Biden Shifts 50 Year Federal Narrative

by | Oct 7, 2022 | Comp Table & Market Commentary, Data & Analysis, Extract, Macro, Thematic Research

With just a month ahead of the midterm elections, Biden released an official statement on marijuana reform calling for pardons and rescheduling of marijuana (see press & proclamation).

The concluding statement I think is more important than the actual details as it is the first time the Executive Branch said marijuana policies have “failed” since Jimmy Carter considered decriminalization in 1977, specifically: “our failed approach to marijuana. It’s time that we right these wrongs”.

Coming from a historic drug warrior, this is politically and culturally the most important part of the entire statement.

The stocks rallied hard in the last hour of trading with the MSOS ETF trading up 34%, the Canadian operators trading up 21%, and ancillary player Weedmaps trading up 64% – on a day when the broad markets were down.

Despite the rise, the US operators closed on October 6 at 2.0X 2023 sales and 6.9X 2023 EBITDA, below the trough values of 2.4X and 7.5X for consumer names in market corrections.

Valuation is never a catalyst, but a dramatic political shift calling to reverse 50 years of policy certainly is.

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Not much short term, a lot in long term, and the market is forward-looking and the landscape has tremors of change. The stocks rose 32% on average and the performance was broad based, but longer term I expect the details of both the coming regulations and the specifics of the companies individually to matter.

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