James B. Francis, CFA
Chief Research Officer, CRB Monitor

Cannabis-Related Equity Performance

Cannabis Index Returns – MSOs Take Charge

January 2024 provided further evidence that the cannabis industry not only has a pulse but might actually pull itself together and survive the years-long regulatory nightmare that it has been in. And now, more than ever, there is evidence to suggest that marijuana could possibly shed the decades-long stigma that it is a “Schedule I Narcotic” (why it ever had this designation is a mystery) and that future generations of consumers will think of cannabis-derived products no differently than they think of alcohol or tobacco, or even Tylenol.

With that said, the idea of fully-legalized marijuana in the United States is still difficult to imagine, and we have written many times about the reasons for this. Most importantly, the government here in the US is broken. And those who watch the news occasionally can see that even the most reasonable actions of the legislative branch are seemingly impossible to complete, lest one side be viewed as “granting a victory” to the other side. Furthermore, the so-called “dangers of cannabis” have been almost universally debunked just as the benefits have been widely confirmed. And sadly we are all left waiting as the needs of consumers, businesses, and investors take a backseat to the political aspirations of a handful of elected individuals who are loathe to collaborate, even with members of their own party.

But as we have written several times, hope springs eternal, and for the last three months the largely sentiment-driven legal cannabis market is on a tear. This time around it was the MSO group outperforming (see the chart above), after it lagged the Canadian cannabis group in December. And so in spite of the ongoing indecision in Washington, state-by-state legal cannabis is alive and well and is positioning itself for rescheduling, and eventually, for federal legalization.

According to a recent report by cannabis industry website Flowhub.com, all statistics point to a rosy outlook for the industry. The highlights of the report include:

• "Half of Americans have tried cannabis.
• The US cannabis industry is expected to reach almost $40 billion in 2024.
• 1 in 3 women over 21 consume cannabis.
• Cannabis will add $115.2 billion to the economy in 2024.
• Adult-use cannabis is now legal in 24 states.
• Support for legalizing cannabis hit a record 70%.
• Ranks of women and minority cannabis executives are rebounding.
• Cannabis earns higher tax revenue than alcohol in 9 states.
• Average retail cannabis prices dropped -32% since 2021
• Dispensaries accepting debit earn an average of $4,627 more than cash only retailers."

While we are cautiously optimistic that DEA rescheduling (or perhaps descheduling) will happen, largely because it does not require congressional approval, the follow-on effects are complex and will need to play out at the state level and as always the impact on CRB security prices are difficult to predict. So grab your popcorn and stay tuned!

The Nasdaq CRB Monitor Global Cannabis Index (HERBAL), a mix of Pure Play Tier 1 and Tier 2 CRBs weighted by both investability and strength of theme (SOT), struggled in January following a strong finish in 2023. A full description of HERBAL’s strengths and benefits can be found here: Introducing: The Nasdaq CRB Monitor Global Cannabis Index.

The HERBAL index posted a -8.4% return in January 2024 and finished ahead of its closest competitor in the cannabis equity universe, the Global X Cannabis ETF (Nasdaq: POTX) (-10.6%). Similar to HERBAL, POTX is a pure play cannabis ETF with no US marijuana touchpoints and any deviations from the return of the HERBAL index will largely be due to differences in security weightings (HERBAL’s Strength of Theme enhancement et al) as well as rules for inclusion, particularly thresholds for minimum price and market capitalization. It is important to note that POTX has announced that it will be closing down in February 2024.

HERBAL trailed the Amplify Alternative Harvest ETF (NYSE Arca: MJ) (+13.9%) as well as the MSO-heavy Advisorshares Pure US Cannabis ETF (NYSE: MSOS), which closed out January with a spectacular return of +33.8%. These two funds with US plant-touching MJ exposure rebounded due to their heavy US MJ exposure, benefitting from the positive sentiment that came from US cannabis reform in January.

MJ’s performance has a high potential to deviate from HERBAL’s (and other cannabis-themed ETPs) due to its unusual composition. Since its origin MJ has held a significant percentage of non-Pure Play (and in a few cases non-CRB) holdings, more specifically tobacco stocks with either very small or no cannabis exposure at all. Additionally, In 2022 MJ added and maintains close to a 50% US plant-touching component via a holding in its sister fund, MJUS. The US plant-touching component also has the potential to impact MJ’s eligibility on investment platforms that restrict US cannabis exposure. It is also important to note that both MJ and MJUS are now operating under a new issuer, Amplify ETFs.

Monthly returns of the self-described and largest US plant-touching ETF, MSOS, can also deviate materially from HERBAL’s as well (as it did in January), largely due to its significant holding in CRBs with US Marijuana touch-points. [POTX’s and HERBAL’s methodologies prohibit them from holding any securities with direct US touch points while MSOS and MJ can.]

The performance of the CRB Monitor equally-weighted basket of top Pure Play Tier 1 CRBs by market cap was positive again in January, gaining 19.7%. This basket, which is an equally-weighted portfolio of the 11 largest Pure Play CRBs (including both US plant-touching and non US plant touching MJ), had a return that landed in between the two groups.

The CRB Monitor equally-weighted basket of Tier 2 CRBs finished the month lagging the Tier 1 CRB basket, posting a +11.0% return in January. While we expect Pure Play Tier 1 and Tier 2 CRBs to display high correlation (~0.8) in the long term, their respective performance has a tendency to diverge in the short term. This can be due to (among other factors) the lag from the impact (positive or negative) of market forces that affect their sources of revenue that are derived from the Tier 1 group. If this theory holds, investors would be expected to load up on Tier 2 CRBs in the short term and we would witness this gap narrow over time. With that said, the breadth of the Tier 2 basket has shrunk over time and the spreads have widened, which will likely contribute to short term volatility and performance differences as well.

US equities posted modest gains in January as we continued to see positive economic data, including control over inflation and lower unemployment numbers. The S&P 500 (represented by the SPDR S&P 500 ETF Trust (NYSE Arca: SPY) posted a +2.2% return for the month and added to their record-setting gains.

Largest Tier 1 Pure Play & Tier 2 CRBs by Mkt Cap – January 2024 Returns

CRB Monitor Tier 1

An equally-weighted basket of the largest Tier 1 pure-play cannabis equities had a positive return in January (+19.7%), with essentially all of the upside coming from the MSO group while the CAD (legal) CRBs lagging this time. There were a few big winners and we will take a look at them below.

Performance was generally spectacular in January for the MSO basket as Tier 1B Trulieve Cannabis Corp. (CSE: TRUL) (+85.4%) and Tier 1B Cresco Labs Inc. (CSE: CL) (+53.6%) and Tier 1B Verano Holdings Corp. (CSE: VRNO) (+36.6%) led the pack on the heels of positive sentiment from the DEA rescheduling. Tier 1A Curaleaf Holdings, Inc. (CSE: CURA) (+27.6%), Tier 1B TerrAscend Corp. (TSX: TSND) (+21.4%), and Tier 1B MSO Green Thumb Industries Inc. (CSE: GTII) (19.1%) spiked as well and while Tier 1A The Cannabist Company Holdings Inc. (CBOE Canada: CBST) (+8.6%) was tame by comparison but still impressive.

Interestingly, while the MSO group soared, the “legal” Canadian CRB basket had negative performance across the board in the month of January 2024. Tier 1B household names Tilray Brands, Inc. (Nasdaq: TLRY) (-20.4%), Canopy Growth Corporation (TSX: WEED) (-6.5%), SNDL, Inc. (Nasdaq: SNDL) (-18.9%), and Cronos Group Inc. (TSX: CRON) (-1.8%) all struggled as investors are battling fatigue over these CRBs which are heavily dependent on US legalization for their long-term survival.

CRB Monitor Tier 2

An equally-weighted basket of the largest CRB Monitor Tier 2 companies posted a positive 11.0% return for January 2024, which underperformed the equally-weighted Tier 1 basket by 8.7%. Typically these two baskets are highly correlated (please see the “Chart of the Month” from our January 2023 newsletter), and we expect Tier 1 and Tier 2 CRBs to periodically cross paths. When these two portfolios deviate from one another it could be a signal for investors to rebalance into (out of) the Tier 1 basket and out of (into) Tier 2’s given their direct revenue relationship, but the precise moment when these two baskets mean revert is not easy to predict. And furthermore, the costs required to systematically rebalance these illiquid baskets could eat up any expected material gains from even the best rebalance strategy. In other words, gaming these two baskets can be a losing strategy, so beware!

Performance across the Tier 2 basket was mixed but featured some bright spots in January 2024. Tier 2 REIT Innovative Industrial Properties, Inc. (NYSE: IIPR) (-7.5%), showed signs of cooling off after a two-month winning streak. In mid-December, IIPR announced its quarterly dividend of $1.82/share, which represented a $0.02/share increase over Q3 2023. IIPR describes itself as “the first and only real estate company on the New York Stock Exchange (NYSE: IIPR) focused on the regulated U.S. cannabis industry.” It is also the largest Tier 2 CRB by market capitalization – more than ten times the next-largest Tier 2 company. However, analysts might be looking at IIPR as a bit too pricey at this point, and are looking ahead to their next earnings announcement with great interest.

And what’s happening with Tier 2 SPAC Revelstone Capital Acquisition Corp. (Nasdaq: RCAC)? RCAC posted a return of 95.5% in January after losing nearly half its value (-48.7%) in the month of December. [As a reminder, in mid-January, Revelstone announced its proposed business combination with a charter private jet company, Set Jet, Inc. As Set Jet is not a cannabis-related business, this company will be removed from the CRB Monitor database upon the closure of this deal. As such, these wild swings in performance are less of a concern to cannabis investors.]

Finally, Tier 2 agriculture supplier Hydrofarm Holdings Group, Inc. (Nasdaq: HYFM) posted a positive return (+7.9%). Back in November Hydrofarm announced its 3rd quarter results, which featured a significant drop (-$20mm) in sales but repeated an increase in net gross profit of $5mm. Also covered in this earnings report was the Initiation of “a second phase of restructuring plan, which includes U.S. manufacturing facility consolidations, to improve efficiency and generate further cost savings.” As we have written in past newsletters, HYFM typically trades by appointment, and its illiquid nature (and accompanying wide bid/ask spread) can and will cause significant performance swings on any given day.

Chart of the Month: SEC Approves Eleven New Spot Bitcoin ETFs

The U.S. Securities and Exchange Commission (SEC) has recently approved eleven spot bitcoin-based exchange traded funds marking a historic milestone for the crypto industry, the ETF market, and investors. Now actively trading for the last few weeks, these vehicles allow US investors to gain daily exposure to the world’s largest and most liquid cryptocurrency without directly holding it, and as a result they simplify and reduce some of the risk related to the process of investing in bitcoin (BTC). SEC approval of these ETFs has been on the radar of CRB Monitor research for several months, and this latest development, the listing of the following 11 exchange traded funds, has resurrected interest in digital assets by the institutional and retail investment communities.

The following table has some of the key pieces of information regarding these new ETFs:

[CRB Monitor provides extensive coverage of all securities that have any connection to the digital asset ecosystem, including the more than 300 exchange traded products (ETPs) that provide investors with digital asset exposure.]

Some Key Information About Spot Bitcoin ETFs

An ETF is, in essence, a mutual fund that is listed and traded on an exchange, giving investors and traders the benefit of real-time pricing and intraday execution. [There are several other aspects of ETF mechanics that further differentiate them from mutual funds, but we will not detail them here.]

Spot Bitcoin ETFs such as the 11 that have recently started trading invest directly in Bitcoin (BTC), which is a departure from competing funds that achieve their exposure through futures or return swaps. In other words, this group of ETFs buys and sells actual Bitcoins which reside in a digital vault that is managed by a registered custodian. Shares in Bitcoin ETFs are created and redeemed via cash-settled (as opposed to in-kind) creations and redemptions, which removes some of the operational complexities and risks for authorized participants and market makers – but not the volatility and certainly not the regulatory concerns.

Spot Bitcoin ETFs offer several advantages over investing in the physical Bitcoins, whether it requires trading directly on a crypto exchange or through a peer-to-peer platform. These advantages include:

• Convenience: Investors can trade spot Bitcoin ETFs through brokerage accounts without having to deal with the technical and operational aspects of owning and storing Bitcoins, setting up a digital wallet, transferring funds, or securing private keys.
• Security: Investors do not have to worry about the risk of losing their Bitcoins due to hacking, theft, or human error, as the ETFs rely on professional and regulated custodians to safeguard the digital assets. The custodians also provide insurance coverage and regular audits to ensure the safety and transparency of the ETFs.
• Pricing: Bitcoin ETFs trade and price throughout the day on regulated exchanges while the underlying coins transact 24/7 with no central pricing source, making valuations a challenge.

How do these ETFs differ from one another?

What is interesting about the these 11 ETFs (please see the table above) is the broad range across the space with regard to both size and expense ratio. The range of assets under management (AUM) stretches from the barely viable Ark 21Shares Bitcoin ETF (Cboe BZX: ARKB) at $10 million to the clear leader (for now), the Grayscale Bitcoin Trust ETF (NYSE Arca: GBTC) at $21 billion. To be fair, GBTC had a head start, as this fund has been trading for more than a decade as a Bitcoin futures-based ETF and transitioned to a 100% spot ETF. Not surprisingly GBTC’s bloated AUM is shrinking, as investors have already begun their exodus out of them and into lower expense-ratio ETFs. But investors should proceed with caution as they sell out of GBTC in search of lower fee ETFs, as the tax consequences of this switch could eat up a significant portion of the savings.

Aside from the differences in expense ratio and AUM these 11 funds are very similar (perhaps identical in their construction), which is evidenced in the performance and the correlations displayed below.

What are the chart and the table showing us? First, that investors should not worry about the relative performance of these ETFs and their tracking error vs. spot Bitcoin. Rather, we advise to select on the combination of high AUM and low expense ratio. On the performance chart above the only real outliers are GBTC, which has had an early sell-off of over $1 billion largely due to its outlier expense ratio (1.50%), and DEFI, which is still futures-based until it completes its transition to spot – [much of the positive tracking could be coming from the spreads of spot BTC vs. futures, but more investigation will be needed to confirm this.] However, aside from these two pricey outliers, the field looks very much like a dead heat in terms of its inception-to-date performance and correlation. And this is good news for investors, as apparently all they need to worry about related to selection are expense ratios and AUM. For all intents and purposes, these ETFs are essentially the same and should produce similar results.

Now for a few things to worry about, once you have decided to invest in spot Bitcoin ETFs.

Challenges Presented by Spot Bitcoin ETFs

Spot Bitcoin ETFs represent a significant opportunity for the crypto industry and for investors, as they provide a convenient, and cost-efficient way to access the world’s largest cryptocurrency. They also have the potential to attract new institutional and retail investors to the crypto space, increasing the liquidity, adoption, and credibility of Bitcoin.

However, spot Bitcoin ETFs also face a number of challenges and risks to investors, given that the ETFs will not provide cover from the embedded risks that are inherent in the digital asset industry. For example, the prospectus for the iShares Bitcoin Trust (IBIT) describes a critical aspect of the create/redeem process as follows:

"The Trust will create Shares by receiving Bitcoin from a third party that is not the Authorized Participant and the Trust—not the Authorized Participant—is responsible for selecting the third party to deliver the Bitcoin. Further, the third party will not be acting as an agent of the Authorized Participant with respect to the delivery of the Bitcoin to the Trust or acting at the direction of the Authorized Participant with respect to the delivery of the Bitcoin to the Trust. The Trust will redeem Shares by delivering Bitcoin to a third party that is not the Authorized Participant and the Trust—not the Authorized Participant—is responsible for selecting the third party to receive the Bitcoin. Further, the third party will not be acting as an agent of the Authorized Participant with respect to the receipt of the Bitcoin from the Trust or acting at the direction of the Authorized Participant with respect to the receipt of the Bitcoin from the Trust. The third party will be unaffiliated with the Trust and the Sponsor...The Prime Execution Agent facilitates the purchase and sale or settlement of the Trust’s Bitcoin transactions. Bitcoin Trading Counterparties settle trades with the Trust using their own accounts at the Prime Execution Agent when trading with the Trust."

What all this suggests (and why investors should take note) is, because of the fractured nature of how digital assets transact, that the success of a critical link in the operational chain cannot be guaranteed. And while we will not go into the mechanics of typical, standard ETFs, suffice it to say that trade and settlement are not left to “unaffiliated third parties”.

And as such, we conclude that investors in these 11 new ETFs are subject to the same risks as investors in the underlying digital assets themselves:

• Regulatory uncertainty: The SEC has approved the spot Bitcoin ETFs under the condition that they comply with the Securities Act of 1933, the Securities and Exchange Act of 1934, and the Commission’s rules regarding cryptocurrency. However, the SEC has also expressed its skepticism and caution about the crypto industry, and has warned investors about the risks involved in investing in Bitcoin and crypto-related products. The SEC may also impose additional requirements or restrictions on the spot Bitcoin ETFs in the future, or even revoke their approval, depending on the market conditions and the regulatory environment.
• Market volatility: Bitcoin is known for its high volatility, as its price can fluctuate significantly in a short period of time, due to various factors such as supply and demand, news and events, speculation, and manipulation. Investing in spot Bitcoin ETFs exposes investors to the same volatility risk as investing in Bitcoin directly, and may result in substantial losses or gains. Investors should be prepared for the possibility of extreme price movements and have a long-term perspective when investing in spot Bitcoin ETFs.
• Operational risk: Spot Bitcoin ETFs rely on third-party custodians to store and safeguard the Bitcoins backing the ETFs. While these custodians are professional and regulated entities that provide insurance coverage and regular audits, investors should understand the underlying risks involved related to trade, pricing and settlement of the coins held by each ETF.

Finally, from the GBTC Factsheet risk disclosures: “Digital assets represent a new and rapidly evolving industry. The value of GBTC depends on the acceptance of the digital assets, the capabilities and development of blockchain technologies and the fundamental investment characteristics of th digital asset. Digital asset networks are developed by a diverse set of contributors and the perception that certain high-profile contributors will no longer contribute to the network could have an adverse effect on the market price of the related digital asset.”

BIS Digital Asset Classification

New challenges persist beyond the wide range of quality among digital asset regulators. Despite notable strides, risks endure, particularly in the global circulation and trading of digital assets. The heightened exposure of Bitcoin ETFs to underlying risks emphasizes the need for a comprehensive understanding of evolving standards.

As major financial institutions prepare for new Basel Committee on Banking Supervision standards by January 1, 2025, the landscape becomes more intricate, categorizing Cryptoassets into 4 risk classes (Group 1a & 1b and Group 2a & 2b), with the 2’s presenting higher levels of operating risk.

Bitcoin's placement in Group 2, specifically subgroup 2A, confirms the necessity for institutions to adapt risk management strategies that are in line with the elevated risk that is assigned by this new classification, which goes into effect in January 2025. This new set of standards would then place all spot Bitcoin ETFs in group 2A, given that Bitcoin is essentially all that they hold.

Why is this important? Because regulators will require financial institutions to report their exposure to Group 1 and Group 2 Cryptoassets as their exposure to them will be limited. In the words of the Basel report, “A bank’s total exposure to Group 2 Cryptoassets must not exceed 2% will apply the more conservative Group 2b capital treatment to the amount by which the limit is exceeded. Breaching the 2% limit will result in the whole of Group 2 exposures being subject to the Group 2b capital treatment of the bank’s Tier 1 capital and should generally be lower than 1%. Banks breaching the 1% limit.”

Global Regulatory Risk

While it is appropriate to describe the digital asset industry as “heavily” regulated, it is also accurate to describe digital asset regulation as “complicated”. Truth be told, there are now 100’s of regulatory agencies worldwide that are doing their best to keep up with several different categories of market participants, with varying degrees of success. But the reality is that, given its attraction for bad actors, regulating the crypto industry is a challenge and financial institutions that facilitate trading and custody of digital asset ETPs should be aware of this added layer of risk.

As such, CRB Monitor has developed a model which applies “quality” scores to many of the world’s largest licensing authorities. A summary of this model can be found in our August 2023 article Applying Risk Ratings to Digital Asset Regulators. In a nutshell, financial institutions are wedged between a rock and a hard place, craving a transparent, regulatory framework while trying to accommodate the needs of their clients and shareholders to hold crypto assets. And while these institutions expand their participation in the still-nascent digital asset industry through custody, trading, and even new digital asset issuance, the desire for greater transparency and a global regulatory framework persists. This table, which contrasts the degree and effectiveness of regulators in digital asset space, highlights the differences in risk across most of the largest regulatory authorities, and brings to light one of the hidden challenges associated with investing in a spot Bitcoin ETF.

Relative Quality Scores – Global Regulatory Authorities

Source: CRB Monitor, Regulatory Authorities 

As crypto investors begin to wade into this vast sea of operational risk and volatility, there are a number of considerations that will be essential components of compliance and risk management beyond those required for typical ETF investing. Rather, it can be assumed that an investment in a spot Bitcoin ETF is akin, from a risk perspective, to an investment in Bitcoin itself. And it should not be overlooked that Bitcoin is actively traded on global exchanges of varying qualities and degrees of regulation, and as such lends itself to illicit activity. 

CRB Monitor Securities Database Updates

CRB Monitor’s research team monitors the information cycle daily and maintains securities’ profiles to reflect the current state of the cannabis ecosystem. Here is a summary of the updates for January 2024:

Cannabis Business Transaction News - January 2024

There is no shortage of news coming out of the cannabis industry, and our analysts have been diligent as they ensure that the CRB Monitor database reflects the current state of the cannabis ecosystem. Here are some of the highlights from January 2024:

Always looking to expand their operational footprint in the US, Tier 1B MSO Verano Holdings Corp. (CSE: VRNO) issued a January press release announcing the opening of MÜV Yulee, the Company’s 74th Florida dispensary and 137th location nationwide. In the words of the press release, “Situated in Nassau County, which counts more than 90,000 residents1, MÜV Yulee enhances the Company’s footprint in the Jacksonville metropolitan area, accompanying MÜV dispensaries in Jacksonville and Jacksonville Beach...MÜV dispensaries feature online menus for effortless browsing of their extensive, award-winning product selection, including the Company’s signature Verano Reserve, MÜV and Sweet Supply flower, Encore edibles, On the Rocks concentrates and extracts, and Savvy flower and extracts, spanning an array of categories. The Company also offers one-on-one virtual and in-store consultations at no cost to patients and provides patient-centric concierge services via phone, email, web chat and text to address patient questions and inquiries.” With this latest opening, Verano (through its subsidiaries) holds 83 active cannabis licenses and operates in 13 states plus the District of Columbia.

Also in January, Tier 1B MSO Ascend Wellness Holdings, Inc. (CSE: AAWH.U) announced in a press release the opening of an Ascend Dispensary Outlet, located at 1206 Recker Rd, Piqua, Ohio. According to the announcement, this dispensary will be “Ascend's fourth in the state of Ohio and 34th across its seven-state footprint...The dispensary will offer medical products and accept both cash and debit cards through provided cashless ATM terminals. Via Ascend's support relationship with OPA, this is Ascend's second outlet store in the state, offering everyday low pricing and discounts. Ascend is proud to offer a wide range of products at everyday low prices, including a variety of cannabis strains, edibles, tinctures, topicals, and other cannabis-infused products.” With this new opening Ascend’s footprint has expanded to 74 licences that are either active or pending approval and operating in 7 states in the US.

Tier 1B Jushi Holdings Inc. (CSE: JUSH) announced on January 10^th the opening of its relocated Beyond Hello™ Hazleton dispensary in Pennsylvania, through its subsidiary, Franklin Bioscience – NE LLC. Given that Pennsylvania is still a medical cannabis-only state, This new dispensary will be serving medical cannabis clients only. In the words of the press release, “The dispensary will begin serving medical cannabis patients and caregivers in Northeast Pennsylvania and beyond on Saturday, January 13^th... and will offer an exclusive promotion of 30% off all purchases that same day...Patients will have access to all of Jushi’s in-house brands, including newly launched Hijinks, craft premium flower; Sèchè, high potency value-focused pre-ground infused flower and pre-rolls; The Lab, high-quality vapes and concentrates; Tasteology, infused troches; The Bank, award-winning, superior flower; and Nira+, THC and CBD-rich medicinal products – all locally produced at the nearby grower-processor facility in Scranton, Pennsylvania, which is operated by Jushi’s subsidiary Pennsylvania Medical Solutions, LLC.” With this addition, Jushi’s operational footprint expands to 54 active or pending licenses across 7 states.

Now onto Connecticut, where Tier 1B MSO Acreage Holdings, Inc. (CSE: ACRG.A.U) issued a January press release announcing “the relocation of its third Connecticut location to the town of Vernon, marking the first-ever cannabis dispensary in the borough of over 30,000 residents.” This new opening represents further expansion of Acreage into Connecticut. The Company’s licences, which are held by wholly-owned subsidiaries, are now 114 that are either in active status or pending approval. Acreage now operates in 19 states as well as 3 Canadian provinces and has operations in Australia as well. In the words of the press release, “The dispensary will provide medical patients with full access to a wide range of products both in-store and online, including flower, pre-rolls, vapes, edibles, and accessories. For a seamless experience, patients will have the option to either shop in-store or pre-order products online to pick up directly at the dispensary.”

Finally, household name and Tier 1B Canadian CRB Tilray Brands, Inc. (NASDAQ: TLRY) announced in a January press release “the completion of its acquisition of Truss Beverage Co. from Molson Coors Beverage Company (NYSE: TAP) and the satisfaction of remaining contractual obligations.”

According to the announcement, “The Truss Beverage acquisition provides several key strategic benefits, including:

• “Bolsters Tilray’s Beverage Operations in Canada. Since acquiring the remaining 57.5% equity ownership from Molson Coors in August 2023, Tilray has transitioned all cannabis beverage operations to its London, Canada manufacturing facility, maximizing utilization, and lowering costs. Tilray plans to operate the state-of-the-art Truss Beverage facility in Belleville, Ontario to explore the production of new beverage innovations and to expand its beverage portfolio.
• Strengthens Tilray’s #1 Cannabis Market Share Position and Solidifies Leadership in Cannabis Beverage Market. Tilray boosts its leading cannabis market share position in Canada with ~40% market share in cannabis beverages.
• Optimizes Commercial Network Through Collective Sales, Marketing and Distribution Force. Tilray is optimizing its sales, marketing, and distribution network with GND and its recently acquired cannabis beverage brands. This expanded network is expected to strengthen the Company’s commercial footprint and drive market share growth.”

Tilray’s operational footprint covers 10 countries (not the US) and their subsidiary businesses currently hold 380 cannabis licenses. [It is important to note that as of February 1, 2023, Molson Coors no longer qualifies as a cannabis-related business per CRB Monitor rules.]

Select CRB Business Transaction Highlights:

Officers/Directors Highlights:

Select Updates to CRB Monitor:

Cannabis News: Regulatory Updates

The regulatory tug-of-war for cannabis reform is feeling a bit overdone and without a whole lot of pulling on either side, thanks to a veritable stalemate on Capitol Hill with regard to essentially everything. As we wrote in last month’s newsletter, the only compelling cannabis-related news out of Washington is regarding DEA rescheduling, which has been an ongoing story since September of 2022 when President Biden issued his recommendations for cannabis reform. Then came the recommendation from Department of Health and Human Services (HHS) that the DEA reschedule marijuana from Schedule I to Schedule III, which on the surface seems reasonable but below the surface can be complicated, particularly for the path of medical marijuana going forward. The one piece of good news is that the DEA has the authority to reschedule (or even de-schedule) marijuana without a congressional vote, which (let’s face it) would be highly unlikely in the polarized political environment in which we live. So once again we recommend patience, as the only path to a really broad, deep publicly-traded cannabis market is through federal legalization (or a much clearer path to it). And while this could take a number of years and a few more congressional sessions to get there, it is the logical outcome for the cannabis industry.

With that said, here are some highlights from the cannabis regulatory news cycle:

Not enough flower? First, in January it was reported by our very own CRB Monitor journalists that “roughly one year into the launch of Connecticut’s adult-use cannabis market, the Nutmeg State is pushing back against alternative market suppliers amid a slow adult-use cultivation rollout and recent reports of dispensaries completely selling out of flower.” As a result of an increased purchase limit (in November 2023) for adult-use cannabis to half an ounce, up from the previous limit of one quarter or 7 grams, the supply at Connecticut dispensaries has suffered, according to the CRB Monitor report. “By the end of the month, there were social media reports of shops completely running out of flower. CRB Monitor confirmed over the phone that several dispensaries were sold out.”

And to add insult to injury, this shortage has led to instances of unlicensed cannabis “gatherings”, at which attendees purchase cannabis paraphernalia and for a $20 admission fee they are offered “free gifts of cannabis.” According to the report, “Connecticut Attorney General William Tong sent a cease and desist letter, on Jan. 4, 2024 to the organizer of the High Bazaar”, a weekly gathering that features this type of activity.

The article goes on to discuss recent actions by Connecticut which started last October when “the state also began cracking down on retail shops that were selling hemp-derived THC products, leaving many shop owners on the verge of closure. The new rules required all hemp-derived products be regarded as cannabis, which means they would be subject to seed-to-sale tracking and could only be legally sold in a licensed dispensary.”

The Department of Consumer Protection, which oversees the state’s legal cannabis market, confirmed in December that the agency was aware of shortages, according to spokesperson Kaitlyn Krasselt. She argued that “the lack of product was a result of increased demand during the Thanksgiving and December holiday seasons.”

And now, from Virginia: In January it was reported in Marijuana Moment that a second Virginia Senate committee has now advanced a bill to legalize retail marijuana sales in the commonwealth, moving the proposal “one step closer to the chamber floor.” The panel also approved a separate measure that would resentence people currently incarcerated for cannabis-related crimes. According to the article, “The Senate Courts of Justice Committee passed the measures after making amendments to both at a hearing Wednesday. The marijuana sales bill was approved on a 7–5 vote, with three members abstaining, while the vote on the resentencing bill was 10–5...Both measures take up matters advocates would like to see addressed following the state’s legalization of adult-use cannabis: the establishment of a legal, regulated market and relief for people still serving time as the result of prohibition.”

At the hearing, members first adopted a substitute version of the bill which included the removal of a prohibition on homemade edible products and also struck a section that would have made it a misdemeanor to bring cannabis across state lines (already a federal crime). The article goes on to say, “Another change removed a provision that would have barred selling any sort of cannabis-related paraphernalia to people under 21.”

Next, onto Kentucky, where Republicans are doing all they can to make recreational marijuana legalization a challenge. According to a January article in Marijuana Moment lawmakers in Kentucky “have filed new marijuana legislation with a notable bill number: HB 420. If passed, it would legalize and regulate cannabis for adults 21 and older, though few expect the proposal to get through in the state’s Republican-controlled legislature this session.” Rep. Rachel Roberts (D) introduced this bill, which would “legalize marijuana and license a variety of business types, including cultivators, processors and retailers. A 9 percent excise tax would be imposed both on wholesale and retail purchases, and local governments could levy an additional “licensing fee” of up to 5 percent “for the privilege of operating within the limits of the local government.””

While all this looks promising for legalization in Kentucky, the state legislature has a heavy Republican majority which will make it an uphill battle. The article goes on to say, “A more limited legalization measure, HB 72, was introduced earlier this month by Rep. Nima Kulkarni (D). It would end all penalties for simple possession and use of marijuana by adults 21 and older and also allow adults to grow a small number of cannabis plants at home. Commercial sales, however, would remain prohibited. Both legalization measures have been referred to the House Committee on Committees. However, no action has been taken on HB 72 since it was introduced on January 2.”

Optimism out of Germany: A January 22 article in MJ Biz Daily reported that Germany’s health minister Karl Lauterbach believes that “marijuana legalization will become a reality in the country this spring.” According to this report, Lauterbach has set a target for the Bundestag, the national parliament, “to approve the nation’s long-awaited cannabis law in February. “I am continuing to assume that the Cannabis Act will be passed by the Bundestag in the week between Feb. 19 and 23 and will go into force from April 1,” Lauterbach told the newspaper Die Welt, broadcaster Deutsche Welle reported.” With all that said, the ruling coalition in the Bundestag has not passed this into law.

The article notes that the latest plan calls for:

• Decriminalization of cannabis.
• Home cultivation and possession starting April 1, 2024.
• “Cultivation clubs” that would launch potentially in July.

We will stay tuned as German legalization could lead to further legalizations globally.

Finally, from the great state of Florida: in January it was reported in MJ Biz Daily that Florida voters “will likely see marijuana legalization on their presidential election ballots this fall”, Gov. Ron DeSantis suggested.

According to the article, The Florida Supreme Court is currently weighing a constitutional challenge brought by the DeSantis administration against a campaign to legalize adult-use cannabis in the state, currently the largest medical marijuana market in the country. A ruling is pending. But while wrapping up his failed presidential election bid in New Hampshire, DeSantis told a marijuana lobbyist that the legalization measure will “be on the ballot,” according to Marijuana Moment.” The article goes on to say, The $39.5 million Smart & Safe Florida initiative is bankrolled almost exclusively by Florida-based multistate operator Trulieve Cannabis. As written, the ballot measure would allow existing medical cannabis dispensaries to start selling recreational products.”

Legalized recreational marijuana in Florida is by no means a done deal, however, as this ballot measure will require a 60% majority vote to pass.

CRBs In the News

The following is a sampling of highlights from the January 2024 cannabis news cycle, as tracked by CRB Monitor. Included are CRB Monitor’s proprietary Risk Tiers.

Wondering what a Tier 1, Tier 2 or Tier 3 CRB is?

See our seminal ACAMS Today white paper Defining "Marijuana-Related Business" and its update Defining "Cannabis-Related Business"