March 28, 2019

The New York Times published an article today titled, “Why the Plan to Legalize Marijuana in New Jersey Suddenly Unraveled.”

I have been studying and investing in the cannabis industry since February 2014 (greater than 5 years.) The following are some quick thoughts and responses to the article. I did find the article generally informative, but some quirks that I picked up on, only because of my 5+ years of studying the industry.

1. I wouldn’t call it an “unravel.” Lawmakers tried passing this quickly, and understandably, with at least 3 or 4 votes shy, legislatures tabled it to as early as May. They decided to pull out of the vote, at last minute, as they were concerned it wouldn’t pass. They will bring it back as soon as they have the votes, and in my opinion, that will happen in 2019. I would prefer it is done legislatively, rather than a vote, as it would be a more fluid process. It is estimated that if voted now by the people, legalization would win with at least 60% of the vote.

2. Disagreements clearly exist, and I believe in time will be remedied. This is due diligence, and a normal process. Just wasn’t good to throw down the throats of those not convinced.

3. Article cited increased emergency room visits in Colorado when it first became legal. I was in Colorado in February 2014; the edibles were not clearly marked for dosage as they are now. Maureen Dowd wrote an article of how it messed her up big time. I estimate she ingested somewhere between 150 mg to 300 mg, which of course that dosage will make anyone nearly trip. Today when you buy in Colorado, and most states, the recommended dosage is 2.5 mg to 5mg. It is my understanding that is why hospital visits were way up. Think of going out to Colorado, and ingesting an unidentified brownie of 300MG, after not using for 20+ years. You would be in a bad place if ingesting so much. Even an experienced cannabis user would have unusual effects from > 100mg. Packaging has evolved, and clearly states dosages and time between dosages. It would be difficult to take too much without knowledge. Yes, perhaps a child could do that, but they could do that with liquor too.

Here are a series of articles which discuss the incidents between 2014 and 2016. Keep in mind that Colorado had a dosage of 10MG in 2017, which is still too high. I think the issues were mostly dosage related.

I have a theory there are greater emergency room visits, because more people are in a legal state to live, ingest or buy. I would like to see the % changes of visits versus population + visitors.

4. Concerns of tax revenues not living up to expectations are real. New Jersey in their bill included the first of a kind, tax on weight ($42 per ounce). This combats deflation and black-market. There is a huge black-market problem which is messing up tax revenues. Why pay $350 per ounce, plus a tax of ~$140 for an ounce, totaling $490 per ounce, when you can get it for $200 or less from your neighborhood dealer? This must be stopped, and black marketers should be fully prosecuted. Prosecution, and a weight-based tax seems to be the answer. The same ounce in New Jersey, using a $350 price, would total $392.  The article cites lower than expected tax revenues in Massachusetts. Of course this is the case, as there is great demand, few stores, and hence long lines to get product. That will evolve and change.

The article cited lower than expected tax revenues in California. You had the fires that messed up farms, etc., plus you had shortages. This is being remedied, and if I am not mistaken, Scott’s Miracle-Gro (SMG $78.00)  has mentioned this issue is behind us. Scott’s Miracle-Gro is the largest company by Cannabis related revenue, in the world as of December 31, 2018. Scott’s cannabis products are not really fertilizers and nutrients, whereas they sell all infrastructure for indoor and greenhouse cultivation. They cater to large scale operations, as well as hobbyists. The division is called “Hawthorne.”

States like Oregon had so many licenses given out, combined with the black-market, that cannabis price deflation was in excess of 60%. Of course, revenues will be down in that situation. Therefore, New Jersey proposed a weight-based tax and not price based. New Jersey has limited the proposed number of licenses, which very well could deter price deflation.

5. Concerns of children getting the marijuana are the same for alcohol. I guess parenting and education should be used. At least once legal, you know everyone is getting their cannabis from a regulated source, as opposed to a corner drug dealer.

6. Shirley Turner, a Democratic State Senator mentioned, “I think we need to look before we leap.” I think that is excellent advice for New Jersey, and that is why I think the vote not happening was a decent event for New Jersey.

7. There is an inability to currently measure whether someone is currently under the influence of cannabis. As far as I know this is factual, yet cannabis is legal either recreationally or medically in almost 67% of the USA. This will evolve. It is a potential issue, yet, it is a current issue for 33 states in America.