August 28, 2024- The DEA has scheduled a hearing for December 2 to consider differing expert opinions regarding rescheduling of cannabis to schedule 3. The DEA said that there were a number of requests for the hearing from both supporters and opponents or for rescheduling.
The cannabis equity market lurched violently downward on the news as it clearly pushed the issuance of final rule-making to after the election and probably into Spring 2025. The MSOS ETF closed down 13.35% to $6.10 on Tuesday, August 27.
The panic is overblown. We were never convinced of the rapid deployment of S3 and have always believed that the old Shakespearian line “Many a slip twixt the cup and the lip” applied in triplicate to anything occurring in Washington, D.C., especially as it relates to cannabis. The reaction stems from fear that if Trump wins the election, he may not choose to continue down the rescheduling track. These fears are not based on logic. Trump has proven to be an advocate of states’ rights, and cannabis is the ultimate states’ rights issue. We admit we are a bit perplexed about why he hasn’t seized the issue to his benefit. One would think it would be relatively easy to campaign against the inability of the Democratic party to make any progress on cannabis legislation or regulation in the time they have been in control.
Perhaps a more rational fear is that if the S3 ruling doesn’t happen until 2025, which now seems likely, will companies no longer be able to recoup 280e taxes for 2024? In September 2023, we estimated that the top ten companies would save around $700M annually from S3. Those companies now have an aggregate market cap of about $11.0B. On that basis, a one-year delay in S3 implementation should be worth around 6% of the market cap.
We continue to believe that at current levels, U.S. MSOs have enormous upside potential. The graph above shows the multiples reached after a number of past legislative/regulatory events. It makes clear that a doubling of prices is a reasonable assumption. We recommend a balanced portfolio that leans toward the companies in the top half of the Viridian Credit Tracker model ranking.
View This Week’s Viridian Insights to See our Complete Analysis of Key Cannabis Deals and Deal Trends
About The Viridian Cannabis Deal Tracker
Launched in January 2015, and having analyzed more than $75B in deals, the Viridian Cannabis Deal Tracker is a proprietary data service that monitors and analyzes capital raise and M&A activity in the legal Cannabis, Hemp, and Psychedelics industries. Our insights help companies, investors, lenders and acquirers make informed capital allocation decisions. Each week the Deal Tracker provides proprietary data and market intelligence on transactions, including:
– Deals by Industry Sector (Track the Flow of Capital and M&A Deals by Industry Sector)
– Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A)
– Principals to the Transaction (Issuer/Investor/Lender/Acquirer)
– Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)
– Deals by Location of Issuer/Buyer/Seller (Track the Flow of Deals by State and Country)
– Credit Ratings (Leverage and Liquidity Ratios)
Contact
Scott Greiper
CEO
Viridian Capital Advisors, LLC
646.330.0704
sgreiper@viridianca.com
