Tag Archives: Marijuana

Business, Politics

10 Years of Legal Weed: Fewer Opioid Deaths, More Jobs and Tax Revenue

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I got an interesting message in my e-mail this morning. The NPR Planet Money newsletter reviewed the prior nearly ten years in legal marijuana in some states, and came to some interesting conclusions:

What’s changed:

  • More marijuana use
  • Way more jobs
  • Way more tax revenue. California makes over $600 million a month.

What hasn’t:

  • No effect on crime or traffic accidents
  • No change in price of marijuana. Evidently the product and service at the legal stores is so good people prefer it to anything else.

What might have:

Use of opioids. In the working paper linked from the newsletter, I found this incredible stat:

…Chan, Burkhardt, and Flyr (2020) show that RMLs [recreational marijuana laws] reduce opioid mortality by 20% to 35%, implying that both opioid use and misuse decline as legal marijuana access expands.

Given the mass death caused by opioids, this alone seems like reason enough to legalize marijuana in my book.

I read this newsletter with particular interest since I live in New Jersey, which recently legalized marijuana but doesn’t yet have weed stores the way California, Colorado and other states do. It looks like we mostly have positive changes to look forward to.

For more posts on politics and news, check these out:

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Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

Photo: “Vancouver Global Marijuana March 2015 – by Danny Kresnyak” by Cannabis Culture is licensed under CC BY 2.0

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Business

Big Loans at Almost No Interest for Sundial Insiders Are a Rip Off For Shareholders

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They say the best way to rob a bank is to own one. Turns out that’s true for weed farms, too.

I came across an interesting piece of info deep in Sundial Growers’ financial statement. Two employees have taken out loans totalling $200,000 (CAD) from the company at almost no interest.

But first, if you’re not familiar, what is Sundial Growers? The Canadian cannabis company is a favorite of Reddit’s Wallstreetbets, but it’s losing a fortune and may not be around much longer (more info on that here and here).

These employees (presumably top executives, not low wage bud tenders) got these loans at between 0 and 1.5% interest. See this section of their financial report:

Good luck finding a personal loan at a bank that cheap. If a bank won’t loan these guys money at such low rates, why should the shareholder? This is a rip off for shareholders.

This is particularly egregious in a company that is losing a fortune and could be out of business soon. When employees are in danger of losing their jobs and the company is in danger of losing 100% of the shareholders’ money (the usual outcome in bankruptcy), low interest loans to insiders are particularly gross.

I’d avoid this stock like the plague. But do consider applying for a job there if you need a cheap loan! 🙂

For more about another Wallstreetbets favorite, Gamestop, check out this post.

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Photo: “Bear & Moneybags” by edenpictures is licensed under CC BY 2.0

Business

Reddit’s Favorite Stock Is Losing a Fortune And May Be Headed for Bankruptcy

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How do you lose money selling weed in a pandemic when everyone’s stuck at home? Sundial Growers, Inc. has found a way.

Sundial is the darling of Reddit’s Wallstreetbets. It’s mentioned far more than any other stock currently:

But popularity on Reddit may not save this failing business. It lost $176 million (CAD) in the first 9 months of 2020 (much more than in 2019), despite a growing cannabis market:

How? Part of the story is something called “inventory obsolence.” Sundial lost $38 million because of it in the first three quarters of 2020. Sounds like their weed isn’t selling and winds up sitting in warehouses until it’s no longer any good.

Revenue growth is minimal. Gross revenue only went from $51 million to $56 million, if you compare Jan-Sept of 2019 to 2020. Growth is poor enough that Sundial is actually shutting down parts of their grow operation. From their financial report:

Due to decreasing estimates for the size of the potential Canadian cannabis market, the Company has curtailed the number of flowering rooms being used for cultivation at its Olds facility.

The situation is so bad that the company may soon run out of money. Sundial had $21 million in cash left as of 9/30/20. They burnt $25 million in the first 9 months of the year. Are they gone 9 months after that (mid-2021)?

The one thing keeping them afloat is reprieves from lenders and selling more shares. They’ve done new share sales on a grand scale, which means you own less of the company:

Any delay or failure to complete any additional financing would have a significant negative impact on the Company’s business, results of operations and financial condition, and the Company may be forced to curtail or cease operations or seek relief under the applicable bankruptcy or insolvency laws.

And the patience of those lenders is already probably running out, since Sundial keeps violating its loan agreements with poor performance. Sundial is:

in non-compliance with its loan covenants (note 11a) as at December 31, 2019 and March 31, 2020.

Those lenders forced the sale, at a loss, of a major asset recently: the Bridge Farm, that was supposed to sell CBD to the UK market.

The overall picture is of a company selling off some operations, shutting down others, burning cash faster than they can get customers to burn their weed, and barely skirting bankruptcy.

My friends at Reddit might get lucky if they can pump up the price enough by getting other small traders to buy in. But the risk here is off the charts. It’s a fundamentally terrible business and it would be hard to even engineer a short squeeze like they did on GameStop. (If you’re not familiar with short squeezes, read this.)

Bottom line: the fundamentals are terrible and the technical factors aren’t much better. Pass on this one and live to fight another day.

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Business

GameStop Tanked, So Wallstreetbets Is Moving to Pot Stocks. They’re Headed for Trouble.

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Vice President Kamala Harris introduced a bill to decriminalize marijuana as a senator.

GameStop was the darling of the merry band of traders on Reddit’s Wallstreetbets. Then this happened:

Ouch. Now the community is looking for its next play. I nosed around the message board a little today to see what that might be.

Wallstreetbets users are increasingly enthusiastic about marijuana stocks, in particular two companies called Sundial Growers, Inc and Tilray, Inc. Though both took a hit today, they are up significantly in the last month as the online buzz builds.

Reddit seems to have two main theories on why these stocks will continue to rise: a short squeeze and/or decriminalization of marijuana at the federal level in the United States. (If you’re not familiar with short squeezes, check out this post for a quick explanation.)

But their position here looks much weaker than with their last love, GameStop.

GameStop was much riper for a short squeeze than Sundial or Tilray. As of Dec 31, 2020, 71 million GameStop shares had been sold short. This is more than all the shares in GameStop that exist (70 million)! This can happen because the same share can be borrowed and sold short many times.

Meanwhile, Sundial and Tilray are nowhere near as heavily shorted. Sundial has 5% of shares sold short, and Tilray is at 19%. Compared to over 100% for GameStop, the likelihood of a short squeeze looks much, much lower.

Maybe marijuana gets decriminalized in the US. But maybe not. In any case, the Reddit traders aren’t likely to have any special information on that (nor do I). Everyone buying and selling Tilray and Sundial know about that possibility already. So it’s hard for the Reddit traders to get an edge.

Even if marijuana is legalized in the US tomorrow, Tilray and Sundial may not make a dime on it. Why? Both companies are based in Canada! To say that marijuana may be legal in America is one thing…to say we’re going to let it come across the border rather than favor our own domestic producers is quite another. Remember that we’re in a jobs crisis, so the good move for politicians is to (at least appear) to support jobs in the US.

So these are two possible rational cases to buy into these money losing companies. But what I notice over and over on Wallstreetbets is the lack of any justification at all, with people simply repeating the names of stocks over and over. Maybe Wallstreetbets doesn’t need much of a theory…they just need to get their fellow traders involved. (Or maybe it’s increasingly populated by bots.)

Thing is though, without any real rational basis for holding the stock, that same group of traders will have to get out eventually. What’s supporting the stock then?

Wallstreetbets would be better served buying broad index funds and waiting for corporate America’s money machine to work its predictable magic. But that’s just not as fun, is it?

I find this roving band of Reddit traders a very interesting phenomenon in markets. But I won’t be joining them any time soon.

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Photo: “Kamala Harris” by Gage Skidmore is licensed under CC BY-SA 2.0