19 Comments
User's avatar
Honey Badger's avatar

The Shrub buying weed, the world finally makes sense.

Expand full comment
Nir's avatar

I think that once it passes, the competition kills those shitcos in a heartbeat. Each and every company in the etf is a horrible business, worst managing teams in the world.

Expand full comment
John Jensen's avatar

You may want to do a bit more research. Many of the US operators (MSO’s) learned from the companies up North that incinerated their stocks. There are a couple companies that make up over 30% of the MSOS ETF that are actually FCF positive even with 280E. If DEA confirms Sch III, 280E is gone and these companies increase FCF by 10x. Look at GTBIF and VRNOF. You’ll be surprised…they are far from shitco’s.

Expand full comment
Richard Eidestedt's avatar

Fair but the positive is that these companies have incinerated so much capital that there might not be a massive inflow resulting in increased supply. California seems to have had a lot of growers leaving the market during the last two years. Maybe they all want to get back but somehow I doubt it. Still only a trade IMO

Expand full comment
Nir's avatar

I think bigger companies will swoop in, it's a very easy sector to operate in ones it is legalized.

Yep, it might be a good trade for a while.

Expand full comment
Richard Eidestedt's avatar

Even if that's correct. They might also move into the sector through M&A but who knows? They won't move in due to rescheduling though, but they would wait for full legalization IMO

Expand full comment
MR's avatar

Peter Tosh Lessons In My Life

I've learned some lessons in my life

Lessons in my life

Always be careful of mankind

Be careful of mankind

They'll make you promises today

But tomorrow they change their mind

Make you faithful promises today

But tomorrow they change their mind

https://www.youtube.com/watch?v=2GRvB-aOjYg

Expand full comment
@drsxr's avatar

Shrub - while I don’t disagree with the enticing possibility of a revaluing of revenues 2x-3x with an administrative rule change there are a few comments:

1. Illegal weed purchases far surpass legal and you can’t tell which it is when it’s being smoked, so revenues may be more muted than hoped.

2. There is some rather concerning data coming out in young people with a very probable link between marijuana use in adolescence/young adults and progression to schizophrenia & bipolar disorder. Not that any care about our us youth as long as they vote “correctly”. At some point that might come into play.

3. However the main fear is that this is “dead money” either not moving at all for months or worse continuing to burn cash and drop before that catalyst. This is one where I think the opportunity cost is high.

Expand full comment
Radu's avatar

Thanks for sharing and check Nick Radicals new pick OGI

Expand full comment
Tom Grlla's avatar

Good having some non-20s people with good taste in music around! This is way beyond me, but I love the 'Contrarian Consensus Concept' - he says unable to sell the last of his China exposure until the very bottom!

Expand full comment
Daniel Löfgren's avatar

🙏 Shrub, any thoughts about $rily? Seen some smart people taking a long position as a punt. The take is that the stock is shorted +60%! But there are some smart short but quit many dumb short (monkeys). So if the company do not go to jail or go bankrupt the coming month the 🩳eventually will have to cover. Dont no the business, maybe terrible long but like the setup🤷‍♂️

Expand full comment
Kathleen Weber's avatar

400,000 employees in the marijuana business? But almost all of them are in blue states. So hardly any useful swing state votes there. And wasn't that crowd voting Dem already?

Expand full comment
Tokyo's avatar

If I’m not mistaken, Ohio is a swing state that recently approved legalization. So it is spreading and will likely continue to do so.

Expand full comment
Zack Howard's avatar

Interesting on that effective 80% Corp tax rate, makes for bullish tax accountants. Glass House Brands an interesting individual play but OTC hard for retail to buy. What is up the asset breakdown of the MSOS ETF though? >60% cash as of Nov 30th and 17% weight in that Blackrock Treasury instrument. Is it really that much exposure to the space?

Expand full comment
Mr. Logan's avatar

I got hosed in $KERN and remember. The SAFE Act had to pass for any of the legalization to matter from a banking and investment perspective. Without the SAFE Act passing this is all for not.

Good points here btw in scale and market distribution, Phillip Morris squashes all these little companies in a flick of a switch.

Expand full comment
Tokyo's avatar

Mister Harris, thank you for giving me your money via KERN. I did well in this name when I was a brand new baby trader. Now lip my stockings. (I hope you can take this as the joke that it is, albeit a true story). 🙂❤️

Expand full comment
Gulo's avatar

I don't have a crystal ball on when/if rescheduling happens. But Biden doesn't really have to go through with it. All he needs to do is promise to reschedule if he gets elected again.

That alone would be enough to double MSOS price. And going into election such promise is a very high probability event.

Expand full comment
Left's avatar

Be wary of interstate commerce coming in and squashing prices by 90%.

Expand full comment
Brett Richards's avatar

I’m guessing the lower bound is going to be something like Oregon pricing. On day 1 the grow operations are still subject to existing production limitations. I’d expect states to continue to limit the number of facilities, possibly at the behest of existing businesses.

Ultimately I think why you wind up with is probably a blended price similar to a national average with a lot of complicated quirks.

Ironically relative benefit might accrue more to operators in relatively tough states to operate in today like CA where pricing might be better than it is now.

The other question in my mind is in an interstate environment who becomes the Starbucks of the weed business? Coffee is a commodity, and yet it’s very profitable for the companies who have figured out how to retail it the best.

I use the product, and have been to more than my share of dispensaries in quite a few states. The appeal of the actual brick and mortar retail businesses from a consumer perspective vary greatly. I think someone will figure out how to do it best or perhaps a few will and you get somewhat of a retail oligopoly where a handful of major players have a huge market share like fast food or coffee.

If I’m correct then picking those winners would likely be very profitable.

Expand full comment