Higher Exchanges

This week’s show starts with a conversation about the large number of CEO replacements this year. Thus far, AYR Wellness, Ascend, Curaleaf, and The Cannabist all have new leadership. Jesse and Morgan discuss what's driving the changes and what makes a qualified cannabis CEO. 

Emily Paxhia, co-founder of Poseidon, joins 20 minutes into the episode live from Florida. She's been in Tallahassee and shared her perspective on the obstacles in getting Amendment 3 passed and potential hurdles with the implementation. We also dug into what it takes to succeed in Florida and the challenges and opportunities associated with mandatory vertical integration. Finally, Emily explains how what makes a good medical dispensary may not translate to adult use and how the state's over 130 million annual tourists impact the cannabis industry. 

Morgan and Jesse just returned from Glass House Brands' first analyst and institutional investor day and were joined this week by Glass House CEO Kyle Kazan and President Graham Farrar. The group recapped the day and shared some of the highlights from the presentations and tours. 

Glass House is a single-state operator focused on the California market. We walked through the state of California cannabis and the challenges and opportunities it presents. Kyle and Graham helped us better understand the retail climate and CPG opportunities and explained their continued success in the wholesale market. 

The company is in the process of building out Greenhouse Two, which is a special greenhouse with almost 11,000 HPS lights supplementing the power of the sun. Glass House is considering using this facility to grow Farm Bill flower, or what some might consider THCA flower, that is compliant with the 2018 Farm Bill. 

We cover the potential to enter new states with Farm Bill flower, direct-to-consumer options, and how pricing compares to California cannabis. The team also explained the risks of the dynamic political environment and the risk of potential changes to the Farm Bill language. For this reason, they are weighing all options before making a final decision to enter this market. 

Finally, it would not be a cannabis conversation if we didn't discuss politics, and Kyle and Graham shared their thoughts on Schedule III timing and the path to higher exchanges. 

Jeff Schultz, Partner at Foley Hoag, joins the show this week to help us understand the complex political catalysts ahead for cannabis. We start with rescheduling, and Jeff offers his perspective on the ALJ hearing and when we may see a final ruling. A Garland Memo may follow the final ruling and Jeff explains the memo's importance. 

SAFER Banking may become topical again late this year. We discuss the importance of SAFER in light of Schedule III, and how it would complement a Garland Memo. A combination of Schedule III, Garland Memo, and SAFER my unlock uplisting, and we debate what's needed to get to higher exchanges and when this may happen. 

We wrap with a conversation about state catalysts and dig into adult-use opportunities in Florida, Pennsylvania, Minnesota, and a handful of smaller states. 

The rescheduling process got extended with the announcement of the ALJ hearing on December 2nd. The show starts by discussing whether this is categorically bearish or if going through a more thorough process may yield a net benefit. Jesse and Morgan debate whether this impacts the broader thesis and the types of companies you should own. 

David Goubert, CEO of Ayr Wellness, joins the show about twenty minutes in and shares their perspective on the ALJ hearing. The conversation transitions into AYR's 2Q24 results and steps they can take to drive more revenue and boost margins. 

AYR operates 94 dispensaries, and 76 (80%) are in states that may soon transition to adult-use sales. David gives his thoughts on opportunities in Ohio, Pennsylvania, and Florida, where AYR operates 65 stores. Finally, the guys talk about the intoxicating hemp market and how AYR may approach this emerging category. 

This week, we were joined by Nicholas Gastevich, Vice President of V. Gastevich Investments, known as CannaVestments on X and Reddit. Gastevich is a seasoned cannabis investor known for his excellent earnings analysis and industry perspective.

The conversation began by discussing 2Q earnings results. We saw more differentiation this quarter between the tier 1 and tier 2 MSOs, especially in gross and adjusted-EBITDA margins. Tier 1 gross margins averaged 52%, versus 41% for tier 2s.

Gastevich shared how CapEx has been declining since 2021. 2Q averaged $128 million, which is up 33% sequentially, but down 67% since 2021. We debated the tradeoff between spending more on growth versus focusing on generating cash flow.  

Ohio opened for adult-use sales and is the biggest state-led catalyst this year.  The Buckeye state is an approximately $600 million medical market bordered by four non-adult-use states. We expect the Ohio market to triple in size quickly, and sales may accelerate in September when pre-rolls and concentrates begin being sold in dispensaries. We covered who is best positioned to succeed in Ohio and who may be leaders in the wholesale market. 

Finally, we explored opportunities for cannabis companies to participate in the hemp market. We’ve seen Curaleaf begin producing hemp-derived beverages and edibles, and Glass House Brands is considering entering the THCA flower space and potentially using a similar direct-to-consumer model. On the show, we talked about risks and opportunities in this growing category.

Higher Exchanges this week kicks off with a listener question about whether Schedule III is enough to kick off a lasting bull market. After going around the horn, Jesse, Morgan, and Toby agree that a combination of growth, cash flow, and greater access will meaningfully move share prices. 

TerrAscend's Executive Chairman Jason Wild and CEO Ziad Ghanem join the show 20 minutes in. Jason shares his thoughts on what conditions may lead to a lasting move. We then transition to talking about returning to growth and progress on potential M&A in Ohio. Ziad shares updates on Michigan and Pennsylvania and then explains how they've assumed the top position in the profitable New Jersey market. 

It wouldn't be cannabis without discussing political progress, and Jason gives his perspective on Schedule III, Trump, and updates us on the Boies lawsuit. He hopes the Boies case may be heard by the Supreme Court as soon as the second half of 2025.

The episode concludes with a classic Ask Grok that involves Morgan singing!

It was a busy week in cannabis, and the trichome trio is back to cover all the news. The show starts by analyzing Trump's comments about cannabis and what it may mean for Schedule III and broader reform. The group agrees that the early Republican statements appear to derisk the space and reduce possible opposition to Schedule III. We also explore the potential for federal legalization and what it may mean for cannabis stocks. 

The top ten MSOs all reported 2Q earnings, and the show's second half digs into the results. We analyze quarters relative to expectations, compare margins, and discuss what drives the outperformance of the larger tier-one operators. Jesse, Toby, and Morgan all weigh in on who had the top quarters and what areas they would like to see improved. 

The show concludes with another fun Ask Grok segment. 

It's 103 days until the elections, and political theater continues to dominate the cannabis investing news cycle. This week, we learned that Kamala Harris is likely replacing Biden, and Toby helps us understand if this will be beneficial to cannabis and specifically to the Schedule III process. The rescheduling comment period also concluded this week and Headset produced an insightful report showing broad support for rescheduling, and even descheduling cannabis. Morgan walks us through the report that you can find on headset.io. 

 2Q earnings are around the corner, and Jesse shares analyst expectations for revenue and AEBITDA for the top ten MSOs. The group chimes in on what they are looking forward to most in this round of reports. The show concludes with another edition of Ask Grok. 

Hirsh Jane, Founder of Ananda Strategy, joins the show to discuss the series of state-level catalysts ahead in 2024 and 2025. Ohio is in the process of approving stores and Hirsh updates us on when we might see doors open in the Buckeye State and his expectation for how sales will evolve. 

Florida is the biggest potential adult-use flip in 2024, and the guys agres the state is polling well, and Amendment 3 is likely to pass this fall. Pennsylvania is the next biggest opportunity, and Hirsh shares why progress has been held up and explains why he thinks this state will likely open to adult use sometime in mid-to-late 2025. 

Jesse's home state of Minnesota is one state we can count on starting sales next year, and the group talks about implications for GTI and Goodness Growth and what we can learn from the thriving hemp-derived THC market in the Land of 10,000 Lakes. 

Finally, Hirsh explains the "Red Wave" thesis and how more adult-use Republican states may influence federal reform. 

The trichome trio is back to discuss progress on federal catalysts. The episode begins by discussing the 07/10 holiday, and Jesse updates us on trends he's seeing in the California concentrate market. The bulk of the conversation centers around Schedule III and how to assign probabilities to different outcomes. Morgan also gives us an update on the Boise Schiller lawsuit, and the group covers capital raises and lessons learned from 4Front Ventures' recent raise attempt. 

The episode concludes with a sexy Ask Grok. Next week, we'll have part two of the Mid-2024 Catalyst Review with an emphasis on the state-led growth story.