Since our last Marijuana Market Update, we have major developments to report on cannabis legalization in several states: New York, South Dakota, New Mexico, Virginia and more.
I’ll start with New York.
New York, South Dakota Cannabis Legalization
At the end of March, New York Governor Andrew Cuomo signed an amended version of the Marijuana Regulation and Taxation Act.
The Empire State became the 16th state in the U.S. to legalize the sale and possession of adult-use cannabis for adults 21 and older.
Now, adult-use is legal in 15 states: Alaska, Arizona, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New York, Oregon, Vermont and Washington.
But I said New York is No. 16. Well, there’s a wrinkle.
South Dakota voters approved both medical use and adult-use measures during the November 2020 election. However, a state judge ruled the adult-use amendment — Amendment A — was unconstitutional.
The matter now sits with the South Dakota Supreme Court.
Medical marijuana use should be legal in the state on July 1, 2021.
In New York, the new law allows adults to possess up to three ounces of cannabis and up to 24 grams of cannabis concentrate outside of the home, starting immediately.
The state will apply a 13% excise tax:
- 9% goes to the state.
- The remaining 4% is split between counties and cities.
Cannabis distributors will pay:
- $0.005 per milligram for flower.
- $0.008 per milligram of concentrated cannabis.
- $0.03 per milligram for edibles.
However, adult-use cannabis sales won’t happen in New York until 2022.
The state won’t feel the impact to cannabis businesses until then.
Cannabis Legalization Update: New Mexico, Virginia & Other States
Other states have advanced adult-use bills.
During a special session, New Mexico lawmakers passed legislation to approve adult-use cannabis to Governor Michele Lujan Grisham. Under the measure, retail sales would start in April 2022.
One provision of the New Mexico bill is that small cannabis businesses would be able to grow up to 200 plants and sell cannabis products under one license — rather than needing licenses for growing, processing and selling.
Lujan-Grisham signaled she will sign the bill once it reaches her desk.
Virginia lawmakers also passed a bill legalizing adult-use cannabis. But Governor Ralph Northam is eyeing changes to the bill, including advancing the timeline for legalizing cannabis possession by three years to July 1, 2021.
Connecticut, Delaware and Rhode Island are considering legalization measures as well.
Nearly 40% of all Americans live in states where adult-use cannabis is legal.
U.S. Senate Majority Leader Chuck Schumer of New York told Politico that whether President Joe Biden approves of federal legalization or not, the Senate will move forward with measures to legalize.
He added that he’d like to see legalization efforts move forward together with the SAFE Banking Act. This would legalize transactions for legitimate cannabis-related businesses.
It would help cannabis companies receive bank financing.
Cannabis Earnings Update: High Tide, Planet 13
Now we’ll switch gears and talk about earnings.
High Tide Inc. (OTC: HITIF) — a member of our Money & Markets Cannabis Watchlist — recently announced quarterly earnings.
Quarterly revenue increased by 179%, to CA$38.3 million, in the first quarter of 2021. It was$13.7 million in the same quarter a year ago.
Its gross profit jumped 208% to CA$14.8 million. And its gross profit margin increased from 35% in the first quarter of 2020 to 39% in the same quarter this year.
The company’s trailing 12-month total revenue (as of January 31, 2021) is $107 million.
Expectations are for its total revenue to jump from CA$83.2 million in 2020 to CA$296.5 million by 2023 — a 256% increase.
Planet 13 Holdings Inc. (OTC: PLNHF) released earnings and reported a revenue increase from CA$16.5 million in the fourth quarter of 2019 to CA$20.1 million in the same quarter of 2020.
For the full year, the company reported a 10.8% increase in total revenue. But it also increased operating expenses and had a net loss of around $800,000. This compares to a net gain of $500,000 in 2019.
However, construction continues on the company’s Orange County, California superstore. And it recently signed a deal with Curaleaf Holdings to open another store.
Cannabis Watchlist Update
Now, I want to take a look at our Money & Markets Cannabis Watchlist.
Most of our cannabis stocks have started to rebound after headwinds in March.
The average total gain of our seven stocks is up to 47% this week, compared to 39% last week.
Here’s a breakdown of each position:
- Scotts Miracle-Gro Co. (NYSE: SMG) — Analysts project a 25% year-over-year growth in sales when SMG reports earnings in May.
- PerkinElmer Inc. (NYSE: PKI) — The testing company is projected to report quarterly sales of $1.19 billion — an 82% jump over sales reported in the same quarter a year ago.
- Turning Point Brands Inc. (NYSE: TPB) — TPB stands to benefit from New York legalization. The company said it expects sales of its cannabis accessories to jump once sales begin.
- Planet 13 Holdings Inc. (OTC: PLNHF) — A strong quarter offset a weaker yearly earnings picture for this Nevada-based company.
I’ll keep a watch on the cannabis market and let you know if I recommend changes to our watchlist.
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Coming up this week, we’ll have more on The Bull & The Bear podcast and our Money & Markets Week Ahead, so stay tuned.
Safe trading,
Matt Clark
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He’s the host of our podcast, The Bull & The Bear, as well as the Marijuana Market Update. Before joining the team, he spent 25 years as an investigative journalist and editor — covering everything from politics to business.