilted to $3.9 million from $5.0 million. Gross margin slipped slightly to 63% from 64%, and the segment swung to a net loss of ($0.2 million) after previously enjoying a $0.1 million profit. Adjusted EBITDA mirrored this downturn, falling to ($0.2 million) from $0.2 million. It seems the U.S. operations could use a little more fertilizer—or perhaps a change in climate.

In sum, Village Farms' Canadian Cannabis arm is thriving, delivering lush growth that helps overshadow the U.S. segment's underperformance. With international sales blooming, the company might consider focusing its green thumb where the grass is truly greener.

👾 Number Of The Day

$24.3M Total sales of concentrates in B.C. Canada over the last year.

Data provided by:

📺 YouTube

Post Election Cannabis Outllook: Cresco Earnings & USCC Insights | Trade to Black

What we covered:

✅ On our latest Trade To Black Podcast, Charlie Bachtell, CEO of Cresco Labs (OTC: CRLBF), joins us to discuss their latest earnings. We’ll also get his perspective on what’s next for the Florida market based on news from earlier this week about Amendment 3 not passing.

Plus, United States Cannabis Council SVP David Culver will join us once again to discuss the future of the cannabis industry now that Donald Trump has won the election and the Republican Party has regained control of the Senate.

Culver spoke with us earlier this week, sharing that it didn’t matter which administration won the election, as both parties support cannabis reform. We’ll ask about his agency’s strategy moving forward.