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This Is Weighing Down Multi-State Cannabis Operator Profitability

You’re reading a copy of this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015. The newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news. Subscribe to receive our free weekly newsletter in […]

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You’re reading a copy of this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015. The newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news.

Friends,

This was a banner week for the American cannabis sector, with blowout revenue from not only GTI and Trulieve, which reclaimed the top spot among MSOs with annualized revenue for both at about $500 million, but also for some of the other operators that reported. Across the board, revenue is growing more rapidly than expected. Perhaps even more importantly, operating margins are improving quickly, leaving these companies on stronger financial footing.

As cannabis companies are becoming profitable, their financials are revealing just how punitive the federal taxation for cannabis operators can be. For those not familiar with 280E, it is a federal statute that disqualifies all expenses beyond cost of goods sold for businesses involved in trafficking of Schedule I or II substances that was created in the 1980s. The result is that state-legal cannabis operators can pay extremely high tax rates.

Looking at the most recent quarterly reports for GTI and Trulieve, the tax burden demolished pre-tax income, leaving GTI with an after-tax loss and Trulieve with a puny net profit:

We are excited to see select MSOs generating pre-tax income, but we believe that many investors may be unaware of the extraordinary tax burden on cannabis operators and that this should be considered when valuing companies. We have seen no discussion of this among the analyst community or the financial media, and we note that the most common valuation metrics that analysts use, Enterprise Value to Sales and Enterprise Value to EBITDA, totally disregard taxation.

While we are hopeful that the burden of 280E will go away soon, it’s not clear how that will play out. Full legalization or descheduling would address the issue, but it would take government action to change the current system otherwise. We don’t expect that the government will just do away with 280E. Instead, it is likely to implement some sort of federal sales tax, though this seems improbable absent legalization. We fear that the status quo or even legislation that codifies the rights of states to regulate legal cannabis will leave this onerous burden intact.

In our view, investors should give thought to how long the MSOs will be forced to pay high federal taxes. If one thinks this is a short-term issue soon to be rectified, it’s not important. On the other hand, 280E taxation could weigh down on net income and cash flow for years to come potentially, something that will diminish the value of the companies. Additionally, we note that many of the MSOs took advantage of extended tax payment deadlines this year, which beefed up cash flow from operations and cash balances. Beginning in Q3, balance sheets and cash flow statements will reflect these payments.

While direct cannabis operators are subject to 280E, this is not the case for ancillary companies, CBD sellers or cannabis operators in Canada and other federally legal regimes. When evaluating investments across the sector, we believe that investors should take the levels of taxation into account.


As an early pioneer and leading provider of ancillary products and services to the cannabis and CBD industry, KushCo Holdings has since sold over 1 billion units to growers, processors, producers and brands. The company’s relationships with many MSOs, LPs and brands allow it to continue to capture market share across a rapidly growing industry. After a trying year, KushCo has been able to successfully cut costs dramatically in order to sustain itself in efforts to move towards positive EBITDA. With a renewed and lean business model, the company is poised for both revenue growth and profitability as 2020 progresses.

Get up to speed by visiting the KushCo Holdings Investor Dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button in order to stay up to date with their progress.


New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:


To get real-time updates download our free mobile app for Android or Apple devices, like our Facebook page, or follow Alan on Twitter. Share and discover industry news with like-minded people on the largest cannabis investor and entrepreneur group on LinkedIn.

Get ahead of the crowd! If you are a cannabis investor and find value in our Sunday newsletters, subscribe to 420 Investor, Alan’s comprehensive stock due diligence platform since 2013. Gain immediate access to real-time and in-depth information and market intelligence about the publicly traded cannabis sector, including daily videos, weekly chats, model portfolios, a community forum and much more.

Use the suite of professionally managed NCV Cannabis Stock Indices to monitor the performance of publicly-traded cannabis companies within the day or over longer time-frames. In addition to the comprehensive Global Cannabis Stock Index, we offer a family of indices to track Canadian licensed producers as well as the American Cannabis Operator Index.

View the Public Cannabis Company Revenue & Income Tracker, which ranks the top revenue producing cannabis stocks that generate industry sales of more than US$10M per quarter.

Stay on top of some of the most important communications from public companies by viewing upcoming cannabis investor earnings conference calls.

Discover upcoming new listings with the curated Cannabis Stock IPOs and New Issues Tracker.

Sincerely,

Alan & Joel

Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online communities 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email


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Source: https://www.newcannabisventures.com/this-is-weighing-down-multi-state-cannabis-operator-profitability/

Heartland

My experience with CBD

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I will not spend an hour summarizing my mental health. I will just say that for years I have been plagued by depression, anxiety, antisocial feelings, and over the past year or so a feeling of brain fog. I was diagnosed with ADD as a child and they decided I didn’t have it 2 years later but I know I likely still do. I decided to finally give CBD from the local Rite aid a try. After 4 days I can say that the brain fog is gone. A week ago I couldn’t even explain the feeling that plagued me. I still don’t feel anything close to a normal person but I can say that I have a better ability to process my brain that I haven’t felt in years. I reccomend anyone who is interested give CBD a try. I only hope the clowns in our country can get past the marijuana BS that they try to strong along and connect to CBD.

Source: https://www.reddit.com/r/CBD/comments/jlasaf/my_experience_with_cbd/

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Heartland

Anyone tried 10DollarCartridge CBD carts?

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Visit our community site for vetted suppliers at http://theCBD.place. It’s time that this subject was given more internet exposure. We are here to discuss topics related to medical marijuana and our experiences using CBD. Please do not assume that anyone here is a medical professional.

Source: https://www.reddit.com/r/CBD/comments/jl95ga/anyone_tried_10dollarcartridge_cbd_carts/

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Heartland

Anxiety and ADD?

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I went to a doctor to try and sort out my anxiety issues, they are becoming a bit much to self manage. They put me on Prozac and it was a complete nightmare, the side effects were horrible, not to mention all of the unspoken rules that came along with it, no drinking, no ibuprofen, and countless others.

I am a regular THC user and that seems to help control my anxiety in the evenings but I obviously do not use at work which is where the problem lies.

I have issues with general anxiety, social anxiety, and add. Can CBD help me? How do I know how much to take, and do I have to keep taking it as in does it wear off ever couple hours? I dont know anything about this stuff but I know that Prozac is NOT for me!!!

Source: https://www.reddit.com/r/CBD/comments/jl7gfk/anxiety_and_add/

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