You’re reading this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015. The newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news. We no longer send these by email as we did in the past, but we post this and all of the newsletters on our website here.
Friends,
In August, I described an opportunity or a threat to the American cannabis industry, discussing cannabinoids from hemp. I didn’t have a conclusion then for investors in the space, but I did share that I would like to see traditional state-regulated cannabis companies diversify by expanding into hemp-based THC products. Well, they are.
In this follow-up, I want to discuss who is doing what and assess the efforts thus far. Several MSOs and Canadian LPs have entered the hemp-based THC market, including Curaleaf, Green Thumb Industries and Trulieve among the MSOs and Canopy Growth and Tilray Brands among the Canadian LPs. Glass House Brands is toying with the idea. Here is what each is doing:
- Curaleaf: Opened a store in Florida that is a hemp dispensary and also making products for distribution through others
- Green Thumb Industries: Invested in and running Agrify, which bought Señorita, a drink company
- Trulieve: Distributing hemp-based Onward beverages through several companies and through its website
- Canopy Growth: Introducing hemp-based products through the Wana brand
- Tilray: Manufactuing and selling hemp-based beverages
I have been watching the U.S. cannabis industry since 2013, when I launched 420 Investor. I went to my first adult-use dispensary in Colorado in early 2014 in Denver and thought that it was neat but kind of impractical. The notion of going to a store that sold one type of product and required identification to get in was out of touch with the way things work in the U.S. I live in Texas, which has a horrible medical cannabis program and no adult-use program, but I have visited adult-use stores in other parts of Colorado, in California, in Nevada and most recently in New York. Of course, I visited stores in Canada! I think that there are a lot of really good dispensaries in the U.S., but thankfully for many there is also now delivery.
The idea of going beyond the cannabis dispensary seems essential to me. The federal illegality of cannabis gets in the way, but hemp was legalized in 2018 by the U.S. government. The products being market today weren’t yet available immediately, but there are many THCA products now (THCA turns to THC when ignited). Over the past almost 7 years, there has been a lot of product development as companies have learned to deal with the rules for hemp. Prices of hemp have plunged, and much of the hemp grown breaks the rule that Congress set up about 0.3% weight maximum for the THC in the plant.
So, with federal legality and with the product development, the hemp-based cannabinoid industry has exploded. Unfortunately, it’s not well regulated, and lots of bad products are sold by bad companies. Many of the products are synthetic, and many of the retailers are gas stations and other companies that aim to sell a lot of product acquired at a low cost. Consumer education is highly lacking. I like that Curaleaf, GTI and Trulieve are approaching the challenge with products created in the right manner, but their efforts likely won’t mean that much for them financially.
When Congress passed the 2018 Farm Act, it did so without a full understanding of how the market would evolve. In late 2024, Congress extended the Farm Act until September 2025, but Congress failed to reconsider the hemp regulations. There was consideration for limiting the types of products, and this remains a risk.
In addition to potential federal regulations against hemp-based cannabinoids, many states are trying to control the market. Several states have made the hemp-based cannabinoids illegal, and Texas has pending legislation that would make all THC products illegal. The Baker Institute, part of Rice University, published a recent article that explained hemp products’ legal status across states.
Cannabis remains federally illegal. Congress moved to help farmers in 2018, but this has added to the confusion. There are very legitimate companies, including wine stores and restaurants, that are now selling federally legal beverages with THC derived from hemp.
I think that investors looking for publicly traded companies will struggle to find a way to invest in THC beverages. There are not any large pure-plays that have substantial access, and the rules could change. We publish a list of cannabis companies that has included many of the private companies (near the bottom of the left side).
Of the 3 large MSOs that have entered the space, I don’t like any of their stocks right now. I wrote negatively about the MSOS ETF on Seeking Alpha this weekend as I lowered my rating to Strong Sell, and I downgraded each of its three largest holdings. These happen to be the same three companies that are active in hemp-derived cannabinoids. 280E taxation remains the big challenge. I do like Tilray Brands, but the appeal to me has little to do with their beverage effort.
I am for cannabis legalization, and hemp is cannabis. The U.S. needs a more rational system than state-by-state legalization, and it needs to have all of its cannabis products regulated. I think that a good first move would be to nationally legalize medical cannabis and then to move towards adult-use. Both traditional cannabis companies and the hemp-based cannabinoid makers and sellers need to realize that they are kind of on the same team, fighting against the illicit market and against a lack of regulation and education of consumers.
Sincerely,
Alan
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