Cannabis Rescheduling Is Here. What Happens Next? | Hirsh Jain

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Welcome back to Higher Exchanges, the number one independent cannabis investing show, where we break down complex cannabis markets into clear insights that you can actually use.
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Here are your hosts, Jesse Redman and Morgan Pack.
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Welcome back indeed.
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I'm Jesse Redman, Chief Strategy and Investor Relations Officer at Leaf Brands.
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I am back again with one of the smartest cannabis investors I know.
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He's the grizzled veteran with a sunglasses tan that looks like it's from sailing.
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He's Morgan Paxia.
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Morgan, what's up, man?
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How are you?
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I'm doing just fine.
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Uh yeah.
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Feeling some energy out there, which is great.
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And uh getting some SoCal sun when the uh May Gray clouds break a bit.
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So are you feeling energy on the ocean or are you feeling energy in the cannabis space?
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A little bit of both.
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Okay.
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I thought that was gonna be your answer.
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I'm getting to know you better.
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Yeah.
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How's it going up there?
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I hear you guys are getting some rain.
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Yeah, not much, man.
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I was debating whether to water my tomato plants yesterday, and I decided to go ahead and water them.
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And as I look out the window, it looks like it may sprinkle a little bit, but not too much.
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Um, no cannabis this year.
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I feel like I'm gone too much from my house these days to pull off a successful cannabis grow, but I do have some cherry tomatoes and some slicing tomatoes out in the garden that I'm getting excited about.
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Nice.
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I got some lemons about ready to be picked, so I'm pretty excited about that.
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Well, cool.
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Well, we are back with one of our favorite guests.
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For folks that may not know, and Hirsch get ready.
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He has a law.
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Oh, I blew it, I blew it.
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He has a law degree from Harvard and it was head of government affairs at Airbnb.
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And in 2019, he pivoted to cannabis, and somehow he's still here.
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He's the incomparable Hirsch Jane.
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Hirsch, welcome back.
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Thanks, guys.
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So so great to be back with you.
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You were laughing before we got started, and I did have a chance to ask you why we were playing the higher exchanges intro backstage to make sure I had things set up correctly.
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You started to laugh, and I forgot to ask you why, so I'm gonna do it publicly.
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Yeah, you know, I was laughing because I was thinking about the evolution of this show over time, you know, the increasing sophistication of this show, right?
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As someone who was, you know, on back in the day before I think we were even on video and when we were on spaces, and so now I see the mics and the music and different sounds.
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So that gave me a little chuckle.
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I'm not gonna lie.
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Growing up.
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What's one second guys?
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I had a little audio snaff, we'll be right back.
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But I'm feeling the energy too, just just like you, more.
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So yeah.
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That's good.
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Yeah.
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We'll uh well we'll get into it maybe while Jesse's uh sorting that out.
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I can jump in and because another thing that we've added to higher higher exchanges is um our sponsorship.
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We have a great sponsor with uh with Flow Hub.
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And uh I'm excited to talk about this week is um they just last week had episode four of the Great American Dispensary Tour, which is a documentary series uh where CEO Kyle Sherman travels state by state to show what legal cannabis really looks like in America.
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In this episode, they head to Florida, uh, home of the largest medical-only cannabis market in the country and a$2 billion industry that flies under the radar.
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Kyle gets his medical card on camera and goes behind the scenes with craft dispensaries to massive operations producing 37 or 30,000 joints a day.
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And yes, there are gators.
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Uh favorite quote of mine from the episode was no stop, no reverse, sounds like my life.
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And that was from Kyle Sherman.
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Uh check it out on their YouTube page.
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And while you're on YouTube, check out higher exchanges, click like and subscribe.
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We're growing that page as well.
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But that it was, I truly love that episode.
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I mean, if you look, it's it's you know getting a ton of views, but it's a lot of fun and um you know, great overall series, but they really uh stepped it up a notch in that episode.
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Yeah, that was a really good one.
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That was a really good one.
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I'm sorry about that, guys.
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That's the danger of using Bluetooth headphones.
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I thought I was gonna use some new Bluetooth headphones, but the audio got stolen by something else.
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So I apologize for my screw up there.
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But yeah, these have been these have been awesome, Morgan.
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And that Florida one is one I really liked.
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Have you guys ever had gator bites before?
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Hirsch, I'm guessing being a vegetarian, eating alligator is probably not too high on your list.
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But how about you, Morgan?
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Never eaten any gator?
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Not yet, but what about you?
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I've had the gator bites.
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I think it was in Tampa once when I was younger.
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And yeah, it was something you're supposed to get at a restaurant.
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And uh I should most people say it tastes like chicken.
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I thought it tasted like alligator.
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Eating alligator is not on my list, but I did watch that episode yesterday.
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Um, you know, the Flow Hub episode in Florida, and I thought it was great.
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The profile of sunburn, the alligators mating, that was kind of crazy too.
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So Kyle does such a great job.
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Um I really enjoyed it.
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So well, I dropped out uh Hirsch when you're talking about higher exchanges too.
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But yeah, thank you for the kind words.
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I was I reflect on that sometimes to think that this started as as a spaces, you know, that we're Julie.
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We had three hosts and we got down to two hosts, and then we went to video, then we went to YouTube, and we're slowly inching up more and more on the production side.
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So, man, it's been a journey.
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I think we're what episode 98 today, Morgan.
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So just a couple away from uh 100 episodes.
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Yeah, and we've got a special 100 episode, but we also this week, hopefully, we'll have Apple video podcasts.
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So, you know, we just keep up in the game, baby.
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Wow.
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Yeah, they just started video podcasts at Apple.
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So we're optimistic when we upload this one.
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If you want to watch it in video, you can do that on Apple as well, which will be cool.
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But congrats on the episodes almost.
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That's that's awesome, guys.
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Really great work.
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And and I should say I I enjoy being on the show, but I learn a tremendous amount from all of the outstanding guests you have on that show.
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And I know I'm not the only one.
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So congrats and excellent work.
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Seriously.
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Well, thank you very much.
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Let's jump right into it, boys.
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Um, so much to talk about on rescheduling, and sometimes I think Morgan, especially, but both of us cringe around some of the political conversations because it feels like sometimes so much talk and so little action.
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But maybe we're rounding the corner here to some pretty meaningful stuff.
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So let's jump into it, Hirsch.
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And on the rescheduling side, we're gonna get into the hearings, we're gonna get into export, we're gonna get again, get into potential interstate opportunities.
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But let's start at the top and talk about how some different states are are responding to the rescheduling order.
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Yeah, you know, I think it's been interesting to observe exactly, as you said, Jesse, how different states are responding to the order and what those the differences, right, in those state level responses are.
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And I think there the reason that there are differences is really, you know, state regulators are facing a lack of guidance from the DEA, right?
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Like on the registration process.
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You know, like many of us, state regulators don't know, like, is completion of the registration process necessary in order to obtain to ADE relief?
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You know, we have this June 26th deadline for expedited review, but it's not clear what happens if you apply after that deadline.
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And so I think it's important to note that state regulators have the same questions that many of us have.
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And, you know, I know that both from my private conversations with many state regulators, but also if you look at some of the press releases they've issued, whether it's California or Maryland or Nevada, you know, these states have said, like, we will not get this information before the general public does.
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So we're responding to this in real time.
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And, you know, I think it's also important to note those states, just like us, are waiting on guidance, you know, from Treasury and the IRS about, you know, whether 280E will be retroactive and, you know, how you know uh adult use and medical might be bifurcated for those purposes.
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Um, and just the other thing to note is I think we're all still waiting on the non-retail portion of the portal to open up, right?
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We have this dispensary portal.
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And, you know, there's another form, as folks may know, called Form 225, through which non-retail licensees can complete the process.
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But, you know, although the DEA told us those non-retail portals would be opening in the coming weeks, we we haven't seen it yet.
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And so I think that's the context that we're all operating in, state regulators and licensees ourselves.
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Um, before we get to different state level responses, I think now more than 400 operators have completed the process.
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So the way that I think about that is like all of these operators, including some of the you know large publicly traded operators, are operating, you know, under uncertainty.
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And they think all things being equal, despite that uncertainty, completing the process is the best way for them to demonstrate compliance and obtain the benefits of rescheduling.
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And we can talk about what that is.
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But it's important to note like they don't know that for sure, right?
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That's just like the the what they're doing with the information that they have.
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So, in that context of ambiguity, I think we see different models about how states are responding.
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And so I'll give you one model.
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Like on the one hand, there's a state like Oklahoma.
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So Oklahoma is actually the only state that has indicated that it's mandatory for its licensees to complete the DEA registration process, or else their state license will be at risk.
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So, what Oklahoma has said is that, hey, licensees, you need to complete this process by January 1st of 2027, or you're subject to potential penalties or revocation of your license.
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Now, we don't really have a lot of detail about how that will work, but it is interesting that there is one regulator out there, at least one so far, that has said, look, you know, you need to complete this process.
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It's mandatory from a state compliance perspective.
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Uh, and then you can contrast that with a state like California.
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And if you look at California, California has been very careful to say, we are not going to give you advice about whether you ought to complete this process or not.
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And you should consult with your legal counsel, right, about whether you should complete this process.
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And, you know, having spoken to a number of different state regulators out there and flagged for them that Oklahoma is saying it's mandatory, um, a bunch of them are like, well, we're not there yet.
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And so I think that's one interesting thing.
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Some states are saying you need to do this or it's a compliance issue.
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And others are saying you could do this if you want.
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Um, and then on that second model, as it pertains to California, I think what many of us know is that even though California is not endorsing or requiring its licensees to go through this process, they seem to recognize that the rescheduling order provides benefits to medical operators, and we can talk about what those are.
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And so what they're trying to do is to expedite or ease the process by which licensees can qualify as medical.
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And they're doing this in two different ways.
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One, it used to be a really time-intensive process for adult use operators to also obtain a medical designation.
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So what the DCC in California has done is through this form called Form 27, you can really easily, if you're an adult use operator, also identify as medical.
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So that's one thing.
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And then the second thing that the state of California is doing is there's there they currently have issued some emergency regulations, and there's a few more days of public comment before those take effect.
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And those emergency regulations will expedite the process through which you can create a distinct entity and thus bifurcate um, you know, your adult use in medical operations.
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And so my subjective commentary on this is like the state of California, like every other state, still doesn't know how this is going to unfold.
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And so what they're trying to do is to do what they can to enable their operators to qualify as medical so that those operators can obtain um the benefits of being a medical operator.
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And I think it's great that they've done so despite that uncertainty.
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And maybe one or two more things I'll say and then I'll pause as it pertains to the state perspective.
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I think we should note that California, in my opinion, maybe in all of our opinions, has the most to gain from approaching this rescheduling process intelligently.
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California is a huge potential market.
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It could be a$13 or$14 billion market, as we've talked about, unfortunately, for years, right?
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It is operating at a fraction of that potential because of a surplus of product, because of the illicit market.
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And rescheduling, right, maybe over the medium term, right, could create outlets for California to truly reach its market potential, say via interstate commerce or export.
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So I think that's part of the logic here.
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California knows that it arguably has the most to gain, and its licensees arguably have the most to gain if this rescheduling process unfolds in a certain way.
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So I think that's part of the context here.
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Um, and then the other thing I should say is it'll be interesting to see how other states copy one of these two models.
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So one example I'll give you is like Illinois is currently thinking through how it is going to interpret and approach rescheduling.
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And right now there's a bill that would considerably ease the process by which medical patients could obtain medical product.
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I mean, it's it's not exactly the same thing as what California is doing, but in light of this rescheduling order, Illinois seems to be saying we wanted to make it easier for consumers to purchase via medical dispensaries by allowing every dispensary, not just a set of dispensaries, to sell medical product in Illinois and to do kind of other such things.
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And they they've referenced California as an example.
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And so I guess I would just conclude by saying it will be interesting to observe in the coming weeks how different states fall into different camps or archetypes as they approach this order with uh with limited information.
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And why do you think Oklahoma is taking the taking the route that they are?
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I, you know, I don't know.
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I don't really have a great answer there.
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Um, so this is all speculative.
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I mean, I'll say the the first thing, like Adria Berry, who's the head regulator in Oklahoma, is like the head of Canada and is like a longtime regulator.
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So this isn't really an answer to your question, Jesse, but this is a very experienced regulator, kind of like in in that role.
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So I thought that was interesting that one of the leaders of the regulators is taking that stance.
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Um, maybe another hypothesis is like uh Oklahoma, after having opened in a very wild west, like kind of anarchic fashion, has been very intentional about compliance and regulation.
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And so this might be another means through which they try to winnow down their large universe of medical licensees to those who can really come to the table and play.
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And so I think that culture of compliance um has been embedded in Oklahoma for at least the past couple of years.
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And this might be just another another example of that.
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And perhaps the only other thing I'll say is Oklahoma is obviously a medical-only state.
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So perhaps they don't have to consider the complicated issues associated with having like dual licensees and how that might affect, you know, the different operators uh in Oklahoma.
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What would some of the cons be for requiring like that Oklahoma model?
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I'm trying to think of the downside because I hadn't heard that.
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So this is interesting.
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Yeah, and and so folks can look it up.
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Again, the deadline that they've put out there is by January 1st, 2027, right?
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So uh longer than the deadline for expedited processing.
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I think one of the downsides and one of the reasons that maybe California is cautious, and I'm not breaking any new ground here, it's that the DEA application like asks a lot of intrusive questions, right?
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It asks whether you have ever been guilty of a federal crime or improperly handling like a Schedule One substance.
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It asks, you know, you to disclose a lot of personal information for the people in your facility who are handling Schedule One product.
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So I think one downside might be that Oklahoma, and you know, this is just theoretically speaking, right, might be subjecting its licensees to to potential risk, right?
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Especially given that a lot of Oklahoma licensees have probably been coloring outside the lines, right, shall we say, um, when when it comes to to their um comes to their activity.
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So I I think that that could be one downside um uh of requiring it.
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I mean, there is the additional cost.
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And sorry, Jesse, I'm just this is really interesting.
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Um, you know, I do understand that.
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And the DEA is not a it's not free to register, you know, you know, every store, every facility, you know, it's there's a cost to it, so it's another tax we got to pay.
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Um I'm I'm just stuck on the pros of it, and and so that's why I'm just not wanting to be too closed-minded because it's like to me, it's like this creates a very bright line between legal business and gray area or illicit, because either you are just legal or you're not, right?
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So, you know, and I think California would actually benefit from that because we do have so much you know, gray and illicit activity going on here, and it would be very clear either you are DEA registered or you're not.
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And so that's why I'm just trying to think of like what would be so, other than this, you know, subjecting employees, because that's a good point of like when you're doing state licensing, you know, it's usually like board members and stuff that have to disclose personal information, but it stops there, it doesn't go you know into the employees button.
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So it's interesting.
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Totally.
00:16:30.480 --> 00:16:39.360
I I think maybe one other thing to mention on this topic is California obviously has a big, you know, history of legacy operators that probably have very negative experiences with the DEA.
00:16:39.440 --> 00:16:53.120
So again, not speaking for the DCC in California, one might imagine that they could be somewhat reluctant to require those operators to re-engage with a federal agency that had been prosecuting them for decades, and maybe they're a little more sensitive to that fact.
00:16:53.200 --> 00:16:56.399
Um, so that could have played into the calculus um as well.
00:16:57.279 --> 00:17:04.640
Yeah, what I thought of Oklahoma and the requirement, Hirsch and Morgan, the first thing I thought was compliance, in that that has been the wild west out there.
00:17:04.720 --> 00:17:06.319
And I didn't know the vibes around Oklahoma.
00:17:06.400 --> 00:17:08.960
We don't do any business there, I haven't spent any time there on the cannabis side.
00:17:09.039 --> 00:17:11.519
So I didn't know if they were cool with it or if they're trying to clean it up.
00:17:11.599 --> 00:17:23.839
But if you're trying to clean up and scare out the bad bad actors and unfortunately probably kick out some good people too, that maybe had some issues in their past requiring DEA registration, it seems like you know, one firm step in that direction.
00:17:24.160 --> 00:17:24.960
Totally.
00:17:25.200 --> 00:17:26.000
Totally.
00:17:26.400 --> 00:17:30.400
Well, why don't we jump into the next thing, Hirsch, and talk a little bit about these adult use hearings?
00:17:30.480 --> 00:17:32.799
Today is Tuesday, May 28th.
00:17:32.880 --> 00:17:37.119
So we're just over a month away from those kicking off on June 29th.
00:17:37.279 --> 00:17:42.160
Talk to us, Hirsch, about what that process is and what our expectations should be.
00:17:42.559 --> 00:17:43.920
Yeah, I mean, here's my take, right?
00:17:44.000 --> 00:17:48.160
So I think everybody knows the hearing starts on June 29th and it ends on July 15th, right?
00:17:48.240 --> 00:17:50.799
So it'll be over in six, seven weeks or so.
00:17:51.039 --> 00:17:57.680
I think the very important thing we all need to remind ourselves of is that there is a legal challenge, right, to like this entire rescheduling process.
00:17:57.839 --> 00:18:07.680
And although we've seen one of those legal challenges be dismissed when it came to the Medicare CVD program, this rescheduling order, like all aspects of it, are still subject to a legal challenge.
00:18:07.839 --> 00:18:17.039
And so I think it comes as no surprise that, you know, Sam filed a lawsuit, I think, in early May, just a few days, right, after this rescheduling hit, challenging this legally.
00:18:17.119 --> 00:18:28.960
And without getting into all the legalese, one of the arguments that they made was that the rescheduling process violated a law called the Administrative Procedure Act, which requires you to go through like a notice and comment procedure for these kinds of regulations, right?
00:18:29.039 --> 00:18:30.400
So Sam filed a lawsuit.
00:18:30.559 --> 00:18:36.880
And then I think the other interesting and relevant development is that three states, right, um filed a lawsuit after Sam.
00:18:37.200 --> 00:18:41.359
And uh those three states are Nebraska, Louisiana, and Indiana.
00:18:41.519 --> 00:18:43.119
Um, first of all, it's kind of absurd.
00:18:43.200 --> 00:18:45.359
Two of these three states have medical programs.
00:18:45.519 --> 00:18:48.640
So I think it's it's it's kind of ridiculous that they filed this challenge.
00:18:48.799 --> 00:18:59.119
I also want to remind people that 77% of Nebraskans voted to legalize medical cannabis, right, um, last November, even though that program is still being obstructed by politicians there.
00:18:59.200 --> 00:19:05.920
So it's particularly egregious that the attorney general is wasting taxpayer money on something that his own citizens clearly support.
00:19:06.079 --> 00:19:07.599
So that's the first thing, right?
00:19:07.680 --> 00:19:09.759
That they'll they'll file a law a lawsuit.
00:19:09.839 --> 00:19:12.079
Um, and so we'll see how all that unfolds.
00:19:12.240 --> 00:19:17.359
I think the second thing to pay attention to as it pertains to this process is who the list of participants are, right?
00:19:17.519 --> 00:19:20.000
I think that just will be an interesting thing for us to observe.
00:19:20.079 --> 00:19:24.240
And I imagine, you know, a week from now we'll start to get more clarity on who the witnesses are.
00:19:24.480 --> 00:19:30.000
People may have been following those organizations that have made public that they have filed a notice to participate.
00:19:30.160 --> 00:19:32.319
And so those are some of our allies, right?
00:19:32.400 --> 00:19:35.279
So, like Normal, um MPP, right?
00:19:35.359 --> 00:19:42.960
The marijuana policy project, um, attach, an organization led by Michael Bronstein, who I think folks know, and being represented by Shane Pennington, right?
00:19:43.039 --> 00:19:44.319
Who I think a lot of folks know.
00:19:44.480 --> 00:19:47.119
So those are the folks who have filed a notice to participate.
00:19:47.279 --> 00:19:51.119
And then the most prominent opponent that has filed a notice to participate is Sam.
00:19:51.279 --> 00:19:57.200
So I think that's just the other thing for us to be watching um in the coming weeks, is who is actually admitted, right?
00:19:57.279 --> 00:20:01.119
Because I think that will give us a clue into what the discourse will be on the hearing.
00:20:01.279 --> 00:20:05.200
And look, in terms of how this all unfolds, obviously I don't know, right?
00:20:05.279 --> 00:20:07.200
And this is just my educated opinion.
00:20:07.440 --> 00:20:17.119
I'll give you a few reasons why I am optimistic and hopeful that, you know, in the weeks and months after this process concludes on July 15th, we might see a full rescheduling.
00:20:17.279 --> 00:20:20.640
Again, obviously none of us know, but these are some of the things in my head.
00:20:20.799 --> 00:20:23.359
Um, first, it's notable that there's an end date here, right?
00:20:23.440 --> 00:20:28.640
You might remember from our last ALJ hearing in front of like Judge Mulrooney, there was no end date for the proceedings.
00:20:28.720 --> 00:20:32.799
Here, the proceedings begin on June 29th and end on July 15th.
00:20:32.880 --> 00:20:35.920
And in the middle, we got a long like July 4th holiday, right?
00:20:36.079 --> 00:20:40.880
I don't know the exact number of hours they'll this hearing will take place, but it's a pretty compressed timeline.
00:20:40.960 --> 00:20:45.039
So that makes me optimistic that this process won't go on interminably.
00:20:45.200 --> 00:20:46.480
So that's one thing.
00:20:46.559 --> 00:20:52.799
Um, I think that the the second thing is like we've heard confidence being expressed by a lot of people who are closest to the process.
00:20:52.960 --> 00:21:03.440
So if I think about Boris Jordan, you know, of Cure Leaf or Kim Rivers of TrueLeaf, um, you know, they have expressed optimism that this process could wrap up in Q3, or they think for sure by the end of the year.
00:21:03.599 --> 00:21:05.599
Now, look, have those people been wrong before?
00:21:05.759 --> 00:21:06.400
Yes, right.
00:21:06.480 --> 00:21:08.319
Like everyone in cannabis has been wrong before.
00:21:08.400 --> 00:21:10.160
So that's no guarantee of anything.
00:21:10.240 --> 00:21:19.759
But I think it's a relevant data point that some of the people that, at least in my opinion, have been closest to the Trump administration on this process, right, believe it'll be wrapped up expeditiously.
00:21:19.839 --> 00:21:30.400
And one could further, you know, sort of conclude that, like, you know, obviously Cure Leaf did this reverse split right a few days ago, which will enable their stock price to remain above like$4 for 90 days.
00:21:30.559 --> 00:21:35.680
And that would mean, you know, if that's the case, that they might be able to uplist by October or or so.
00:21:35.839 --> 00:21:47.599
And so again, I'm sure Boris Jordan is speculating just like all of us, but it is um interesting that they took that kind of uh preemptive uh step to prepare themselves for a world in which uplisting might be possible.
00:21:47.839 --> 00:21:50.160
And then a couple more things I'll say.
00:21:50.319 --> 00:21:59.839
I do think that there is merit to the argument that this is an argument that you know Donald Trump and the Republican Party want to make, like in the midterm elections, just a crude way of putting it.
00:22:00.079 --> 00:22:07.039
It is that like his approval ratings, no matter your politics, are really in the tank, and he's going to be looking to play like every card he can, right?
00:22:07.119 --> 00:22:15.200
In the same way that Joe Biden initiated the rescheduling process in October of 2022, a week before his kind of like midterm election, right?
00:22:15.279 --> 00:22:19.519
As one potential argument, maybe this is an argument that Trump wants to make as well.
00:22:19.680 --> 00:22:21.920
So I think there's a relevant political consideration.
00:22:22.160 --> 00:22:27.839
And then the final thing, I think, guys, is just like, I don't think this bifurcation is tenable over the long term, right?
00:22:27.920 --> 00:22:31.200
There are some people have said, like, look, what if only medical gets rescheduled?
00:22:31.279 --> 00:22:32.880
Like, how should we prepare our operations?
00:22:33.039 --> 00:22:34.480
And look, I guess it's possible.
00:22:34.640 --> 00:22:40.079
We could be living in a world two years from now where only medical cannabis is rescheduled and adult use is not rescheduled.
00:22:40.160 --> 00:22:41.359
I guess that is possible.
00:22:41.519 --> 00:22:43.519
But that is just so untenable.
00:22:43.680 --> 00:22:45.519
First, like conceptually, it makes no sense.
00:22:45.680 --> 00:22:50.559
I think we all in the industry understand how these categories are very malleable and aren't rigid.
00:22:50.720 --> 00:22:57.680
And even like US senators, like Senator Lisa Murkowski of Alaska, has said, like, well, how do you know if it's adult use or medical cannabis?
00:22:57.759 --> 00:23:01.359
So I think there's an intuitive understanding that this distinction doesn't make sense.
00:23:01.519 --> 00:23:03.200
And then one wonders, right?
00:23:03.279 --> 00:23:08.720
So if medical cannabis only gets rescheduled and then California allows everyone to become medical, right?
00:23:08.799 --> 00:23:10.160
Like what kind of happens then?
00:23:10.240 --> 00:23:19.279
Is the response to a medical-only rescheduling states passing policies that enable their licensees to become medical designees to take advantage of these benefits?
00:23:19.359 --> 00:23:22.799
And that further illustrates like kind of the incoherence of these two categories.
00:23:22.960 --> 00:23:23.920
So I could be wrong.
00:23:24.079 --> 00:23:28.720
I just can't imagine a world in which these categories continue to exist.
00:23:28.799 --> 00:23:34.160
And that's why I'm cautiously optimistic that that we could see this get done later this year, but we'll see.
00:23:34.480 --> 00:23:35.759
Sadly, I can.
00:23:37.599 --> 00:23:39.440
Go, go, go on, Morgan.
00:23:40.079 --> 00:23:43.039
Well, because politicians are regardless.
00:23:43.200 --> 00:23:48.960
I mean, it's just adult use in a lot of their minds is like a dirty word, but medical seems okay.
00:23:49.279 --> 00:23:59.759
So I could see them, you know, if depend so like after July 15th, we're gonna have this period of time where we're gonna have to just see how these lawsuits come out.
00:23:59.839 --> 00:24:03.119
And you know, this is this is where the timeline gets a little murky again, right?
00:24:03.200 --> 00:24:08.880
Is there's just a lack of clarity of where adult use could be resolved, right?
00:24:08.960 --> 00:24:12.480
There's no follow-up date, right, after July 15th, right, Hirsch?
00:24:13.359 --> 00:24:15.279
Yeah, there's no there's no there's no deadline.
00:24:15.440 --> 00:24:16.000
Yeah, that's right.
00:24:16.319 --> 00:24:19.839
So if this drags on six months, a year, who knows?
00:24:20.079 --> 00:24:21.599
What's gonna happen in the meantime?
00:24:21.759 --> 00:24:31.680
People that are already medical and are able to sell without 280e, they're gonna be able to have different pricing capabilities, markets are gonna start moving in that direction.
00:24:31.920 --> 00:24:38.000
So if if adult use doesn't get consolidated, if it doesn't all get consolidated, as it should, I totally get what you mean.
00:24:38.160 --> 00:24:41.519
Like it's nonsense, but it's just purely political in my mind.
00:24:41.920 --> 00:24:43.759
Market forces will shift.
00:24:43.920 --> 00:24:55.119
And then by the time they finally clean up adult use, it's just gonna be like when medical first started and adult use came in, and adult use took up 80% of the market share, and now it's gonna just potentially be a reverse of it.
00:24:55.279 --> 00:24:59.359
And so by the time they actually come around to sorting it out, people are gonna be like, Well, what's the point?
00:24:59.519 --> 00:25:12.160
I mean, we're medical, we're already selling this, like you know, maybe they'll still do it and maybe it'll balance out, but just so people don't have to pay for prescriptions or you know whatever they need to do in their states.
00:25:12.400 --> 00:25:17.200
Um, so I think it's it's more of a time function of what you know, what adult use will ultimately look like.
00:25:17.279 --> 00:25:20.960
Obviously, if it gets done right away, then sure, both markets can coexist.
00:25:21.119 --> 00:25:26.160
But the longer it takes for adult use to get clarified, the smaller market share it's gonna have.
00:25:26.240 --> 00:25:28.559
And then how meaningful is it really gonna be?
00:25:29.279 --> 00:25:29.680
Totally.
00:25:29.759 --> 00:25:33.200
And and just to that point, Morgan, I can't really argue with what you said there.
00:25:33.279 --> 00:25:41.599
And I'll just quickly note you know, one argument in your favor is just history tells us, I hate to put it this way, but everything that can go wrong in cannabis goes wrong.
00:25:41.680 --> 00:25:44.240
Like any bounce that happened does not bounce our way.
00:25:44.400 --> 00:25:47.680
So if passed is precedent, then that would support kind of what you're saying.
00:25:47.839 --> 00:25:49.119
And you can't argue with that.
00:25:49.359 --> 00:26:10.720
The only other point I'll make is that if that's the case, if we have a sustained period where only medical is rescheduled, not only is it incoherent for the reasons we discussed, we should acknowledge that that overwhelmingly benefits like the larger, you know, more well-capitalized operators like the MSOs that have a medical footprint, and it disadvantages, you know, social equity operators and newer operators that are adult use only.
00:26:10.880 --> 00:26:29.839
I'm not saying that'll be dispositive, but I imagine a lot of state regulators in different states, especially those that have given a lot of lip service to wanting to help smaller operators, will highlight like not only is this oat incoherent, but it disadvantages the smaller, less well-capitalized operators, which everyone I think um would think is unjust.
00:26:30.160 --> 00:26:30.400
Yeah.
00:26:30.559 --> 00:26:39.680
And this is where the 280E resolution comes into play because those larger operators also have massive amounts of 280E that they've accumulated.
00:26:39.839 --> 00:26:49.759
And so it the that is kind of an equalizer, is these newer entrants don't have all of that legacy debt if those bigger groups have to pay for that.
00:26:50.000 --> 00:26:51.039
We'll have to see.
00:26:51.279 --> 00:26:58.880
But that does equalize it where they don't have largely any, and then they become medical and they're they don't have any of those debts to deal with.
00:26:58.960 --> 00:27:02.960
So totally yeah, a couple thoughts here, gentlemen.
00:27:03.119 --> 00:27:11.119
First, I'd like to go back to someone that's you know so important in the cannabis movement from the book Smoke Signals Hirsch, which I know you and I both enjoyed.
00:27:11.279 --> 00:27:16.079
The Dennis Perone quote that every cannabis user is a medical patient, whether they know it or not.
00:27:16.240 --> 00:27:19.359
And so obviously at a fundamental level, this is so flawed.
00:27:19.440 --> 00:27:25.680
And that even think about the context of me in California, if I go grab an ounce of flour, call me a rec user.
00:27:25.759 --> 00:27:26.880
I split it with my dad.
00:27:27.039 --> 00:27:28.799
He is for sure a medical user.
00:27:28.880 --> 00:27:31.920
You know, is that medical cannabis or is it recreational cannabis?
00:27:32.079 --> 00:27:35.200
It's a, you know, obviously a very flawed distinction up top.
00:27:35.440 --> 00:27:40.319
And so I say that philosophically, which is probably worth about nothing, but is sincerely how I feel.
00:27:40.480 --> 00:27:54.079
And number two is what happens, Hirsch, to states like California and New York in that context, where you have, you know, Michigan, um, you know, all the you know, there's a handful of meaningful medical markets, and most of those are just waiting at going rack, thinking that's going to be awesome.
00:27:54.240 --> 00:28:02.000
But if this framework were to happen where this just gets delayed, what happens to these big states that have converted to 90-some percent adult use?
00:28:02.559 --> 00:28:02.960
Totally.
00:28:03.039 --> 00:28:05.200
I I think that's that's exactly the question, right?
00:28:05.279 --> 00:28:14.400
Um, and I think those states like California will try to find some creative means to situate their licensees within the medical bucket and we'll see whether it's successful or not.
00:28:14.480 --> 00:28:15.200
But but you're right.
00:28:15.279 --> 00:28:17.519
That I think that totally is the big question.
00:28:17.759 --> 00:28:27.039
Umly other thing I'll say is you mentioned Dennis Perrone, I think a really important historical figure who was crucial to the passage of Prop 215 in California in 1996.
00:28:27.200 --> 00:28:34.240
For those that don't know him, I recommend to everyone to watch the documentary that just came out called Join the Club that features Dennis Perone.
00:28:34.400 --> 00:28:42.319
If you're ever a little depressed about spending your life in cannabis and whether you're doing something meaningful when comparing it to other things you might be able to do, watch that documentary.
00:28:42.400 --> 00:28:49.519
And I think that'll give you some historical perspective on not just what an incredible man he was, but how we are kind of following in his footsteps.
00:28:49.599 --> 00:28:50.640
So join the club.
00:28:50.720 --> 00:28:52.319
Um, highly recommended.
00:28:53.279 --> 00:29:05.119
If you were to grab your very foggy crystal ball and look through it, Hirsch, what do you think are reasonable expectations in terms of getting feedback on the hearings and knowing if it's going to be a yes or no on adult use?
00:29:05.200 --> 00:29:11.039
Like what do you hear a lot from you know MSO leaders about this being a third quarter event.
00:29:11.200 --> 00:29:13.599
I think some of the bigger analysts out there have written that as well.
00:29:13.680 --> 00:29:16.000
But what are your expectations of the timeline?
00:29:16.799 --> 00:29:25.200
I mean, I I will just go with, you know, I'll just kind of copy what Kim Rivers and Boris Jordan has said that it could happen in Q3, and then we think it's likely to happen by the end of the year.
00:29:25.279 --> 00:29:36.960
Again, acknowledging the merits and everything that Morgan said about potential delays, I guess that would be my rough expectation on timeline for all the reasons that I kind of like mentioned before, the midterm elections, et cetera.
00:29:37.119 --> 00:29:42.000
Um, and I guess my signal would be like if the hearings kind of go off without a hitch, right?
00:29:42.079 --> 00:29:45.599
I mean, just theoretically speaking, let's just say Sam doesn't get admitted, right?
00:29:45.680 --> 00:29:52.640
And um, you know, they they aren't a witness there, I would take that as a positive sign if there isn't something extremely disruptive that that happens in the hearing.
00:29:52.720 --> 00:29:53.680
Now, is that foolproof?
00:29:53.839 --> 00:29:56.880
No, because a lot of this power lies within the attorney general, right?
00:29:56.960 --> 00:30:01.200
So, so obviously that's just um, you know, maybe one kind of data point.
00:30:01.359 --> 00:30:10.240
But I I think if these hearings proceed smoothly and without interruption and conclude on time, then that would increase my optimism um a little bit.
00:30:11.599 --> 00:30:14.880
So let's move on to one more one more there, Morgan.
00:30:14.960 --> 00:30:15.119
Go ahead.
00:30:15.279 --> 00:30:16.000
Yeah, yeah, go ahead.
00:30:16.160 --> 00:30:17.200
Oh, yeah, oh one more.
00:30:17.599 --> 00:30:18.079
Yeah, yeah.
00:30:18.319 --> 00:30:46.720
Um on the state stuff, um, you know, you were mentioning about like California and something we've labored on to no end, is the amount of um municipalities that have not opted into adult use, but now that there's this DEA registration, are we seeing anything at the local level that is an encouraging more municipalities of say, like, hey, we can have a medical retail market now because there's this DEA process.
00:30:46.880 --> 00:30:53.920
Like if California is cities that have not had anything pretending like it doesn't exist, but now all of a sudden can start doing this.
00:30:54.000 --> 00:31:03.200
Like, are we seeing this pull more conservative local uh you know, municipalities, you know, up and saying, like, we can do this now.
00:31:03.359 --> 00:31:04.559
Are you seeing any movement?
00:31:04.880 --> 00:31:05.279
Totally.
00:31:05.359 --> 00:31:09.680
We we haven't seen movement yet, but I do think your your train of thinking is exactly right, Morgan.
00:31:09.759 --> 00:31:15.119
And I do think if once this process like resolves itself and is codified, we will start to see that movement.
00:31:15.279 --> 00:31:21.119
You know, one of the ironies, if you compare Prop 215, California's medical framework versus Prop 64, right?
00:31:21.279 --> 00:31:24.720
Prop 215, the basic premise is that cannabis is medicine, right?
00:31:24.799 --> 00:31:30.799
And in that context, it was much easier to open up facilities in different jurisdictions kind of across the state.
00:31:31.039 --> 00:31:34.799
Prop 64 was premised on the idea of cannabis as vice, right?
00:31:34.880 --> 00:31:42.079
Like if it's a medicine, it's much more difficult to ban, right, people in your jurisdiction from conveniently accessing medicine.
00:31:42.240 --> 00:31:45.920
If it's a medicine, it's much more difficult to justify these really high tax rates.
00:31:46.079 --> 00:31:56.720
And so what I would say is the more that cannabis is framed as medicine, the more that we will be able to unwork this really unworkable framework, which is premised on the idea that cannabis is a vice.
00:31:56.799 --> 00:32:03.920
And that's reflected, right, both in the tax rates that our legal cannabis is subjected to and also in these municipal bans.
00:32:04.000 --> 00:32:05.680
So have we seen anything yet, Morgan?
00:32:05.759 --> 00:32:07.680
No, we haven't, but I do think we will.
00:32:07.839 --> 00:32:10.960
And just to kind of under-agurd that with a little bit more substance, right?
00:32:11.119 --> 00:32:21.839
Like California recently passed a law that does not impinge upon local control, but which requires cities to make medical cannabis delivery available to qualified patients.
00:32:22.000 --> 00:32:23.920
Now, I know that's a really small universe, right?
00:32:24.079 --> 00:32:28.160
Making delivery available to the small universe of medical patients in California.
00:32:28.319 --> 00:32:33.200
But the implicit logic there, right, is that access to medicine is important, right?
00:32:33.279 --> 00:32:38.720
Um, and so the more that this is reframed as medicine, I think the more that access will increase as a result.
00:32:40.559 --> 00:32:52.480
And so when I put on my greedy investor hat, Hirsch, which I wear sometimes, I look at Schedule three and I think about the 280E tax relief, which is right, the biggest headline benefit that we're all excited about.
00:32:53.039 --> 00:33:03.359
With this DEA pathway, it opened up a couple other things that could be meaningful on the investor side, which is the potential for interstate and global commerce.
00:33:03.519 --> 00:33:10.079
So why don't we start, Hirsch, with interstate, and maybe you can frame up what's opening up here and how does this work?
00:33:10.480 --> 00:33:10.799
Totally.
00:33:10.960 --> 00:33:12.480
Yeah, I'll give you my thoughts on interstate.
00:33:12.559 --> 00:33:13.839
Obviously, there are heated debates here.
00:33:14.000 --> 00:33:16.160
There are some people that think interstate are going to happen next month.
00:33:16.240 --> 00:33:18.559
There's some people that'll that think it'll take five years.
00:33:18.720 --> 00:33:22.400
Um, I don't think we have time to give a precise answer to that question on this show.
00:33:22.480 --> 00:33:30.240
But maybe I'll just lay out what are the relevant kind of legal, political, and legislative considerations that you should have in mind if you're trying to game this out.
00:33:30.400 --> 00:33:34.640
So, and and a lot of these are things you know folks have heard before, but just to kind of rehash them.
00:33:34.720 --> 00:33:35.759
So on the legal side, right?
00:33:35.839 --> 00:33:45.359
So the argument is that if medical cannabis is now federally legal because it's Schedule III, then federally legal products are eligible to participate in interstate commerce, right?
00:33:45.440 --> 00:33:54.960
That's like the very simplified version of the legal argument, which says that the dormant commerce clause prevents you from limiting um, you know, this to in-state activity if it's federally legal.
00:33:55.119 --> 00:33:57.920
So that's that's a smart argument and it's hard to argue with.
00:33:58.000 --> 00:34:02.880
So we have that legal argument that says, hey, if it's federally legal, interstate commerce should be okay.
00:34:03.039 --> 00:34:03.920
So fair enough.
00:34:04.160 --> 00:34:07.599
I think it's also important for us to consider the politics here, right?
00:34:07.680 --> 00:34:15.440
I think there are some states that will be very resistant to the idea of interstate commerce, and there are some that might be quite receptive, even receiver states, right?
00:34:15.519 --> 00:34:22.079
So I can imagine a world in which New York, for example, is not really thrilled, right, about allowing in a lot of California cannabis.
00:34:22.159 --> 00:34:24.239
I'm not saying that's right or wrong, but they might not be thrilled.
00:34:24.320 --> 00:34:27.599
That might impact their pricing, it might hurt their domestic licensees.
00:34:27.840 --> 00:34:36.239
On the other hand, there are states that have no such program, and some of those states are legally required to set up a medical infrastructure following reschedule.
00:34:36.400 --> 00:34:47.679
So South Carolina is a great example of a state that has no program that has a statute on the books that says if cannabis is rescheduled and needs to be made available medically, right, to the citizens of the state.
00:34:47.840 --> 00:34:52.320
Now, the Department of Health in South Carolina has basically said, yes, we've acknowledged that law.
00:34:52.400 --> 00:34:54.320
We're still interpreting it and understanding it.
00:34:54.480 --> 00:35:00.079
But I think the point there is like there are at least nine states in this country that lack any kind of medical cannabis program.
00:35:00.320 --> 00:35:06.880
And, you know, one could make the argument that those states would be far more receptive than, say, an adult use state to interstate commerce.
00:35:07.039 --> 00:35:17.360
And so I think people who are trying to move towards a world of interstate commerce might tactically focus on those prohibition states because that might minimize some of the political friction.
00:35:17.519 --> 00:35:22.719
So look, there's that legal argument that I laid out before about why a court of law might say this should be able to happen.
00:35:22.880 --> 00:35:24.639
There's the politics we have to keep in mind.
00:35:24.719 --> 00:35:28.159
They will be tough in some places and they will be less tough in other places.
00:35:28.320 --> 00:35:29.679
So I think that's important.
00:35:29.920 --> 00:35:44.000
Um, a few more things that I think are just important as we all kind of game this out here, is there are, despite that legal argument that allows interstate commerce for federally legal goods, there are existing state laws that still prohibit this interstate commerce, right?
00:35:44.079 --> 00:35:50.159
So there are a bunch of laws on the books in states across this country, right, that do not allow this to be the case.
00:35:50.320 --> 00:35:56.559
And, you know, without getting too nerdy here, if that's the case, we have to consider the legislative calendars in each of those states, right?
00:35:56.639 --> 00:36:00.719
We all know that Virginia's legislative session is over, you know, essentially for the year, right?
00:36:00.800 --> 00:36:04.320
Um, for example, Illinois' legislative session will end next week.
00:36:04.480 --> 00:36:06.239
Texas only meets every two years.
00:36:06.400 --> 00:36:12.079
So that's one important thing to note that like if we're trying to change state laws, it doesn't matter if the governor is like, yeah, let's do it.
00:36:12.239 --> 00:36:14.800
You need to do it through a normal legislative process.
00:36:14.960 --> 00:36:21.440
And so that kind of begs the question of whether interstate commerce might unfold in an iterative way, right?
00:36:21.599 --> 00:36:27.519
Um, by which we mean that it might start in some states before other states and it may not be a kind of universal thing.
00:36:27.599 --> 00:36:30.960
So I think that's another concept uh to kind of keep in mind.
00:36:31.199 --> 00:36:33.679
Um, I think as it pertains to California, right?
00:36:33.760 --> 00:36:46.320
Since California is a very relevant state here, reminder to everyone that California has a law on the books called SB 1326, right, that authorizes the governor to develop interstate compacts with other states, right?
00:36:46.480 --> 00:36:49.840
And they can develop, you know, the governor can develop those interstate compacts.
00:36:50.000 --> 00:37:00.159
One, if the federal government kind of like explicitly says that interstate commerce is allowed, or two, if the attorney general of California deems that California would not be put at legal risk there.
00:37:00.320 --> 00:37:02.559
So I think that's a relevant part of the calculation.
00:37:02.719 --> 00:37:05.119
Is one of those two criteria triggered?
00:37:05.280 --> 00:37:09.840
And does that give California the comfort that can engage that it can engage in interstate commerce?
00:37:10.000 --> 00:37:12.000
Now, it'll still need to find a dance partner, right?
00:37:12.079 --> 00:37:13.519
It will still need to find another state.
00:37:13.599 --> 00:37:17.760
And this only allows the governor to negotiate a one-on-one agreement with another state.
00:37:17.920 --> 00:37:20.800
But I think that's that's important to keep in mind.
00:37:20.960 --> 00:37:25.920
And then a couple more, I mean, I could talk for a while, but maybe a couple more things and then I'll pause here.
00:37:26.079 --> 00:37:30.719
You know, on the interstate commerce thing, again, without making this a legal seminar, right?
00:37:30.880 --> 00:37:36.559
Yes, you know, the dormant commerce clause prohibits um you from creating these siloed state markets.
00:37:36.639 --> 00:37:39.440
But a lot of these questions are quite complicated legally, right?
00:37:39.519 --> 00:37:45.519
So just as an example, there was a proposition that passed in California called Prop 12 that pertained to pigs, right?
00:37:45.599 --> 00:37:52.400
And it basically said, like, pork that is sold in California, you know, must be raised under minimum confinement standards, right?
00:37:52.480 --> 00:37:58.239
So California adopting that law basically locked out a lot of other states from selling pork into California.
00:37:58.400 --> 00:38:01.039
And this was challenged, right, under the Dormant Goners Clause.
00:38:01.119 --> 00:38:11.440
Like, are you obstructing commerce between the states because you're not letting folks who are, you know, raising pigs in Montana sell into California because they don't meet your like health and welfare standards for animals.
00:38:11.679 --> 00:38:18.239
Um, think about, and and I should note, like on a 5-4 decision, right, the United States Supreme Court said that was okay.
00:38:18.320 --> 00:38:20.559
Like that gives you a sense of how complicated this is.
00:38:20.719 --> 00:38:30.000
The United States Supreme Court said in a very narrow five-to-four decision, look, it is okay for California to impose these standards under health and safety and welfare reasons.
00:38:30.159 --> 00:38:33.440
So one might imagine, like, how might this apply to cannabis, right?
00:38:33.519 --> 00:38:39.199
Just imagine a world in which, you know, California has certain pesticide standards, right, that are different from other states.
00:38:39.280 --> 00:38:45.840
And there is some justification that we ought not engage in commerce with other states because they don't have the pesticide standards we do.
00:38:45.920 --> 00:38:48.000
And again, I'm not saying that's what California would do.
00:38:48.079 --> 00:38:50.480
I'm just, you know, saying this for the purpose of legal argument.
00:38:50.639 --> 00:38:55.039
Um, and we all know California just spent a year revising its action limits for its pesticides.
00:38:55.199 --> 00:39:09.360
And so I think that's an example of how there could be regulations on pesticides or labeling and packaging that function as a de facto ban on interstate commerce that that kind of could get um legally challenged.
00:39:09.519 --> 00:39:18.239
And so um I would conclude all this by saying that I certainly think that rescheduling creates really meaningful momentum for interstate commerce.
00:39:18.320 --> 00:39:21.599
But if I were trying to game out a timeline here, these are the things that I would be thinking about.
00:39:21.760 --> 00:39:23.519
State legislative calendars, right?
00:39:23.679 --> 00:39:34.880
What the process is performing these interstate agreements and what what the challenging mechanics of setting up that market might be from a pesticide and labeling and packaging and metric perspective.
00:39:35.039 --> 00:39:40.239
And I could be wrong, but my suspicion is that those challenges aren't going to be solved overnight.
00:39:40.400 --> 00:39:42.559
Um, but we'll we'll have to see.
00:39:44.000 --> 00:39:50.239
So we often look to the alcohol industry as a potential model for how cannabis evolves.
00:39:50.719 --> 00:39:57.840
And if Google is correct, if you buy wine in Napa, you can ship that to 48 states.
00:39:58.079 --> 00:40:01.760
The only two states that you can't ship it to are Mississippi and Utah.
00:40:02.000 --> 00:40:12.400
Why do you think that is, Hirsch, that it's easy to ship one, relatively easy to ship wine from California, but we're talking about being so difficult to talk people into bringing cannabis into their state from California?
00:40:12.960 --> 00:40:20.159
Um, I think my super simple answer here is that like can uh alcohol is now a clearly recognized, like federally legal product, right?
00:40:20.239 --> 00:40:22.880
And so it's treated as other products are, you know, generally.
00:40:22.960 --> 00:40:24.800
And so that interstate commerce exists.
00:40:25.039 --> 00:40:28.320
And cannabis historically has been an illegal product, right?
00:40:28.400 --> 00:40:31.599
Um, and so that um that's that's the reason, right?
00:40:31.679 --> 00:40:35.199
It hasn't been the beneficiary of this interstate commerce uh protections.
00:40:35.360 --> 00:40:39.840
And part of that is, I guess, the legacy of things like the coal memo, for example, right, right.
00:40:39.920 --> 00:40:51.519
So when Colorado and Washington passed adult use in 2012, right, the Obama administration issued a coal memo, which is like, all right, we will allow you to do your thing, but like keep it in state, right, and make sure it's properly regulated.
00:40:51.599 --> 00:40:54.880
And I think that just kind of got embedded into the legal architecture here.
00:40:55.039 --> 00:41:01.920
Now, I think that will clearly change at some point, but I think that's why, you know, maybe it won't change tomorrow.
00:41:03.280 --> 00:41:11.840
And I was thinking too, Hirsch, maybe it's also because there aren't built-out indoor wine grows across the country that they're trying to preserve as well.
00:41:12.000 --> 00:41:14.320
Like it seems like a lot of this is about self-preservation, right?
00:41:14.400 --> 00:41:18.159
Like on one side I see customer choice, the other side I see self-preservation.
00:41:19.039 --> 00:41:21.039
Um, you know, New York's an easy example.
00:41:21.119 --> 00:41:23.360
If you're in New York, is there a demand for California cannabis?
00:41:23.519 --> 00:41:23.920
100%.
00:41:24.239 --> 00:41:27.679
Like we, you know, maybe more than any other state, California cannabis is huge.
00:41:27.760 --> 00:41:30.559
So the consumer raises his hand and said, Boy, I'd love to have that choice.
00:41:30.719 --> 00:41:35.199
I could support local, or I could buy, you know, this other product, which you often see in the stores, right?
00:41:35.280 --> 00:41:41.039
In Santa Barbara, I could buy Santa Barbara strawberries, or I could buy maybe something imported from Honduras, depending on the time of year.
00:41:41.199 --> 00:41:42.639
So we're given that choice.
00:41:42.800 --> 00:41:50.559
But it seems like there's friction between consumer choice and self-preservation of those businesses that don't want to compete in that open market.
00:41:51.039 --> 00:41:51.440
Totally.
00:41:51.519 --> 00:41:52.559
I think that's exactly right.
00:41:52.639 --> 00:41:55.760
And that's kind of what I was implying by the politics argument before, right?
00:41:55.920 --> 00:41:58.000
Imagine you're a senator in New York, right?
00:41:58.079 --> 00:42:06.400
And even if you're a very well-educated constitutional lawyer who understands the dormant commerce clause, like you have a bunch of constituents whose jobs will be at risk, right?
00:42:06.559 --> 00:42:09.360
Arguably, potentially, if this interstate commerce is allowed.
00:42:09.440 --> 00:42:18.800
And so even if you know the courts are going to strike it down, maybe you pick put up a big fight, you know, for your own electoral reasons because the people of New York elect you, not people around the country.
00:42:18.960 --> 00:42:21.519
So I think you're totally right about the self-preservation.
00:42:21.599 --> 00:42:37.280
And I would say that pull those political dynamics, I don't think are enough to obstruct this in perpetuity, but maybe some of like the gum in the wheels or the gum in the ointment that that you know obstructs this process, even if that's eventually overcome by things like court decisions.
00:42:38.079 --> 00:42:42.239
I think the obvious beneficiaries are the scaled California players.
00:42:42.320 --> 00:42:49.440
And I say this not just in a self-serving manner, but you have glasshouse, you know, on the flower side, that's the probably the biggest producer of you know flour in California.
00:42:49.519 --> 00:42:52.960
And they've obviously built a business that will perform really well in export.
00:42:53.280 --> 00:43:07.920
Leaf similar on the concentrate side, you know, by the end of the year, we're going to be at 180 acres, which is about 7.00 square feet of cultivation, have a massive extraction facility in Mendocino County, and we're able to meet more demand across the U.S.
00:43:08.000 --> 00:43:12.079
So I think you look at businesses like Leaf and Glasshouse as potential obvious beneficiaries.
00:43:12.239 --> 00:43:13.599
But is there a second layer to this?
00:43:13.679 --> 00:43:15.199
And I'd like to hear from both of you on it.
00:43:15.360 --> 00:43:26.239
But if you're Cure Leaf, Terracent, you're any of the big players, and you have facilities in different states, and let's say you have, you know, 150,000 square feet in Pennsylvania, that's putting out fire flower.
00:43:26.400 --> 00:43:29.679
But in Maryland, you've got 40,000 square feet and you're struggling a little bit.
00:43:29.760 --> 00:43:34.639
Is this the pathway for the MSOs to streamline and move things across markets?
00:43:35.440 --> 00:43:39.039
Let me start with you, uh Hirsch, and then I'll go over to you, Morgan, and see if you see that as a benefit.
00:43:39.280 --> 00:43:40.079
Yeah, my thoughts.
00:43:40.159 --> 00:43:51.679
I mean, first, I I broadly agree with you, right, that the California operators will be are likely to be beneficiaries of this, both because many of them have the scale, right, to be very price competitive and because there's a latent consumer demand uh for the product.
00:43:51.760 --> 00:43:59.760
Um, I will say you hear countervailing arguments that like there are regional preferences when it exists to cannabis and like people in Ohio, right, um, or or otherwise have.
00:44:00.079 --> 00:44:02.159
A deep cannabis culture and they respect local brands.
00:44:02.320 --> 00:44:07.599
I think that's true to some extent, but still like that can exist alongside a deep consumer desire for California brands.
00:44:07.679 --> 00:44:09.199
So I think both of those things can be true.
00:44:09.360 --> 00:44:13.360
And then on your question of like, you know, are there other potential beneficiaries?
00:44:13.519 --> 00:44:14.719
I think, I think yes, right.
00:44:14.800 --> 00:44:18.320
And you can think about this both in terms of operators or in terms of states, right?
00:44:18.559 --> 00:44:25.119
There are states out there that we all know, maybe Michigan being a great example, that are dealing with a huge kind of surplus of product, right?
00:44:25.199 --> 00:44:38.400
And so they arguably could be one of the beneficiaries here because interstate commerce gives them an outlet to dispose of that surplus of product in the same way it gave Canada, right, an outlet to dispose of its surplus of product when it came uh to Europe.
00:44:38.559 --> 00:44:53.199
And so I think there's a good argument that the California operators could be the biggest beneficiaries, but there are MSOs with scaled facilities, and there are, you know, even non-MSOs that are operating in some of those oversupplied states that would probably welcome this because it expands uh their their market.
00:44:53.280 --> 00:44:57.360
And um, you know, I think in addition to the states I mentioned, Oregon is another great example, right?
00:44:57.519 --> 00:45:24.239
There are operators, for example, like a grown rogue that is not what I think of as like a big MSO and is not a California operator, but also has a huge kind of outdoor facility that might benefit from interstate commerce and higher prices well, one quick question before I answer was, you know, Hirsch, when you were talking about the uh like the federal test around interstate commerce, was you're saying federal legality, but rescheduling is not changing the legal status, correct?
00:45:24.559 --> 00:45:26.960
I mean, you know, you have people frame this in different ways.
00:45:27.119 --> 00:45:32.960
There are people who debate like, does rescheduling like make medical cannabis federally legal?
00:45:33.119 --> 00:45:38.960
There's some people that say yes, and there are some people that say no, it's still on the Controlled Substance Act, and so it's still like illegal.
00:45:39.119 --> 00:45:41.440
So I I think that's kind of a semantic question.
00:45:41.599 --> 00:45:49.360
Maybe I would say, like, is it it makes it like appreciably legal or much more legal from the first time, whereas on Schedule One, it was definitely illegal.
00:45:49.519 --> 00:45:56.320
I know that's not a great answer to your question, but it's sort of like a I think a semantic debate we have about is this legal, right?
00:45:56.400 --> 00:45:57.360
Um, or or not.
00:45:57.760 --> 00:46:00.400
Would it take an act of Congress to clarify that?
00:46:00.639 --> 00:46:05.599
Or what would what would be needed so that it's not a semantic and it's like just clear?
00:46:06.000 --> 00:46:10.400
Yeah, I mean, I I think an act of Congress would would help, um, for sure.
00:46:10.480 --> 00:46:12.239
I don't know if that's one we should expect.
00:46:12.480 --> 00:46:14.000
Um yeah, right.
00:46:14.079 --> 00:46:16.960
But yeah, I I mean I I I I think that that would help for sure.
00:46:17.039 --> 00:46:20.639
And I guess the question is like, you know, we consider other schedule three drugs.
00:46:20.719 --> 00:46:23.119
I think Tylenol is a schedule three drug, if I'm not mistaken.
00:46:23.280 --> 00:46:25.599
Like, obviously, we consider that to be to be legal.
00:46:25.679 --> 00:46:26.639
So with code.
00:46:27.280 --> 00:46:29.280
Um with Tylenol, with coating.
00:46:29.519 --> 00:46:31.199
With coding, got it, got it, got it.
00:46:31.519 --> 00:46:32.079
Yeah, yeah.
00:46:32.239 --> 00:46:34.800
So I don't know if I have a great answer to you on on that subject.
00:46:34.880 --> 00:46:39.440
I but I've just seen people have really different opinions on is this legal or not.
00:46:39.760 --> 00:46:40.639
Right, right.
00:46:41.360 --> 00:46:52.079
So, you know, to answer your question, Jesse, I mean, I think we talked about this maybe like a year or so ago while we were in the purgatory of not knowing where we were going to be with rescheduling.
00:46:52.320 --> 00:47:06.320
Uh, you know, I've kind of had this long thesis that obviously uh it's incredibly inefficient, this state-to-state interstate market system is just it's it's not good capital allocation, but it's been forced.
00:47:06.400 --> 00:47:11.440
So companies have had to do this, they've had to build out all of duplicative infrastructure in multiple states.
00:47:11.920 --> 00:47:14.079
It's not smart, but it's what they had to do.
00:47:14.480 --> 00:47:16.639
Um, so I'm not blaming them for doing it.
00:47:16.719 --> 00:47:19.760
Um you know, it's just the challenges of this emerging industry.
00:47:19.920 --> 00:47:27.679
And you know, I thought an initial step would be it would be interstate uh transport within a licensee.
00:47:27.760 --> 00:47:30.960
So if you're a cure leaf or GTI, whatever.
00:47:31.199 --> 00:47:48.000
And to your point, like you've got a scaled grow in a state, you don't need to go stand up another scaled grow in all these other states, you would be able to transfer products that you made in your license facility to your licensed retail in another state.
00:47:48.159 --> 00:47:52.800
And that way, you know, it's but it's only contained within your ecosystem.
00:47:52.880 --> 00:47:54.400
So the manifest would be super easy.
00:47:54.480 --> 00:48:05.599
There would be total transparency, and I thought it would be a a natural way for this industry to get some more scale without so much capital requirements that have been needed.
00:48:05.840 --> 00:48:15.119
Um but you know, the the overarching question, I think, of around the interstate commerce is yeah, is is um the competing forces around it.
00:48:15.280 --> 00:48:18.079
Um, you know, about where's the incentive lie?
00:48:18.320 --> 00:48:28.880
And I Jesse, you hit on it, I think, pretty you know, square on is you know, when you think about when prohibition unwound, it wasn't like we immediately had 48 states we were shipping wine to.
00:48:28.960 --> 00:48:30.719
It took decades to get there.
00:48:31.039 --> 00:48:39.840
And as Hirsch was saying, with these different legislative sessions and you know, different political wins and all this stuff, you know, how long could it take for some of these things?
00:48:39.920 --> 00:48:47.840
And and you know, I'm gonna end it with a question back to Hirsch is do these have to be neighboring states to have these packs?
00:48:48.079 --> 00:48:58.639
Or can so like if you're sending product from California to New York, and are you going through Nebraska or do they have to have legal states?
00:48:58.719 --> 00:48:59.920
Like what how does that all work?
00:49:00.159 --> 00:49:00.400
Totally.
00:49:00.480 --> 00:49:01.760
I think that's a that's a great question.
00:49:01.920 --> 00:49:12.480
But like, you know, for example, when it comes to SB 1326, the bill in California, it wasn't envisioned that those packs could only be formed with, you know, Nevada and Arizona, right, and and and Oregon, right?
00:49:12.639 --> 00:49:18.800
California, under that law, if the federal government gives it permission, has the ability to develop a pact, you know, with another state.
00:49:18.880 --> 00:49:23.199
And I think it was always envisioned that East Coast states might be a potential dancing partner.
00:49:23.440 --> 00:49:29.360
So so no, I don't expect it to be limited to just neighboring states, but your question is a fair one, right?
00:49:29.440 --> 00:49:38.639
I think that's one of those things along with tracking, right, and testing that will need to be kind of worked out as commerce begins uh between these two different states.
00:49:40.480 --> 00:49:46.960
Yeah, and I'm a little rusty on flour prices, but just to try to put some numbers around this, guys, on the concentrate world, because that's where I live.
00:49:47.119 --> 00:49:49.920
In California, distillate is about a dollar a gram.
00:49:50.159 --> 00:49:53.599
Places like New Jersey, last time I checked, it was seven, eight bucks a gram.
00:49:53.679 --> 00:49:57.760
And a lot of the country, it's in that three, four, five dollars a gram range.
00:49:57.920 --> 00:50:06.320
So if you're someone, again, I'm just using my company's example because I know it best, like Leaf, who's used to selling distillate at a buck a gram, and all of a sudden you can even sell it for$2, right?
00:50:06.400 --> 00:50:08.639
Which is on the low end of where other states are.
00:50:08.880 --> 00:50:16.960
If we sold 25% of our output at twice the cost, our margins would go down, would go from 49% to 59%.
00:50:17.760 --> 00:50:24.239
So again, that's 25% at twice the twice the not twice the cost, twice the price that you're selling it now.
00:50:24.400 --> 00:50:33.440
So that's real napkin mathy, but it does just show that for California operators, Leafs, Glasshouse of the World, I'm sure there's a bunch of others as others as well.
00:50:33.599 --> 00:50:38.800
When you start to change the math and get into some of these other markets, that's what a lot of these businesses were really built around.
00:50:38.960 --> 00:50:44.000
Like, you know, Glasshouse, you know, for sure, Leaf that's been, you know, on our radar this whole time.
00:50:44.159 --> 00:50:47.760
So it's really exciting to see that thesis getting pulled forward, like you said, Mark.
00:50:47.920 --> 00:50:49.760
And you know, we're talking about this a year ago.
00:50:49.920 --> 00:50:55.599
I started having some export conversations a couple of months ago, just kind of on a hunch around how this could play out.
00:50:55.760 --> 00:50:59.280
You know, and here we are now, and those conversations are thankfully getting a lot more serious.
00:50:59.360 --> 00:51:01.199
And so I think it's a really exciting avenue.
00:51:01.360 --> 00:51:11.360
You know, we talked about the interstate side, Hirsch, which um I think most people think could take a little bit longer to play out, but there's another side to it too, which is leaving the country on the export side.
00:51:11.519 --> 00:51:14.079
So can you frame that opportunity a bit for us as well?
00:51:14.400 --> 00:51:14.719
Totally.
00:51:14.800 --> 00:51:15.039
Yeah.
00:51:15.119 --> 00:51:24.159
So first I agree that, you know, it it seems plausible to me that, you know, export might happen in a meaningful way before interstate, in part because of the political resistance that we discussed before, right?
00:51:24.239 --> 00:51:26.000
That could be a real hindrance in the United States.
00:51:26.159 --> 00:51:27.199
So I agree with that.
00:51:27.360 --> 00:51:34.400
Um, I think maybe the second thing to note is like export is an opportunity because we're seeing a pretty robust growth in medical cannabis programs, right?
00:51:34.480 --> 00:51:35.440
Kind of across the world.
00:51:35.599 --> 00:51:39.440
I know that's obvious, but just to enumerate them, and we don't have time to go through each example.
00:51:39.519 --> 00:51:43.519
But like Germany, right, obviously like the most robust medical market in the world.
00:51:43.679 --> 00:51:47.360
Australia, a really robust medical market, UK, their market is growing.
00:51:47.519 --> 00:51:49.360
The Czech Republic, their market is growing.
00:51:49.519 --> 00:51:53.199
France's program is just getting off the ground, Poland, you know, et cetera.
00:51:53.360 --> 00:51:54.639
So that's exciting, right?
00:51:54.719 --> 00:51:59.039
This is happening as a consequence of those medical programs being kind of stood up.
00:51:59.199 --> 00:52:08.719
And, you know, what I would say is what is great about, you know, can't cannabis being rescheduled or potentially being rescheduled is that like Schedule One drugs, there's a huge barrier to export right there.
00:52:08.800 --> 00:52:11.360
So and this like makes it meaningfully easier.
00:52:11.519 --> 00:52:19.760
But then the other obvious thing to note is that, you know, it won't simply be a free-for-all, that there are requirements to participate in that international supply chain.
00:52:19.920 --> 00:52:31.599
I think the ones that we've heard about, which obviously we don't have time to get into today, are things like GACP, right, um and CGMP right here in the United States that are important for operators to uh kind of engage with.
00:52:31.679 --> 00:52:34.960
And I would say not all operators will be able to meet those standards.
00:52:35.039 --> 00:52:36.400
So I think that's quite important.
00:52:36.559 --> 00:52:41.840
Um, and then we should also note that obviously there's EU GMP, which folks need to be educated on.
00:52:42.000 --> 00:52:48.159
And, you know, the German regulator, as an example, keeps getting stricter and stricter in their application of those requirements.
00:52:48.320 --> 00:52:56.320
And so I think it's important to note that you're gonna have to check a lot of boxes and obtaining those certifications can take six, 12, 18, 24 months.
00:52:56.480 --> 00:53:00.159
Um, and so I don't think anyone should assume that that it's kind of overnight.
00:53:00.400 --> 00:53:02.159
Um, so I think that's relevant.
00:53:02.320 --> 00:53:16.719
And maybe two like kind of more political points I'll make is that I think one exciting thing is like you're starting to see Canada take notice of the fact that the US is rescheduling and is starting to get jealous about preserving its competitive advantage when it comes to international trade.
00:53:16.880 --> 00:53:18.079
I think that's what we want to see.
00:53:18.239 --> 00:53:20.559
We want to see what I would call a race to the top, right?
00:53:20.639 --> 00:53:25.599
Or a virtuous cycle where Canada's like, oh, we're kind of already playing this game, but the Americans might catch up to us.
00:53:25.679 --> 00:53:29.440
So let us ease our regulations to build this international supply chain.
00:53:29.519 --> 00:53:32.880
And then you need the United States to say, America first, baby, right?
00:53:32.960 --> 00:53:34.320
Like Canada is running away with this.
00:53:34.480 --> 00:53:35.519
We need to catch up with them.
00:53:35.679 --> 00:53:47.760
So I'm excited for that political dynamic to develop, even though I think, you know, as much as I love America, um, I think we'll be playing catch up for for a little while just because of the infrastructure and the certifications Canada has developed.
00:53:47.920 --> 00:53:49.760
Not forever, but I think for a little while.
00:53:49.920 --> 00:53:53.840
So I'm excited about that political dynamic, that competitive political dynamic to develop.
00:53:53.920 --> 00:53:57.760
And I think we should do everything we can to encourage it to push these countries forward.
00:53:57.920 --> 00:54:08.079
And then the other kind of political point I'll make that isn't really an answer to your question, Jesse, but I think is important is that the development of an international supply chain has a deeply legitimizing effect, right?
00:54:08.159 --> 00:54:17.760
Like we are all so frustrated at the lingering presence of cannabis stigma and how it is impeding our ability to build the cannabis economy that we know is possible in this country.
00:54:17.920 --> 00:54:26.639
The development of an international supply chain really destigmatizes cannabis, especially when you see other Western industrial democracies engaging in cannabis commerce.
00:54:26.800 --> 00:54:32.719
So I'm excited for for that too, to kind of expunge some of um that old legacy thinking uh on cannabis.
00:54:32.800 --> 00:54:34.639
And I think that'll have ripple effects.
00:54:35.679 --> 00:54:40.079
Do we need EU GMP for exporting to Canada?
00:54:41.760 --> 00:54:44.559
I I don't know the exact answer to that question.
00:54:44.719 --> 00:54:46.320
Um I I don't know.
00:54:46.480 --> 00:54:47.760
That that is a good question.
00:54:48.159 --> 00:54:51.519
Just uh just thinking about Jesse's point on the pricing differential.
00:54:51.599 --> 00:54:59.119
Um, it's been a while since I've looked at Canadian prices, but they're up because I have benefited from their ability to export to Europe.
00:55:00.159 --> 00:55:04.000
I'm wondering if there's a world where we could be exporting to Canada.
00:55:05.119 --> 00:55:07.760
I think that'll be part of the conversation, both back and forth, right?
00:55:07.840 --> 00:55:11.679
I think Canada would want to export to us and we would want to export to Canada, you know?
00:55:12.000 --> 00:55:12.559
Yeah, sure.
00:55:12.639 --> 00:55:16.480
We'll we'll we we'll we'll enter that agreement all day long.
00:55:17.760 --> 00:55:20.239
I'm sure Jeff Martin, you'd be very happy about that, right?
00:55:20.400 --> 00:55:20.639
Yeah.
00:55:20.800 --> 00:55:33.679
Yeah, Morgan, I had that conversation the other day with somebody just kind of kicking it around like you were like, is there is there is there a path that we would you know run material from the US through Canada, and then that would be you know the EU GMP station to you know move it abroad.
00:55:33.760 --> 00:55:36.960
So I think that's definitely something to be thinking about.
00:55:37.599 --> 00:55:57.920
Yeah, and I think what we're what when we talk about this again, the opportunity here is you know, right now to sell things for a lot of operators on the West Coast, especially other low-cost states at higher prices, and depending on the market, similar math to what I laid out in terms of uh interstate, where you know, two, three, four, five times or more where we are in California, depending on which market.
00:55:58.079 --> 00:56:00.480
And these opportunities, guys, are very market specific.
00:56:00.559 --> 00:56:03.440
And Hirsch, I've been having a lot of these conversations with folks across the world.
00:56:03.599 --> 00:56:08.880
I know you've been attending the conferences, but man, oh, it's just like learning all the states again, right?
00:56:08.960 --> 00:56:13.280
I mean, we've got 24 adult use states and I don't know, another 16 or whatever it is, medical states.
00:56:13.360 --> 00:56:17.280
You've got to know all that stuff, which is already like running a multinational corporation.
00:56:17.440 --> 00:56:23.599
Now tack on you know what's going on in Australia and Germany and Portugal and Spain and even the UK is different.
00:56:23.679 --> 00:56:27.119
And man, there's a lot to a lot to unravel over there.
00:56:27.199 --> 00:56:34.559
But I think thesis-wise, again, the opportunity to sell things at a higher price, which is awesome.
00:56:34.719 --> 00:56:44.719
But Morgan, we were talking backstage where we came on that this is still not a huge opportunity relative to like the scale of some markets in the markets in the US.
00:56:44.800 --> 00:56:46.719
Do you want to expand upon that a little bit, Morgan?
00:56:46.880 --> 00:56:49.039
Kind of where we are in our evolution over there.
00:56:49.920 --> 00:56:56.719
Yeah, I mean, I we were just, you know, the idea of should international export happen in the US.
00:56:56.960 --> 00:57:08.000
And um my question is just around how big is the demand for international export relative to what we have within our own states?
00:57:08.079 --> 00:57:18.559
And you know, just taking California's own market size, you can pretty probably add up all of these international markets and still not even be the totality of California.
00:57:18.719 --> 00:57:21.599
Um, so how much is it going to be incremental demand?
00:57:21.760 --> 00:57:27.119
How much cost is there gonna be associated with being able to in uh export internationally?
00:57:27.360 --> 00:57:30.480
So is there positive ROI there, even if prices are higher?
00:57:30.639 --> 00:57:34.639
Like how much actual additional units will it help you do?
00:57:34.719 --> 00:57:46.239
Or, you know, it's just like this idea around the focus of a business and how material is it going to be, or is it gonna be a distraction that's going to cost money and take away from your core business?
00:57:46.400 --> 00:57:50.719
Um, and Hirsch was told me it's a million patients in Germany.
00:57:51.280 --> 00:57:51.840
Yep.
00:57:52.320 --> 00:58:01.440
So, and so really to in my mind, it's a it's a competitive game where you're going to largely be competing against the Canadian export market.
00:58:01.599 --> 00:58:03.280
And do we have better quality?
00:58:03.440 --> 00:58:04.400
Do we have better pricing?
00:58:04.480 --> 00:58:08.960
What's going to give us a competitive advantage where we could take meaningful share that could add meaningfully?
00:58:09.119 --> 00:58:15.280
And I know I'm talking at a at a macro level, at the individual company level, it certainly can be material, right?
00:58:15.440 --> 00:58:23.760
For a company like Leaf, if you could all of a sudden be doing a hundred million in export, that's obviously extremely important for your business.
00:58:23.920 --> 00:58:31.119
Um, it might, you know, for the state of California in total, like it doesn't look like that big of a number, but at the company level, it absolutely can be.
00:58:31.280 --> 00:58:46.960
Um, so I was just trying to get like my arms around of like what is the opportunity and how does it translate to at the at a company level um to go through that process and the costs associated and and um you know how much attention is needed to do it.
00:58:47.199 --> 00:58:51.840
And does it just largely conform with what the DEA registration is going to be anyway?
00:58:51.920 --> 00:58:59.039
So it's kind of like a amortized cost against your existing business so that it is just truly an additive potential outlet.
00:58:59.360 --> 00:59:03.280
You know, so this is kind of like my wandering thoughts around export.
00:59:03.440 --> 00:59:07.199
Um, I'm still stuck on this Canada thing, though, because I think this could be really interesting.
00:59:07.360 --> 00:59:17.599
The other one is Mexico, which, you know, just for give me a second here is you know, Mexico has been so stuck in proceeding forward with any kind of cannabis.
00:59:17.760 --> 00:59:23.039
And and from my understanding, has been it's a lot of fear around the cartels controlling it.
00:59:23.360 --> 00:59:29.920
Well, if they don't have any domestic supply of it, the only opportunity for them is to import it.
00:59:30.079 --> 00:59:34.880
And who better to do partner with is their largest trading partner, the United States.
00:59:35.039 --> 00:59:44.800
You know, they could still bring it in and they can do their finished goods and make it into products that they want for their domestic market, but we could be a supply source for them, and that could be fantastic.
00:59:44.880 --> 00:59:46.320
I mean, especially for us in California.
00:59:46.400 --> 00:59:48.960
I mean, we're like this is just a natural thing.
00:59:49.039 --> 00:59:50.719
And so I'm just kind of hypothesizing.
00:59:50.800 --> 01:00:03.599
And I think that could actually so some of these, maybe not the immediately definable international markets, but maybe some of these others that could become very meaningful by the time we're ready to actually do international export.
01:00:04.559 --> 01:00:05.039
Totally.
01:00:06.559 --> 01:00:06.880
Okay.
01:00:08.559 --> 01:00:10.000
No pushback on that, Hirsch?
01:00:10.320 --> 01:00:13.519
No, no, I mean, I think those are all totally the the right questions for sure.
01:00:13.599 --> 01:00:15.519
And the Mexico thing is certainly interesting.
01:00:15.599 --> 01:00:18.559
And we know how long it takes to stand up domestic cultivation.
01:00:18.719 --> 01:00:25.360
I think Germany is an example that, right, that imports a lot of product because of the time required to stand up domestic cultivation.
01:00:25.519 --> 01:00:27.039
So I think that's totally plausible.
01:00:27.199 --> 01:00:29.280
Like you said, the politics in Mexico are weird.
01:00:29.440 --> 01:00:40.880
You know, it's been like seven or eight years now since the Supreme Court of Mexico um deemed cannabis prohibition unconstitutional because it interferes with a right in their constitution called the right to the development of the personality.
01:00:41.119 --> 01:00:43.840
And so I don't know, it's been seven or eight years, right?
01:00:43.920 --> 01:00:46.079
Um, so hopefully they get moving soon.
01:00:46.719 --> 01:00:57.199
And I think Morgan's there's maybe been some misleading information I've seen on some of the social media channels about what is required, what is not required, and the costs associated with it.
01:00:57.360 --> 01:01:05.840
So it's real easy to look at this and say, oh, well, you need to need to spend X million to make it make your facility of the US a EU GMP facility.
01:01:06.159 --> 01:01:11.760
And I think that the premise and the cost are both incorrect in some of these occasions.
01:01:11.920 --> 01:01:13.679
Every situation is going to be different.
01:01:13.840 --> 01:01:17.840
But I've got a lot of hours under my belt in the last month or two learning about this.
01:01:18.000 --> 01:01:23.440
And I don't want to give away information that I've worked hard to find out myself, uh, you know, for free to everybody.
01:01:23.519 --> 01:01:38.800
But I will say just from an investment and a process perspective, it looks like it's completely manageable and you know, might take something to the order for a leaf of something like you know, six months to do the necessary, you know, SOP upgrades and all the other things you have to do to get the right certifications in place.
01:01:38.960 --> 01:01:41.199
There's a certain number of hours it would take you to get there.
01:01:41.280 --> 01:01:45.119
But in terms of ROI, it's a complete, in our in our case, no-brainer.
01:01:45.440 --> 01:01:48.880
But if you have a different facility, different supply chain, it could be different.
01:01:49.039 --> 01:01:51.840
But on my side, that is not something that's uh giving us any pause.
01:01:52.000 --> 01:01:55.440
It's it's it's it's a lift, it's it's more time in some ways than capital.
01:01:55.519 --> 01:02:00.480
It's a bit of a lift, but there's a complete, you know, the ROI is a is is a no-brainer.
01:02:02.320 --> 01:02:05.599
Well, guys, we're an hour and three minutes in and we got to topic number one.
01:02:05.679 --> 01:02:07.199
So I think we're doing great.
01:02:08.320 --> 01:02:10.000
Why don't we move things ahead, Morgan?
01:02:10.079 --> 01:02:14.719
And let's do a bit of a speed round and see if we can get out of here in the next you know 27 minutes or so, boys.
01:02:14.880 --> 01:02:17.280
And let's hit a couple of states for sure.
01:02:17.440 --> 01:02:19.840
And uh, if we have time to get anything else, we will.
01:02:20.000 --> 01:02:21.679
But Morgan, why don't you kick us off?
01:02:21.760 --> 01:02:27.599
Um, you know, we talked about so much cool stuff with Schedule Three on the state side, man, still slow movements.
01:02:27.760 --> 01:02:30.480
We want to hit two states, Virginia and Pennsylvania.
01:02:30.559 --> 01:02:34.400
And let me kick it off uh first with you, uh Morgan, on the Virginia side.
01:02:35.199 --> 01:02:42.079
Yeah, so Virginia, you know, had a new governor come in that was pro-cannabis, supposedly.
01:02:42.239 --> 01:02:44.480
Vote for me, and we'll have legal cannabis.
01:02:45.039 --> 01:02:47.119
Gets in, and what is it?
01:02:47.920 --> 01:02:53.920
Very shortly after becoming governor, veto yet again.
01:02:54.559 --> 01:02:58.480
And it feels like a bit of a punch in the face.
01:02:58.719 --> 01:03:08.079
I'm gonna just be honest, because it's like, you know, this once again a politician says, vote for me and I'm gonna do this, and then they turn around and just you know, crush it.
01:03:08.320 --> 01:03:21.039
And you know, and I looked over the the list of the things, I don't have it in front of me, so I can't really regurgitate, but it didn't seem like it was that far off that it needed to be vetoed.
01:03:21.840 --> 01:03:28.960
And but you know, Hirsch, you're obviously you probably have these all off the top of your head exactly what happened.
01:03:29.280 --> 01:03:33.360
So what is happening in Virginia that they can't get it done?
01:03:33.519 --> 01:03:34.000
Why?
01:03:34.239 --> 01:03:40.559
And what I can't get out of my mind is the moniker that you hear from Trump of the do nothing Democrats.
01:03:40.639 --> 01:03:55.920
And I'm like, here it is again, as a Democrat comes into power and immediately stops progress from happening over what seemed like things that could have been resolved instead of just a hard-line veto, denying the people once again what they voted for, what they want.
01:03:56.079 --> 01:04:00.159
Like you said, this is not unique to in that context, it's not unique to Democrats.
01:04:00.239 --> 01:04:04.159
You said, like in in Nebraska, 77% of the population wanted it.
01:04:04.400 --> 01:04:08.239
We've seen it in Florida, DeSantis clearly, you know, going against the will of the people.
01:04:08.320 --> 01:04:14.559
So it's not like it's that is bipartisan, is like not acknowledging the will of the people, um, sadly.
01:04:14.719 --> 01:04:18.159
But um, but what's what's going on in Cal uh in uh Virginia?
01:04:18.480 --> 01:04:23.840
Yeah, I mean, you know, I think the first thing is it's really impossible to overstate how devastating what happened in Virginia is.
01:04:23.920 --> 01:04:27.440
Like I would say this hurts more than amendment three in Florida in 2024.
01:04:27.599 --> 01:04:31.440
And the reason I would say that is first we were on the one-yard line, like we had this in the bag.
01:04:31.519 --> 01:04:32.800
That's why it's so devastating.
01:04:32.960 --> 01:04:38.559
But also if you think about Virginia, Virginia was such a limited medical market that the growth potential there was enormous, right?
01:04:38.639 --> 01:04:43.440
Like Virginia does less than$200 million in sales and it's very limited medical market.
01:04:43.599 --> 01:04:48.800
By most estimates, it was going to be a$2 billion market, maybe higher, because of all of the states that have bordered.
01:04:48.960 --> 01:04:51.599
So you could credibly say Virginia could have 10X'd.
01:04:51.679 --> 01:04:56.559
Now, Florida would have maybe 3X'd, maybe 2.5x, but you could say Virginia would have 3X'd.
01:04:56.639 --> 01:04:58.239
So that's why it's so devastating.
01:04:58.400 --> 01:05:05.440
And then also just regionally, where Virginia is situated, like Virginia would have opened up both Appalachia and the Upper South.
01:05:05.519 --> 01:05:06.719
That's why it's so devastating, right?
01:05:06.800 --> 01:05:16.719
If Virginia would have gone online, then West Virginia would have been surrounded and Kentucky would have been surrounded, and then you know, all these southern states, you would have the first adult use state in the South, and then that would trickle into North Carolina.
01:05:16.800 --> 01:05:25.119
So we can unpack why it happened, but I think there's no way to overstate that like this was extremely devastating and and really impeded the growth story.
01:05:25.199 --> 01:05:26.239
So that sucks.
01:05:26.400 --> 01:05:31.599
Um, second, I mean, it's hard for me to argue with you that this reinforces the perception of the do-nothing Democrats.
01:05:31.679 --> 01:05:36.320
And look, I see some of these debates on Twitter where people argue about who's better, the Republicans or the Democrats.
01:05:36.400 --> 01:05:42.559
And I guess just coincidentally, people's opinions seem to track their larger political opinions, um, which is which is sort of interesting.
01:05:42.719 --> 01:05:49.199
And people will say, hey, like there's 19 blue states that are adult use, and there's only four red states, so like the Democrats are better.
01:05:49.360 --> 01:05:55.119
It's like, yeah, but like it was the voters in most of those 19 states that passed, you know, those adult use initiatives.
01:05:55.199 --> 01:05:58.320
It was not the the policymakers uh themselves, right?
01:05:58.400 --> 01:05:59.679
So I wouldn't give the democratic policy.
01:06:00.159 --> 01:06:01.599
Politicians, too much credit for that.
01:06:01.679 --> 01:06:10.079
And I would also say the few states that are red states, you know, the Ohio's, the Missouri's, you know, the Montanas, those are some of the best performing states in the country, right?
01:06:10.159 --> 01:06:16.159
And so, look, it's hard to argue with the idea that the Democrats totally screwed uh the pooch here.
01:06:16.320 --> 01:06:26.239
And you know, the other thing is like if the if if Virginia had gone the way it was supposed to, the Democrats would have had a really good argument in the sense that they could have said, look at the track record, look back at Minnesota.
01:06:26.400 --> 01:06:32.800
We were trying to legalize weed in Minnesota for a long time, but the Republicans and one branch of government kind of impeded our ability to do so.
01:06:32.880 --> 01:06:35.519
And then we kicked them out, and then we passed an adult use law.
01:06:35.679 --> 01:06:37.599
And then look, we did the same thing in Virginia.
01:06:37.679 --> 01:06:42.000
And then they would have been able to go into Pennsylvania, right, and say, look, the same thing happened, right?
01:06:42.079 --> 01:06:45.039
There's one branch of the Republican government that's impeding adult use.
01:06:45.199 --> 01:06:46.559
Elect us, right?
01:06:46.639 --> 01:06:51.119
Um, and then, which is like an argument that Josh Shapiro is making, and then we will pass adult use.
01:06:51.280 --> 01:06:54.800
So the I would say that the Democrats did themselves a huge disservice.
01:06:54.880 --> 01:07:04.400
They would have been able to campaign on the argument that giving them control of government would unlock adult use, not only in Pennsylvania and also in places like Wisconsin, right?
01:07:04.480 --> 01:07:09.519
Um, for example, or North Carolina, where there's a Democratic governor, but some Republican obstruction.
01:07:09.760 --> 01:07:13.280
Now, on Spanberger, I mean, I don't think there's any way to shade the truth here.
01:07:13.360 --> 01:07:17.760
Her arguments here are totally incoherent and deserve, I think, our complete scorn, right?
01:07:17.840 --> 01:07:27.039
So the first thing is she campaigned on this idea that, like, I'm a mom and I have three teenage kids, and I understand the illicit market is bad and that a regulated market is better, right?
01:07:27.199 --> 01:07:35.280
She very explicitly leaned into the idea that an illicit market was bad for kids and that she as a mom would sort of advance a legal market for that reason.
01:07:35.360 --> 01:07:37.599
And then she just totally abandoned that thinking, right?
01:07:37.679 --> 01:07:43.519
And so I know we expect politicians to be dishonest, but this level of like dishonesty, I think, is particularly noteworthy.
01:07:43.679 --> 01:07:44.719
So that's number one.
01:07:45.039 --> 01:07:45.920
Number two, right?
01:07:46.000 --> 01:07:50.320
She said, like, oh, I've talked to other governors and they've said that we shouldn't rush into this too fast.
01:07:50.559 --> 01:07:54.559
As has been widely reported, like she can't name the other governors that she talked to.
01:07:54.639 --> 01:07:59.760
I think we all know that it's hard to identify a governor out there who's like, oh, I'm really glad we waited, right?
01:07:59.840 --> 01:08:04.400
And created three or four or five years for an illicit market to kind of fill the vacuum here.
01:08:04.559 --> 01:08:09.519
So it's sort of like, you know, when someone says something so crazy that you know they're lying to you, right?
01:08:09.599 --> 01:08:14.480
Like this is an example of that because there's no plausible way she would have talked uh to those other governors.
01:08:14.639 --> 01:08:16.880
And then even her arguments are incoherent.
01:08:16.960 --> 01:08:21.039
Like on the one hand, she said, 350 dispensaries is too many, right?
01:08:21.119 --> 01:08:24.000
And which is crazy for a state of nine million people, right?
01:08:24.079 --> 01:08:26.159
Um, so like that's why I vetoed the bill.
01:08:26.319 --> 01:08:34.079
But on the other hand, she said, well, I don't think it's right that these well-capitalized actors should monopolize the market and like I want to give everyone a fair chance.
01:08:34.239 --> 01:08:35.119
So what is it, right?
01:08:35.199 --> 01:08:41.600
Do you want to limit the number of dispensaries and concentrate opportunity in a small number of actors, or do you want to broaden opportunity?
01:08:41.760 --> 01:08:46.079
So again, everything she's saying is so incoherent that it's very obvious she's lying.
01:08:46.159 --> 01:08:47.279
Now, why is she lying?
01:08:47.439 --> 01:08:47.840
I don't know.
01:08:47.920 --> 01:08:52.880
It's sort of like a mix between what I would call hemp talking points and Sam talking points, right?
01:08:52.960 --> 01:09:01.840
There's sort of like the hemp obstructionists who make this argument about delay that is supposedly about like equal opportunity, but really is a way for hemp to capture more of the market, right?
01:09:01.920 --> 01:09:07.199
And then there are these like Sam arguments that we should take it slow and like this has been rolled out and devastating.
01:09:07.359 --> 01:09:10.319
So I don't have any special insight into what's motivating her here.
01:09:10.479 --> 01:09:16.800
All I can say is like what she's saying is very objectively dishonest and seems to be an amalgamation of those two talking points.
01:09:16.960 --> 01:09:25.520
And the final thing I want to say is like, I don't think you should be able to call yourself, there are some like cannabis associations that are calling for, you know, that have really been pushing her to delay.
01:09:25.680 --> 01:09:32.000
I don't think you can call yourself a cannabis advocate if you're trying to delay the moment where people will freely have access to this product.
01:09:32.159 --> 01:09:33.920
You're not a cannabis, you know, advocate there.
01:09:34.000 --> 01:09:36.960
You're some sort of like an economic, right, or a social justice actor.
01:09:37.119 --> 01:09:42.880
You should not be able to label yourself as a cannabis advocate if you're trying to delay how long it'll take to obtain adult use.
01:09:43.039 --> 01:09:45.920
So that's the situation in Virginia, unfortunately.
01:09:46.079 --> 01:09:46.239
Right.
01:09:46.319 --> 01:09:50.319
There is some discussion about, hey, maybe we'll fold it into the budget process this year.
01:09:50.479 --> 01:09:52.079
I'm not really that optimistic about that.
01:09:52.159 --> 01:09:53.119
I think there's talk about that.
01:09:53.199 --> 01:09:54.640
I would be thrilled if that's successful.
01:09:54.800 --> 01:09:55.840
I don't think that's gonna happen.
01:09:56.000 --> 01:09:57.840
I think we'll take another shot at it next year.
01:09:58.000 --> 01:10:03.840
I think we have to resign ourselves to the fact that adult use sales in Virginia probably don't start until 2028.
01:10:04.000 --> 01:10:06.399
Um, and look, everyone, everyone is pissed at her.
01:10:06.479 --> 01:10:09.840
So maybe this creates a fire, but I think we have to resign ourselves to that fact.
01:10:10.000 --> 01:10:19.039
And look, while I'm somewhat optimistic about what might happen on rescheduling, I think the challenging thing is both in Virginia and Pennsylvania, like you used to say, Jesse, right?
01:10:19.119 --> 01:10:22.159
Like state-led growth story with hard-to-time political catalysts.
01:10:22.319 --> 01:10:28.319
Now we have a better sense of the timing, perhaps of the political catalysts, but the state-led growth story has evaporated.
01:10:28.399 --> 01:10:33.920
And that's because Pennsylvania, Virginia, and Florida are big three, have not come online, right?
01:10:34.000 --> 01:10:38.239
Um, and we're still years away from all three of those big three that we've been talking about for years.
01:10:38.399 --> 01:10:41.439
And then I would say the other big three have been half-hearted.
01:10:41.520 --> 01:10:57.439
And those I would label as New York, Minnesota, and Ohio, three states that have come online that we have good reason to be excited about, but all of them are still operating at half of their potential, even though it's been five years since New York legalized, and three years since Minnesota legalized, and two and a half years since Ohio.
01:10:57.600 --> 01:11:02.159
So those six states explain why the state growth story has stalled.
01:11:02.319 --> 01:11:07.119
And look, there's some people that make the argument that the hemp ban will drive more demand to legal operators.
01:11:07.199 --> 01:11:14.720
And I think there's some truth there, but I am resigned to the fact that we're not going to see the level of growth we need to over the next couple of years.
01:11:14.880 --> 01:11:16.159
And that sucks.
01:11:16.479 --> 01:11:18.000
But that's the fact.
01:11:18.399 --> 01:11:23.279
Well, yeah, I mean, like to your like California's two and a half X off the market where it should be.
01:11:23.439 --> 01:11:27.760
Like, I mean, that's just you know, that alone is worth all those states, basically.
01:11:28.640 --> 01:11:35.119
Um, so it's pathetic about how these um politicians continue to, you know, be a big problem.
01:11:35.279 --> 01:11:51.600
But with with Virginia, um, I I tend to agree that this budget reconciliation is just a carrot dangling to kind of seem like they still are trying to do something, but uh, you know, it's like we're gonna pass safe banking in the special session at the end of the year, kind of thing, and years past.
01:11:52.159 --> 01:11:56.000
Um, so you know, we're there was never gonna happen.
01:11:56.159 --> 01:11:59.199
But um, I can say that now in hindsight that it was never gonna happen.
01:11:59.279 --> 01:12:01.840
But you know, at the time we all were hoping it was still gonna happen.
01:12:01.920 --> 01:12:04.800
But in this case, I think it's it's kind of like that situation.
01:12:04.960 --> 01:12:16.159
You know, the other challenge I saw, one of the one of the things that really stood out for me with her though was one of the reasons she vetoed it was because the she wanted to charge a much higher excise tax.
01:12:16.560 --> 01:12:30.319
And it's like, once again, we are not learning if she claims she's talking to these other governors, and I know to your point, like she's just been incoherent in her responses and like you know, totally waffling around, you know, so there's no real sense of it.
01:12:30.399 --> 01:12:38.079
But it's like if there's one thing that these governors should learn is that high excise tax does not actually penetrate the illicit market.
01:12:38.319 --> 01:12:52.319
If that's what we really care about doing, then you got to make sure that the playing field is level and so that businesses can have a fair shot at competition and you know, converting people that are easily accessing illicit product by doing so legally.
01:12:52.479 --> 01:12:55.039
Um, and then I saw that and I'm like, she just doesn't care.
01:12:55.279 --> 01:12:58.399
Like, clearly, she doesn't care about a legal market if this is her sense.
01:12:58.560 --> 01:13:02.960
She's not learning, she's not going out and talking to other governors of what's working, what's not working.
01:13:03.119 --> 01:13:07.359
She's just pushing whatever agenda that's she probably knows will just kill it.
01:13:07.520 --> 01:13:10.079
Or, you know, in her sense, she can just kill it.
01:13:10.239 --> 01:13:16.000
But it's just like seems like to me, is the Virginians sadly got hoodwinked and just elected the status quo.
01:13:17.279 --> 01:13:19.439
Totally devastating.
01:13:19.680 --> 01:13:25.359
Yeah, so it's a pretty good, it's a pretty concentrated landscape too in Virginia, if I recall correctly.
01:13:25.439 --> 01:13:29.520
Can you refresh us, Hirsch, on how the licensing's licensing works there?
01:13:30.000 --> 01:13:30.319
Totally.
01:13:30.560 --> 01:13:31.760
It is a concentrated landscape.
01:13:31.840 --> 01:13:36.399
And I'm sympathetic to people who are like, dude, carving the state up into five regions is monopolistic, right?
01:13:36.479 --> 01:13:38.399
So I I don't kind of dispute that at all, right?
01:13:38.479 --> 01:13:41.760
And there's good reasons to to kind of critique that existing infrastructure.
01:13:41.840 --> 01:13:46.720
But in in short, right, Virginia carved its state up into five health service areas, right?
01:13:46.800 --> 01:13:52.319
Um, and so basically divided up the state into five regions, and people won licenses in each of those regions.
01:13:52.479 --> 01:13:57.359
And so the existing operators there are GTI, Juci, and Verano, right?
01:13:57.520 --> 01:14:07.520
Um, and then there are a couple of other operators, historic operators, uh, Air and the Cannabis that had obtained licenses there, but those licenses have since been taken over by by Mill Street.
01:14:07.760 --> 01:14:10.800
So those are the five players uh in in Virginia.
01:14:10.960 --> 01:14:18.479
Um yeah, and I'll just say again, like if you want to see a more democratized marketplace, you can't say that and then say 350 stores are too many.
01:14:18.640 --> 01:14:20.479
Like if you want to open up opportunity, do it.
01:14:20.560 --> 01:14:24.960
Make it a more democratic market, but you can't say that and then say 350 stores are too many.
01:14:25.039 --> 01:14:26.720
That just doesn't square, right?
01:14:26.880 --> 01:14:30.800
So yeah, that felt terrible, Hirsch, when you said 2028.
01:14:30.880 --> 01:14:35.840
I totally appreciate the honesty, but man, this was a market we were talking about back, it feels like in 2024.
01:14:36.159 --> 01:14:39.520
And uh it sure is disappointing to see that get kicked down the road that far.
01:14:39.840 --> 01:14:40.239
Totally.
01:14:40.319 --> 01:14:40.560
Yeah.
01:14:40.640 --> 01:14:43.680
I mean, the Virginia legalized cannabis in 2021, guys.
01:14:43.840 --> 01:14:47.439
In 2021, they passed that when the Democrats they legalized it in 2021.
01:14:47.520 --> 01:14:49.840
And so that's one of the interesting arguments about waiting.
01:14:49.920 --> 01:14:52.079
It's like, why not wait five more years, guys?
01:14:52.159 --> 01:14:53.920
Like maybe we'll be ready then.
01:14:54.560 --> 01:14:56.880
You know, why not wait ten more years?
01:14:56.960 --> 01:14:58.800
So we're all prepared for this opportunity.
01:14:59.680 --> 01:15:10.159
Just one question before we pass move on to Pennsylvania is like, what what is a is a person living in Virginia, like what is the what's the lesson learned here?
01:15:10.399 --> 01:15:12.479
Like what you know what I mean?
01:15:12.560 --> 01:15:14.239
Like, what's kind of the takeaway?
01:15:14.800 --> 01:15:18.479
Unfortunately, is like, you know, politicians lie.
01:15:18.560 --> 01:15:28.479
Like, how do you know, like, if and most people are not single issue voters, but like like, you know, as what's kind of the learning lesson from where why we're still here?
01:15:28.800 --> 01:15:34.000
I would say, you know, we we treat it as a fact that politicians lie, but we have an obligation as citizens to hold them accountable.
01:15:34.079 --> 01:15:38.720
And there are certain like l levels of dishonesty that are so egregious that we should kind of speak up about them.
01:15:38.880 --> 01:15:44.399
So, you know, that's just I know we kind of like say that with resignation sometimes, but we should be angry about things like this.
01:15:44.560 --> 01:15:45.600
What is the lesson there?
01:15:45.760 --> 01:15:52.800
I mean, the one lesson is an indictment of the of the coherence and the organization of the Democratic Party, right?
01:15:52.880 --> 01:15:56.159
They had an overwhelming majority here and they weren't able to get this done.
01:15:56.319 --> 01:15:57.760
And it wasn't just on this issue.
01:15:57.840 --> 01:16:02.720
There's a host of other issues in which the Democratic legislature and the governor like couldn't see eye to eye.
01:16:02.880 --> 01:16:09.439
Um, it reminds me kind of of like that famous Will Rogers quote where he says, I'm not a member of any of any organized political party.
01:16:09.520 --> 01:16:10.640
I'm a Democrat, right?
01:16:10.720 --> 01:16:13.840
So like that's kind of like the the the perhaps the the lesson here.
01:16:13.920 --> 01:16:17.039
And so um look, what is your alternative?
01:16:17.119 --> 01:16:18.319
Are you gonna vote for a Republican?
01:16:18.399 --> 01:16:18.720
No, right?
01:16:18.800 --> 01:16:20.399
Because they probably wouldn't have passed this bill.
01:16:20.560 --> 01:16:25.039
But I think Democratic voters have every right to be kind of like um to be angry here.
01:16:25.119 --> 01:16:32.720
So I don't know if that's a great lesson, but like, but she didn't say what she was gonna do that that she campaigned on, and we should speak up about it.
01:16:32.960 --> 01:16:35.119
Yeah, so re-re-call Spamberger.
01:16:35.600 --> 01:16:41.199
Well, you know, the funny thing is Virginia governors only have one term, and so sometimes they don't care about like pissing off other people.
01:16:41.279 --> 01:16:47.039
Like she will be termed out in 2020, 2030 or whatever four years from now is, right?
01:16:47.119 --> 01:16:49.520
So um, yeah.
01:16:50.880 --> 01:16:53.199
Let's talk a little bit about Pennsylvania, Hirsch.
01:16:53.279 --> 01:16:58.079
That's been another one that's been on our radar, and we were talking, you know, you talked about around the Florida vote.
01:16:58.239 --> 01:17:02.000
We thought that fall was that 25, four, no, twenty-four, right?
01:17:02.159 --> 01:17:08.159
When Florida was on the ballot, and we thought that fall we might get Florida and PA and potentially Virginia around the same time.
01:17:08.239 --> 01:17:09.359
Here we are with none of them.
01:17:09.600 --> 01:17:11.199
Let's focus on Pennsylvania, Hirsch.
01:17:11.279 --> 01:17:13.199
What what in the heck is the holdup, man?
01:17:13.520 --> 01:17:19.520
Yeah, you know, the first thing about Pennsylvania is what continues to surprise me, and I don't have a good reason for this, and I'd love to hear anyone else's reason.
01:17:19.680 --> 01:17:23.600
Like Pennsylvania's sales continue to increase, even though its patient numbers are going down.
01:17:23.760 --> 01:17:28.720
So its patient numbers are kind of going down because it borders a bunch of states that have adult use, like Ohio now.
01:17:28.800 --> 01:17:31.039
And so I guess people don't register as patients.
01:17:31.199 --> 01:17:39.039
But in the first quarter, it did more than 450 million in sales in Pennsylvania, which was like six or seven percent higher than Q1 of last year.
01:17:39.199 --> 01:17:40.319
So that's one interesting thing.
01:17:40.479 --> 01:17:44.159
Pennsylvania sales continue to increase for some reason.
01:17:44.319 --> 01:17:53.680
I mean, one way to think about it is Pennsylvania is doing like pretty much the same sales as New York, even though Pennsylvania is a much smaller state than New York and it, you know, is medical.
01:17:53.760 --> 01:17:56.239
So just, you know, it's a little bit smaller, but not that much.
01:17:56.399 --> 01:18:01.039
Um, is there and so I guess the question is like, is there any hope of a bill passing in 2026?
01:18:01.119 --> 01:18:02.560
I don't think anyone thinks that, right?
01:18:02.640 --> 01:18:13.199
And you know, there like one one um one step that has been said that needs to happen before an adult use passes, adult use bill passes, is a cannabis control board bill passing.
01:18:13.359 --> 01:18:18.560
Like the state seems to want to develop a new regulatory body before they're ready to move to adult use.
01:18:18.640 --> 01:18:20.479
And even that bill hasn't moved forward.
01:18:20.720 --> 01:18:23.359
So nothing is happening in 2026.
01:18:23.520 --> 01:18:25.359
Now, why hasn't it moved forward?
01:18:25.600 --> 01:18:31.039
Like it, I think the most simple explanation is that the Republican Party has blocked it, right, in Pennsylvania.
01:18:31.119 --> 01:18:32.319
And that's not really a political comment.
01:18:32.479 --> 01:18:39.039
The current woman running for governor of Pennsylvania, Stacey Garrety, said explicitly, if the Republicans have power, we will never pass adult use.
01:18:39.199 --> 01:18:44.800
The Senate Majority Leader of Pennsylvania, Joe Pittman, has said, like, we will not bring this vote to the floor.
01:18:44.960 --> 01:18:49.760
So the simplest explanation for why it hasn't moved forward, right, is that the Republican Party has blocked it.
01:18:49.920 --> 01:18:54.960
Now, look, does is Josh Shapiro, despite being supportive, also using this as like a talking point, right?
01:18:55.119 --> 01:18:56.000
Like, of course, right?
01:18:56.079 --> 01:19:00.159
There are no pure political intentions on either side, but I think that's the simplest explanation.
01:19:00.399 --> 01:19:01.840
And going back to Virginia, right?
01:19:01.920 --> 01:19:08.239
Like, if Virginia had passed the way it we said it would, then I think we could say with more confidence, like, look what happened in Minnesota.
01:19:08.319 --> 01:19:10.960
You get unified democratic control, you finally pass a bill.
01:19:11.119 --> 01:19:14.720
Look what happened in Virginia, you have unified democratic control, you finally pass a bill.
01:19:14.880 --> 01:19:17.119
And you could make that same argument in Pennsylvania.
01:19:17.279 --> 01:19:26.960
And again, without getting into politics, like Josh Shapiro, the governor of Pennsylvania, in a pretty purple state, in a state that Donald Trump won, has like almost a 65% approval rating.
01:19:27.039 --> 01:19:28.000
Like it's insane, right?
01:19:28.079 --> 01:19:32.399
Regardless of your politics, like his he is really, really popular in that state.
01:19:32.479 --> 01:19:35.439
And he's facing an opponent that he's probably going to crush this November.
01:19:35.520 --> 01:19:39.840
And if passed his precedent, the incumbent party in the White House often loses seats.
01:19:40.000 --> 01:19:48.239
So, you know, it is reasonably likely that, you know, the Democrats could take the Senate in in Pennsylvania, you know, in these in these midterm elections.
01:19:48.399 --> 01:20:02.159
And so I guess if we're trying to be optimist here, the way that Pennsylvania gets unstuck is if Josh Shapiro and the Democratic Party in Pennsylvania have a really good midterm election, like win large majorities, and then he can do everything he wants the following year.
01:20:02.319 --> 01:20:11.039
The analogy I would make, guys, is like if you remember when Ron DeSantis ran for re-election in 2022, he was like, dude, I really want to win a big re-election in 2022.
01:20:11.199 --> 01:20:15.920
So going into the presidential campaign, I have this track record of winning big in my re-election.
01:20:16.239 --> 01:20:22.319
And right, after I win in 2022, I'm going to spend all my time in 2023 passing bills that my base wants.
01:20:22.399 --> 01:20:25.760
So when I run for president, like I can say all this good stuff that I've done.
01:20:25.840 --> 01:20:36.079
And so if you remember, that really strict abortion ban that DeSantis passed in Florida happened in 2023 because he won big in the election and then he passed all the priorities of his base.
01:20:36.159 --> 01:20:41.359
And then I obviously, if you remember, overturning that election ban became a feature of the Amendment 3 debate.
01:20:41.439 --> 01:20:42.319
That was Amendment 4.
01:20:42.479 --> 01:20:55.039
And so I use that analogy to say we can be most optimistic about Pennsylvania if the Democrats win complete control, right, um, of the government in Pennsylvania, which we six months from now we will know whether that's happened or not.
01:20:55.199 --> 01:21:00.880
Um, and uh, you know, one could say, well, like maybe they'll bungle it just like the Virginia like Democrats did.
01:21:00.960 --> 01:21:05.359
I happen to think that Josh Shapiro is a much more competent political actor than Abigail Spanberger.
01:21:05.439 --> 01:21:09.680
So maybe the optimistic spin I'll put on this is we've been waiting for a long time, it sucks.
01:21:09.840 --> 01:21:21.199
But if the Democrats in Pennsylvania win complete control, and if Josh Shapiro in January of 2027 is like, how can I get as much stuff done over the next eight months so then I can go campaign on it going into my presidential campaign?
01:21:21.359 --> 01:21:24.479
You could very easily see a world uh in in which it happens.
01:21:24.560 --> 01:21:26.720
So hopefully that happens.
01:21:27.359 --> 01:21:38.640
Morgan, remind me if you remember or Hirsch, um if you listen to these episodes and you remember, but I thought it was Jason Wilde or Boris mentioned something around Pennsylvania being much more likely after Schedule three.
01:21:38.800 --> 01:21:39.600
Does that resonate?
01:21:39.680 --> 01:21:41.439
And do either of you remember that comment?
01:21:41.760 --> 01:21:42.720
J Dubbs.
01:21:43.039 --> 01:21:43.279
Okay.
01:21:43.520 --> 01:21:43.760
Yeah.
01:21:43.920 --> 01:21:46.880
I mean, I I think um uh here's what I would say.
01:21:47.039 --> 01:21:48.239
I think that is definitely true.
01:21:48.399 --> 01:21:49.840
That that that is definitely true.
01:21:50.000 --> 01:21:54.800
Um, number one, S3 hasn't resolved itself yet, but like I think that is true.
01:21:54.960 --> 01:22:04.800
Um, and I think that's that's something a point that we've made generally about different states, that like Schedule Three will help help unlock Republican resistance in a bunch of different states, whether they be medical or adult use.
01:22:04.960 --> 01:22:06.319
Um I think that's true.
01:22:06.560 --> 01:22:13.680
I will also say, like, sometimes politicians just like say things and you can't, I mean, to our prior conversation, you can't really take them at their word.
01:22:13.920 --> 01:22:19.680
So I have no doubt that there are a number of Republican politicians that have said, once this happens, we'll be able to move forward.
01:22:19.840 --> 01:22:24.720
Um, but it's different, you know, that it's different for them to say that and for it to actually be true.
01:22:24.880 --> 01:22:36.239
And then maybe a structural point is no matter what every other Republican thinks in Pennsylvania, there is one person, Joe Pittman, the Senate majority leader, who decides whether to bring a bill to the floor or not.
01:22:36.399 --> 01:22:36.640
Right.
01:22:36.800 --> 01:22:43.199
So, like we live in a system of government where like one or two people can be a gum in the ointment and can impede this from happening.
01:22:43.359 --> 01:22:45.199
And so I think those are the dynamics here.
01:22:45.760 --> 01:22:47.039
Quick question on Pennsylvania.
01:22:47.119 --> 01:22:51.279
What do you know what the per capita uh consumption is at this point?
01:22:52.159 --> 01:23:00.800
I don't know the per capita consumption, but um, but the per capita sales have to be quite high because again, it's like a$1.8 billion market and 13 million people.
01:23:00.960 --> 01:23:03.760
But um I I don't I don't know the consumption.
01:23:03.920 --> 01:23:11.600
I I would imagine it's high because you know, Pennsylvania 50% of people in Pennsylvania live in what's called a border county, bordering another state where there is adult use.
01:23:11.760 --> 01:23:16.319
So cannabis is is quite available um legally in state or out of state.
01:23:17.279 --> 01:23:27.119
So to like to that point of like Virginia, Virginia could 4X just if they had a more normalized medical access program.
01:23:28.800 --> 01:23:36.479
You know, so like to your point, instead of a 10xing if it went to adult use, they could still close a tremendous amount of that gap while we're sitting around waiting.
01:23:36.560 --> 01:23:41.439
Is there any talk in Virginia about expanding medical qualifications?
01:23:42.000 --> 01:23:42.960
It's a great question.
01:23:43.119 --> 01:23:50.479
Um, and we have seen in states before sometimes when they fail to pass an adult use law that creates momentum for an expansion of the medical program.
01:23:50.640 --> 01:23:57.199
Some examples of this are like Hawaii and New Hampshire, which, as you guys know, are small states but have been flirting with adult use for a long time.
01:23:57.359 --> 01:24:00.960
Adult use fails, and then there's kind of a compromise to expand medical.
01:24:01.119 --> 01:24:03.119
So that would be a really positive development, Morgan.
01:24:03.199 --> 01:24:07.600
I think you're totally right to say the medical program in Virginia has a ton of room to grow.
01:24:07.840 --> 01:24:09.680
Have I seen any real movement there?
01:24:09.920 --> 01:24:10.800
Not yet.
01:24:10.880 --> 01:24:16.079
And I guess the question would be like, does it need to happen legislatively, in which case we'd have to wait until next year?
01:24:16.159 --> 01:24:27.840
Or are there some administrative or or regulatory things that you can do to just like ease the process of obtaining a card, for example, or some state regulators have the power to expand qualifying conditions?
01:24:27.920 --> 01:24:31.920
And so I think that would be the question is if they're able to do it um administratively.
01:24:32.319 --> 01:24:37.199
Yeah, because I mean you look at Florida when they didn't pass, then what happened?
01:24:37.439 --> 01:24:42.560
Patient counts started increasing, and now Florida looks like California did before Prop 64.
01:24:42.640 --> 01:24:46.880
You just go to a strip mall doctor and you get your card and you're you're good to go.
01:24:47.199 --> 01:24:58.000
You know, it's like it's basically, you know, it is a light or heavily regulated adult use, but it's but access is is dramatically expanded.
01:24:58.239 --> 01:25:07.119
Um and so maybe we'll see that whiplash kind of effect in Virginia, which would still be great for people um to get a much broader access.
01:25:07.199 --> 01:25:17.199
I don't know how that would work with all the licensing as you were talking about, with it, how they have it all you know segmented out, but um, you know, it could still grow meaningfully in the meantime.
01:25:17.439 --> 01:25:23.840
Might, you know, one ultimately get that big inflection down the road, but you know, there still is opportunity in those state in that state.
01:25:24.000 --> 01:25:30.479
I mean, you know, to your point about Pennsylvania, I mean, it's taken years and years and still not there, but it's become a very large medical market.
01:25:30.640 --> 01:25:34.479
$1.8 billion market is it's a it's a good sized market.
01:25:34.720 --> 01:25:35.119
Totally.
01:25:35.439 --> 01:25:36.800
It's huge for sure.
01:25:37.199 --> 01:25:38.319
It's a big market, Morgan.
01:25:38.560 --> 01:25:40.239
It's a big MSO market too.
01:25:40.399 --> 01:25:47.439
And because of the you know, investing focus of the show, I think it's important when we look at states to identify like, does this move the needle in the public operators?
01:25:47.680 --> 01:25:55.359
Yeah, some states like Missouri, which is you know a great state, big success story, but not a big MSO state, but big on the private side.
01:25:55.680 --> 01:26:02.720
Pennsylvania is the opposite, or Pennsylvania is a huge state where almost every every big MSO has planted flags in major ways.
01:26:02.880 --> 01:26:12.960
Um, you know, I have true, I could be off on these, um they're a bit dated, but I have True Leave with 19 doors, Cresco, Kierleaf, GTI, and Juicy with 18.
01:26:13.119 --> 01:26:16.079
So, guys, Juicy coming up in both of these conversations, right?
01:26:16.239 --> 01:26:20.800
Double-edged sword there, lots of opportunity when these markets open, but sure is painful to wait.
01:26:20.880 --> 01:26:25.279
And Juci might be the one that's most levered, you know, to both of these states.
01:26:25.600 --> 01:26:33.279
Terracend just has six doors there, um, but they have 150 square feet of cultivation, which I believe is their second largest growth facility.
01:26:33.439 --> 01:26:35.680
I think they're a big player in the wholesale market there.
01:26:35.840 --> 01:26:40.079
And they've skipped over, sorry, Aaron Miles skipped over Veronto with 17 doors.
01:26:40.239 --> 01:26:47.840
So, man, you pretty much just go down the who's who's of MSOs, and you know, they have big operations in uh in Pennsylvania.
01:26:48.319 --> 01:27:01.920
So, you know, kind of reflecting, guys, as we you know get towards wrapping the show here, it feels like we're in a bit of a different spot, Hirsch, which I think you highlighted, which is that for a while we were doing well on the growth side.
01:27:02.159 --> 01:27:05.520
We had this set of dominoes that we expected to fall.
01:27:05.680 --> 01:27:07.920
And I was thinking about exactly what you brought up, Hirsch.
01:27:08.079 --> 01:27:11.840
You know, I kept saying it's a state-led growth story with a series of hard-to-time catalysts.
01:27:12.000 --> 01:27:16.319
That's still the thesis, but at some times you're gonna be feeling one side more than the other.
01:27:16.399 --> 01:27:19.760
And I feel like for a long time the growth path was a little bit more clear.
01:27:20.000 --> 01:27:35.600
Now, between new states, Florida, Pennsylvania, Virginia in particular, taking more time and the intoxicating hemp market, eating into it, we're in a spot where we're at flat, flatline growth, specifically for the bigger, more diversified companies.
01:27:35.840 --> 01:27:38.560
If you're in fewer states, it's going to be quite different.
01:27:38.640 --> 01:27:42.800
If you're just California or just Florida, you might have a little bit different trajectory.
01:27:42.960 --> 01:27:49.760
But for these big MSOs that are largely levered to the state led growth story, we're on a bit of a pause here on that side.
01:27:49.920 --> 01:27:53.920
Maybe the toxicating hemp market brings some of those dollars back in.
01:27:54.079 --> 01:27:59.680
But then the flip side is we're seeing these new opportunities on the federal side, new opportunities around Schedule three with.
01:28:00.159 --> 01:28:01.359
Obvious 280E removal.
01:28:01.439 --> 01:28:02.960
Awesome to see that going forward.
01:28:03.199 --> 01:28:06.880
Seeing marginal more interest in investors, having better conversations.
01:28:06.960 --> 01:28:08.640
You know, with Leaf, we've been raising some capital.
01:28:08.720 --> 01:28:12.239
Man, we've been bringing in much better investors, great family offices.
01:28:12.399 --> 01:28:18.399
Some of my favorites are people that are uh you know portfolio managers at big funds, but invest their personal capital with you.
01:28:18.479 --> 01:28:20.000
I think those tend to be great investors.
01:28:20.159 --> 01:28:25.199
So starting to bring more people over the wall on the rescheduling side, I think there's good progress there.
01:28:25.520 --> 01:28:27.680
Add in the export and the interstate.
01:28:27.760 --> 01:28:29.920
I think that side suddenly is pretty exciting.
01:28:30.079 --> 01:28:37.439
But unfortunately, it's hard to put those two pieces together to marry the state's the state-led growth story with the political catalysts.
01:28:37.680 --> 01:28:44.880
And I think on the show here, you know, we don't want to be just blindly optimistic and just painting a rosy picture because that's what we think people want to hear.
01:28:45.119 --> 01:28:46.880
I think it's good to be honest about where we are.
01:28:46.960 --> 01:28:54.159
And I think there's a lot of positives going on, but I think you have to look at the state-led growth story and feel like we're, I don't think it's necessarily a stumbling block.
01:28:54.239 --> 01:28:55.439
It's just a pause.
01:28:55.680 --> 01:28:59.760
And maybe this means down the road, there's got to be a year, maybe it's 28.
01:28:59.840 --> 01:29:06.800
I don't know what it is, where three or four or five big states suddenly fall, but it looks like it's gonna be dry here for a little bit in the meantime.
01:29:07.199 --> 01:29:09.199
I think unfortunately that's correct.
01:29:10.000 --> 01:29:10.640
Yeah.
01:29:11.199 --> 01:29:15.840
Borgett, any closing thoughts before I uh say thanks to Flow Hub and get us out of here?
01:29:16.880 --> 01:29:19.680
No, I mean, this is this has been great, Hirsch.
01:29:19.920 --> 01:29:21.920
Really appreciate this conversation.
01:29:22.079 --> 01:29:24.239
Um, so this has been a good update for me.
01:29:24.319 --> 01:29:30.720
Um, just kind of hearing because I I haven't been staying as close to all this um, you know, rescheduling stuff.
01:29:30.800 --> 01:29:34.479
I've just been trying to patiently wait for the hearings and see how things go.
01:29:34.560 --> 01:29:38.479
So I appreciate sharing the all your insights with us over the last hour and a half.
01:29:38.720 --> 01:29:39.039
Totally.
01:29:39.119 --> 01:29:39.920
It was awesome, guys.
01:29:40.000 --> 01:29:40.720
Thank you.
01:29:41.199 --> 01:29:44.960
And thank you again to FlowHub for making today's show possible.
01:29:45.119 --> 01:29:53.039
Whether you are a big MSO with 100 dispensaries or you're a simple guy like me and you just had one store, you need the best software to win.
01:29:53.279 --> 01:29:56.079
Make your life easier and make your store more profitable.
01:29:56.319 --> 01:29:59.279
Go to FlowHub.com and book a demo today.
01:29:59.439 --> 01:30:02.640
So thanks, Kyle, the whole team uh for supporting higher exchanges.
01:30:02.720 --> 01:30:06.159
They're awesome guys to work with and love that they have a great product product as well.
01:30:06.399 --> 01:30:07.920
So thank you again to FlowHub.
01:30:08.239 --> 01:30:10.239
Hirsch, thank you for your time coming back.
01:30:10.319 --> 01:30:13.439
You know, thank you for all the offline conversations that we have.
01:30:13.600 --> 01:30:19.439
You're one of the bright lights, bright stars, most articulate, but also just overall a good human being in the space.
01:30:19.520 --> 01:30:23.039
So lucky to have you and thank you for always coming back on Higher Exchanges.
01:30:23.439 --> 01:30:24.640
Thanks, guys.
01:30:24.960 --> 01:30:27.039
Morgan, always good to talk to you, my friend.
01:30:27.119 --> 01:30:29.680
We'll see you guys back here in a couple of weeks.
01:30:29.840 --> 01:30:30.720
Go over to YouTube.
01:30:30.800 --> 01:30:32.000
Don't forget to subscribe there.
01:30:32.079 --> 01:30:34.960
And also on Apple Podcasts if you're a video person, check that out.
01:30:35.039 --> 01:30:36.560
Hopefully that's working as well.
01:30:36.720 --> 01:30:38.159
And I'll end it with a read.
01:30:38.319 --> 01:30:41.840
The views expressed as podcasts are provided for informational purposes only.
01:30:42.079 --> 01:30:44.880
Nothing we said should be considered research or a recommendation.
01:30:45.039 --> 01:30:49.039
All investing involves risk, including the loss of principle.