It was announced yesterday that New York State has finally passed a bill to legalize recreational cannabis for all folks aged 21 and up. The legislature and New York Governor Andrew Cuomo are quickly working to dot the I’s and cross the T’s to get this thing done before the April 1st budget deadline.
The new bill allows people to carry up to 3 ounces for personal use, and grow up to a dozen plants per household. The bill calls for a 9% state tax on retail sales that could generate $300 million a year in new revenue, according to New York Senator Liz Krueger. The state’s current medical cannabis program is also expanding the list of qualifying conditions, and patients will be able to obtain a 60-day rather than a 30-day supply of cannabis from the licensed dispensaries. The current dispensaries will be allowed to open four additional stores, as long as at least two are located in underserved locations.
Legalization efforts at the state level have largely been a success as 15 states have now fully legalized rec marijuana so far. Federally it’s been a much different story. The US government has largely let states govern their own booming cannabis industries with little interference. That still means that people can be locked up for cannabis possession because it remains a federal crime. The current system, although ripe with expansion and profit is broken. It’s another arm of the failed war on drugs.
The Democrats have previously passed pro-cannabis bills in the house, however, they didn’t make it through the Republican-dominated senate. Former Senate Majority Leader Mitch McConnell did sign the Farm Bill in 2018 legalizing the sale and production of hemp, but anything THC-related and my man goes right back into his shell. It probably has more to do with political partisanship than ideology at this point, lots of libertarian voters smoke weed.
A Democrat sweep after the 2020 presidential election brought drastic changes to the cannabis sector. Now that the Democrats control all three levels of government, investors believe cannabis bills will be passed a lot easier now that the Republicans can no longer block them in the senate, and the US weed stocks have responded accordingly after a slow 12-18 months.
Obviously, COVID is the US federal government’s main issue right now, aside from bombing Syria. But I do believe the Democrats could will use cannabis legalization as a carrot to dangle for the 2022 midterms, a precious little treat in times of hardship. I don’t see them waiting until 2024, it’s a popular issue across all voter segments, so the Democrats would be short-sighted to leave it open-ended for the Republicans to champion as a campaign promise. If both parties have it on their platform for 2024, the Republicans can point to the fact that the Democrats haven’t gotten it done in the last four years, why should the voters trust them in the next four years?
Because I gotta think Don Jr. is pro drugs.
Not all Democrats see eye to eye on this issue.
Bodega enthusiast and former Democratic candidate for president Andrew Yang wants to legalize cannabis and psilocybin as part of his New York mayoral campaign, current Mayor Bill de Blasio has endorsed the legalized sale of marijuana. Senate Majority Leader Chuck Schumer has also been outspoken about getting federal cannabis legalization passed, saying it’s ‘long overdue’. Schumer said along with decriminalizing marijuana use, people’s records should be expunged “so that they don’t live their lives as if they committed the most dastardly felony because they smoked marijuana.”
Some Democrats are split down the middle. Sherrod Brown, the new chair of the Senate Banking, Housing and Urban Affairs Committee under Biden, says he’d be willing to consider moving on legislation that would allow the cannabis industry access to the banking system if the measure is coupled with sentencing reform for drug offenses, but Brown himself does not support federal cannabis legalization.
"It is still illegal federally" — Jen Psaki explains why past marijuana use resulted in a number of White House staffers losing their jobs pic.twitter.com/AkaoxqQKOC
— Aaron Rupar (@atrupar) March 24, 2021
On the other of the spectrum from the Yang/Schumer crowd sits Democratic president Joe Biden. His administration is currently firing staffers for previous cannabis use, his press secretary claiming today that Biden will stop the purge only after legalization. Biden is potentially ruining someone’s career for doing something his own party is actively trying to legalize. The Daily Beast reported some staffers were initially told their history of marijuana use would be overlooked only for them to later be asked to resign.
Many thought Biden would spend his presidency driving around in old sports cars, talking about how his dad knew his way around a table saw. I thought there would be pushup contests and shows like ‘How To Make It In America’ and ‘Entourage’ would be brought back on an executive order. But a far less cool Biden has emerged and he doesn’t want you smoking that grass, Jack.
Despite the Democratic split on cannabis, it’s hard to argue that things aren’t exciting for the sector right now.
The Bigass Apple
New York just became the 15th state to legalize rec, and it’s one of the bigger states with a total of 19.5 million people. There’s money to be made here. New York is a big deal not only in terms of revenue generation but also brand building as well. The New York Post reported 1/3 of young people in New York use cannabis regularly, and New York came in #12 on CBS News’ highly coveted biggest stoner states list.
I’m sure the hunt for dispensary licenses is going to be pretty cutthroat, I would expect several companies to jump at the opportunity to sell cannabis in New York. MedMen (MMEN.C) for example spent millions on rent for their 5th Ave location in Manhattan, the opportunity for New York market penetration is too hard to pass up. A few companies have a small footprint in the state, but no company is exactly dominating yet. MedMen has built a recognizable brand, but the company has had more than its lion share of issues on management’s end. Most investors have realized this is one is probably dead, although the stock is comically cheap at $0.42 CAD, so maybe it’s a YOLO play as a future M&A target just for the brand value? It could happen.
New York’s early cannabis leaders look like this:
- Curaleaf (CURA.C) has one cultivation/processing facility in New York, along with four dispensaries in Carle Place, Hudson Valley, Plattsburgh, and Queens.
- Green Thumb (GTII.C) has three dispensaries in Manhattan, Clifton Park, Rochester, and Nassau.
- Columbia Care (CCHW.NE) owns four dispensaries in Brooklyn, Manhattan, Riverhead, and Rochester. They also operate a 58,000 sq/ft cultivation facility within the state. Acreage Holdings
- Acreage Holdings (ACRG.C) owns four dispensaries in Buffalo, Farmingdale, Middletown, and Queens.
I expect these companies to scale fast, this is going to be a land grab. They will have an advantage when other companies inevitably try and flood the space. In 2017 the state tried to slow the expansion of the medical system. I’m curious to see how liberal the state will be with handing out dispensary licenses and if the companies who have invested in New York up until now will be positioned to fully take advantage of the huge opportunity awaiting them, or if they will be bogged down by regulations and red tape.