August was a busy month for the cannabis industry, as the U.S. Drug Enforcement Administration (DEA) set a date for a long-awaited hearing on resetting cannabis regulations.
Hearings are scheduled to begin Dec. 2, 2024, in Arlington, Virginia, according to public records.
While this date would postpone the process until after the election, there is still a chance that cannabis could be rescheduled before current President Joe Biden leaves office on January 25, 2025.
As expectations grow, companies are beginning to better prepare for shifting market trends, including the first-ever cannabis stock buyback in August and a new partnership between two multistate operators.
State markets were also in the news last month, with Ohio ramping up recreational sales, Delaware starting to accept sales license applications, and New York expanding its legal market amid a crackdown on illegal sales.
Meanwhile, the governor of Missouri has issued an executive order banning the sale of hemp-derived THC products, including a popular beverage, in the state, a move that has so far met with stiff resistance.
To find out more about these industry-shaping events, keep reading.
Ohio sees booming sales after recreational marijuana launch
Recreational cannabis sales officially began across Ohio on August 6 after the Ohio Department of Commerce Bureau of Cannabis Control issued the first Dual Use Business Operators (COOs) to 98 dispensaries on August 5. The move comes nearly a year after 57% of Ohioans voted to legalize cannabis in November 2023 and one month earlier than the scheduled September 7 date.
The issuance of the COO allowed dispensaries to begin selling recreational cannabis alongside selling medical cannabis. While many dispensaries began selling recreational cannabis at that time, dispensary operators determined their own start dates based on staffing, supply and other factors, allowing for a phased rollout.
According to business intelligence platform Headset.io, Ohio cannabis dispensaries generated an average of $33,864 in sales on Aug. 6, 270% more than the average daily medical marijuana sales of $12,740. Headset also found that recreational sales made up 76% of all sales on Aug. 6.
While that figure has declined slightly since the first week, pharmacies' sales averaged $25,487 on Aug. 15, double the average daily sales in the weeks leading up to Aug. 6, according to data tracked by Headset.
New York's crackdown on illegal sales spurs growth of legal market
In New York, a concerted effort to curb illegal marijuana sales has been making great strides. Governor Kathy Hockle said on August 26 that her Illegal Marijuana Enforcement Task Force has shut down more than 1,000 illegal marijuana stores across the state since it began its work in May. There are now 166 licensed adult-use dispensaries in the state.
The crackdown, known as “Operation Padlock for Protection,” is part of a statewide effort to jump-start a legal cannabis market that faces competition from illegal sellers because the state has been slow to issue licenses. In an interview on August 22, the acting director of the New York State Bureau of Cannabis Control estimated that regulators won't finish reviewing hundreds of business license applications submitted in late 2023 until 2025.
The efforts appear to be working: Governor Hokull announced that legal adult-use cannabis sales will exceed $368 million by August 23, 2024. Full-year retail sales for 2023 were just $137 million.
Curaleaf Reports on International Growth and Section 280E of the Tax Code Decision
Curaleaf (TSX:CURA, OTCQX:CURLF) released its second quarter earnings report on August 7th, showing a modest 2% increase in annualized revenue. International revenue increased significantly by 78% year over year, led by sales in the UK and Germany, as well as contributions from Northern Green, a multi-state operation that Curaleaf acquired on April 22nd.
“The efforts we began 18 months ago to streamline our operations, improve the efficiency of our cultivation facilities and capitalize on domestic and international growth opportunities are beginning to pay off. As we look to the second half of the year, these efforts should accelerate both revenue and margins as we see additional catalysts for growth in states and countries, including New York, Ohio and Germany,” Curaleaf Chairman Boris Jordan said in a statement released afterward.
In its quarterly filing, the company also disclosed its new position regarding its federal tax liability, arguing that it is no longer subject to Section 280E of the Internal Revenue Code, which prohibits companies involved in the sale of cannabis from receiving tax deductions or credits for expenses related to their business.
Curaleaf joins Ascend Wellness Holdings (CSE:AAWH.U,OTCQX:AAWH), Cresco Labs (CSE:CL,OTCQX:CRLBF), TerrAscend (TSX:TSND,OTCQX:TSNDF) and Trulieve Cannabis (CSE:TRUL,OTCQX:TCNNF) which have publicly announced that they will no longer comply with Section 280E, a move San Francisco-based tax attorney Henry Wykowski called “reckless” in a communication with MJBizDaily.
“I don't know if these people have fully considered and understood what the consequences are, but the consequences are much more severe than people realize,” Wiechowski said, noting that the IRS can assess a 20 percent penalty on top of unpaid taxes on businesses seeking refunds if their claims are ultimately denied.
Curaleaf said it would amend its tax returns starting in 2022, but acknowledged that the Internal Revenue Service is unlikely to agree with Curaleaf's position and will likely audit the company. Curaleaf's shares closed down about 6% after the earnings report.
TerrAscend Launches First Share Repurchase Program
TerrAscend reported second-quarter results on Aug. 8, revealing that net revenues rose 7.5 times year over year to $77.5 million. The company also reported second-quarter free cash flow of $11.7 million, an improvement from negative $200,000 in the second quarter of 2002.
Then, on August 20, the company's board of directors authorized a share repurchase program of $10 million of its common stock over a 12-month period.
In a press release, Chairman Jason Wilde said, “Our first-time share repurchase program demonstrates our confidence in Terrascend's future and our commitment to enhancing shareholder value. We are confident in the strength of our business, our growth prospects, operational excellence and our strong cash flows. We believe our shares are attractively valued and intend to be opportunistic in our share repurchases.”
Missouri's executive order banning hemp-derived products goes against
In Missouri, Governor Mike Parson (R) issued an executive order on August 1 banning the sale of edibles that contain hemp-derived psychoactive compounds, including delta-8 THC, unless they come from an approved source.
The state has directed its Department of Health and Human Services to ban all products specified in the executive order and has directed the Missouri Department of Alcohol and Tobacco Control to prohibit the sale of unregulated psychoactive cannabis products in licensed establishments.
“This executive order effectively bans the sale of these potentially harmful products in Missouri until the FDA or the state of Missouri can regulate approved sources through legislative action,” Parson said in a statement. “Protecting Missourians, especially our most vulnerable children, has been our guiding principle from the beginning and remains so today.”
Industry leaders argue that including products sold in adult-only establishments would be an overreach, and that such a move would unfairly restrict adults' rights to legally purchase and consume adult-use products, such as hemp-derived THC beverages, which have been a major source of revenue for liquor stores and bars.
The order was originally scheduled to go into effect on September 1. However, Missouri Secretary of State Jay Ashcroft refused to approve the ban on August 22, rejecting the governor's request for an executive order on the grounds that it did not meet the requirements to constitute a state of emergency.
Parson responded by writing a letter to Ashcroft accusing him of refusing to give the order because of “hurt feelings” over Parson's decision to support Lt. Gov. Mike Kehoe in the Aug. 6 gubernatorial primary, which Kehoe ultimately won.
According to the Associated Press, Ashcroft spokesman Jodon Cheney denied Parson's accusations in an email, saying, “The Secretary of State has reached out to the Executive Branch and given them an opportunity to explain why they met the requirements but has not received a response.”
Governor Parson has directed the Missouri Department of Alcohol and Tobacco Control to refile the emergency order, but the process could take up to eight months without Governor Ashcroft's signature. To further delay the process, the Missouri Hemp Trade Association filed a lawsuit in Cole County Circuit Court on August 30 seeking to halt the ban.
Curio and Ascend Partner to Enter New State Market
Multi-state cannabis companies Curio Wellness and Ascend Wellness Holdings have formed a manufacturing and distribution partnership that will allow both companies to expand into new markets.
Under the terms of the agreement, Ascend will manufacture and distribute Curio's products in Illinois, New Jersey (where Ascend has a significant presence) and Massachusetts. Maryland-based Curio will likewise manufacture and distribute Ascend's cannabis products in Maryland and Missouri.
The transaction will provide both companies with a cost-effective way to enter new markets.
“This partnership represents a forward-thinking approach to business strategy and demonstrates how our joint efforts can expand our market reach and generate greater returns on our brand development investments,” Curio Wellness CEO Michael Bronfein said in a statement.
Similarly, Ascend CEO John Hartman said the partnership is good for the industry as a whole. “Together we will continue to improve consumer access and pave the way for the future of cannabis health and wellness,” he said.
Delaware begins accepting recreational license applications
The Delaware Bureau of Marijuana Control began accepting applications for recreational marijuana business licenses on August 19. Applicants can submit their applications by September 30. Qualified applicants will participate in a lottery scheduled for October, and licenses will be issued starting in November.
A total of 125 licenses are available for issuance: 60 for cultivation facilities, 30 for manufacturing, 30 for retailers, and 5 for testing facilities. Delaware voted to legalize recreational marijuana on April 23, 2023.
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Securities Disclosure: I, Meagen Seatter, hold no direct investment interests in any of the companies mentioned in this article.
