The Cannabis Industry Scares Me
I am a big fan of the New York Times, and I appreciate its coverage of the cannabis industry. Sometimes it shares good promising news, and sometimes it warns of things. Today, its piece about the industry was a big warning for consumers.
The piece, which had four authors, warned the public about potency issues (very high THC). I have no issue with high potency, but there are potential problems, as the piece suggested.
The article named some companies that are big but that I don't know that well: Stiiizy and Cookies. Neither are publicly traded, nor do they share a lot of information. The authors, citing the work of BDSA and Headset, claimed Stiiizy is the "best-selling cannabis brand in America" and that Cookies, which operates dispensaries, has issues with potentially false medical claims. Cookies is run by a very famous person, Gilbert Milam Jr. (Berner). I know of the company because on of the cannabis stocks I follow, TerrAscend (TSNDF) uses their brands for its stores. There is no mention of TerrAscend on the Cookies website, and the TerrAscend 10-Q filed in November mentions only that it owns the majority (95%) of a store in Toronto that is Cookies Canada. The 10-K filing from last March mentions Cookies a lot, including that it manufactures the brand for sale in some of its states of operation (Maryland, Michigan, New Jersey and Pennsylvania) and operates Cookies dispensaries in Michigan (5) and New Jersey. The TerrAscend website continues to include that it is partnered with Cookies. Cookies products, it says, are available in California, Maryland, New Jersey and Pennsylvania. Interestingly, they don't appear to sell Cookies products in Michigan.
The authors claim that 16 of 20 of the largest brands are potentially making false claims about medical benefits, which is in violation of federal and state regulations. Being federally illegal, cannabis doesn't get the kind of research that is necessary regarding risks and opportunities. Some may not realize this, but a publicly-traded British company, GW Pharma, which is now part of Jazz Pharmaceuticals (JAZZ), was able to get an approval of a product made from cannabis. The product, Epidiolex, was approved in 2018 and is still marketed for treating severe forms of epilepsy. In the first three quarters of 2024, Jazz sold $697.4 million of Epidiolex, up 15% from a year earlier. Full year results, to be released in February, would be $975 million if they 2024 sales increase by 15% for the full year.
The article discusses a lot of challenges from cannabis being federally illegal, but it left out the biggest one that I see: 280E taxation. Rescheduling, if it takes place, will eliminate it, which will help the cannabis operators in America with cash flow and handing their debts. When it comes to health claims, this is what the article said:
The Times examined product listings on Weedmaps — a major cannabis e-commerce website — posted for 20 of the country’s top-selling cannabis brands. Of those, 16 had products that potentially violated F.D.A. rules, because the descriptions included health claims.
They invoked dozens of conditions, including depression, anxiety, insomnia, inflammation, post-traumatic stress disorder, swelling, migraines, cramping, hypertension, arthritis, muscle spasms, mood swings, asthma, anorexia, P.M.S. and attention deficit hyperactivity disorder.
Descriptions on Weedmaps for the brand Cookies implied that some products could help treat bipolar disorder and other health problems. Listings for products from another company, Illicit, said they could help with symptoms of multiple sclerosis and Parkinson’s disease.
I think that telling people things like these health claims is terribly wrong, even worse than the underlying challenge of a lack of medical research. I believe that cannabis does have the ability to help a lot of things, but we need studies.
The article made the point that the FDA has warned sellers of hemp-derived cannabinoids have been warned by the agency, but that the issues aren't about health claims. They quote Shaleen Title, who I know, and she explained that the state regulators are overwhelmed. The article also mentions a problem with Green Thumb Industries (GTBIF), which I follow closely. Some of its Rise dispensaries have continued to make health claims online.
I don't think the article did a good job of discussing the ongoing war within the cannabis industry of hemp-derived products, which are federally legal under the Farm Act of 2018, and the state-regulated cannabis industry. I have discussed this at New Cannabis Ventures in the newsletter, in August, questioning whether the cannabis industry that I follow, the state-regulated medical and adult-use cannabis providers, faced an opportunity or a threat from hemp-derived products.
I followed that first piece up with a piece near the end of September that THC from hemp was heating up, detailing how one big cannabis company, Tilray Brands (TLRY), was seeing hemp products as an opportunity. Then, near the end of November, I pointed to a move that I described as silly. A NASDAQ-listed company, Agrify (AGFY) had sold stock. I detailed the connections between it, a failed ancillary products company becoming a THC beverage company, and Green Thumb Industries, and I warned readers that Agrify was overdone. Agrify has dropped a lot since then. There are some other publicly traded companies that seem like scams to me that are getting involved in hemp-derived cannabinoid beverages, but most of the state-regulated players are laying low. By the way, I think that both Cookies and Stiiizy sell products derived from hemp.
How this all plays out remains to be seen. I am for legal cannabis, but it needs to be thoughtfully regulated. Yes, everyone should have access to cannabis, whether through stores or being able to grow it, but it needs to be safe. Consumers need to be protected from fraud too. I don't expect the federal government to legalize cannabis soon, but I don't expect that it will push back against the states that have legalized it within their states.
Some states are pushing back against the THC products that are coming out (derived from hemp or synthetically), and the federal government is contemplating a change in the rules that allowed this to happen. Here in Texas, which is a great state but sucks when it comes to cannabis, Dan Patrick, the Lieutenant Governor, has been pushing legislation to ban all THC. I don't care for Dan Patrick at all, but I actually think that we need to regulate the gas stations and vape stores that are selling these products without any regulations. Texas, a really bad medical cannabis state, is not the only one moving in this direction.
I titled this in a way that describes how I feel about this industry, which I have been covering now for a dozen years. I am scared about 280E remaining in effect, and I am also concerned that greedy people are just trying to make money without caring about the consumers, many of whom have health issues. I have met many people who fall into this category over the years.
I met Adam Bierman, a co-founder and formerly the CEO of MedMen, which is now bankrupt and tumbling, at a conference in Las Vegas in 2014. What times they were! Colorado had launched its adult-use cannabis sales on January 1. Bierman, who just published a book, Weed Empire:

I haven't read the book, but I know a lot of the story. He founded MedMen as a California dispensary operator and expanded rapidly. I visited one of the MedMen stores in Las Vegas. Most recently, I visited one of their medical dispensaries in New York, now closed. It was actually on 5th Avenue. Adam was fired in 2020.
I included MedMen in my coverage list of cannabis stocks. The last time I spoke with Bierman was in 2018, when I was on vacation with my wife in Canada. There was some news, and I called him from my hotel room. My wife heard the screaming on both sides. Adam had done something that made me wonder about him, and he seemed to think that shareholders should appreciate him and his efforts.
Near the end of the year and then at times in the next year, I emailed him a few times, and he did respond by email. On November 17th (a Saturday!), they revised a capital raise, and I wrote an article at New Cannabis Ventures about how they lowered the price. Adam emailed me about the press release having been published. The series of exchanges ended with an email from Adam that I appreciated:

I asked him late in the year about a cash burn situation, but I never heard back from Michael Kramer ever.

New Cannabis Ventures interviewed Adam and published the piece the following day, September 26, 2019. The interview was about how MedMen was pursuing an opportunity to become a national cannabis retailer.
When I received a "tip" through a form provided by New Cannabis Ventures in 2019 on November 4th, I reached out to Adam by email:

I never heard back or communicated with Adam again. The last MedMen article we published was about its evaporation near the end of 2023. All of our MedMen articles, mostly its press releases, are here.
I followed MedMen stock but quit following it in early 2020. I didn't especially like Adam, as I learned over time that he was just trying to make a lot of money. Yes, there are worse people in the industry, including his nemesis Jason Adler of Gotham Green from what I can tell. MedMen was a bad story that ended very poorly. Sadly, there are lots of disasters among the publicly traded or former publicly traded cannabis companies.
280E taxation and the greed of people both scare me, and the potential mistreatment of individuals does too. Making false health claims is a big one! I have been scared before during the past 12 years, initially that investors were too bullish on this industry in 2014 and then at other points. I am pretty bullish now, as I have conveyed, and it is very lonely. This doesn't scare me!
If you are interested in learning more about cannabis stocks, I do write about them on this blog at times. I am happy to help you more through my newsletters at New Cannabis Ventures (free and open to the public), my service at 420 Investor or my articles at Seeking Alpha:
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