Cedar Grove Capital Management
Empty Words. Empty Promises. Exert Patience.

Empty Words. Empty Promises. Exert Patience.

Why the recent hopium in cannabis signaled a spectacular rise and fall

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Cannabis has been quite the whirlwind over the last few years. Many investors know the pain of holding onto the hopes of a change in governmental policy that would immediately change the cannabis market.

These changes specifically revolve around SAFE banking and the effect of what 280E would have on each of U.S. cannabis’ financial statements. I wrote about this late last year in the post below.

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YTD, U.S. cannabis is getting crushed and anyone that’s held onto these names listed below has truly felt pain. Considering the underlying fundamentals of these companies are actually solid for the most part, it has been quite frustrating to see the price action deteriorate.

Not even cannabis ancillary players have been spared and in most instances which are arguably better since they have uplistings and access to bigger pools of liquidity. Many of them have actually deteriorated worse than the pure-play multi-state operators.

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What is most interesting to note is what’s actually happened in the last 3 months. When all hope was lost, a forgotton friend came out of nowhere and made a special announcement. President Biden made an announcement on October 6th saying that he would pardon all prior federal offenses of marijuana possession, urged governors to do the same, and then asked the attorney general to look into how the drug is scheduled.

Stocks rallied on the news to the tune of an average of ~41% that day. It seemed that the long waiting for policy reform was finally coming.

🎉 BIG WIN. 🎉


I tweeted about my thoughts on this since I’ve been around this block a few times myself.

While there obviously was a chance that I could have been wrong, I was confident that this was nothing more than headline moves with nothing really substantial behind it.

To prove this, NBC news even reported just how little substance in the grand scheme of things his announcement was when it came to pardons.

A senior administration official said that over 6,500 U.S. citizens were convicted of simple possession of marijuana under federal law from 1992 to 2021 and that thousands more were convicted under a Washington, D.C., code. No one is in federal prison solely for simple possession of marijuana, and most marijuana possession convictions occur at the state level, the official said.

This basically means that the federal pardon, while helping some, was quite minuscule considering most offenses were at the state level.

To put things in perspective, out of 350,149 cannabis arrests in 2019, about 91 percent were for possession.

Despite the news, this was the first catalyst that set off what would be a spectacular rally in cannabis stocks. The next were inclusions of cannabis reform in certain bills that would also benefit the entire industry. This was essentially one of the switches that would help ignite the cannabis bull market which I spoke about on the megabrands podcast over the summer.

However this would not be the case, and what was a spectacular rise in names up until that point had a dramatic fall.

This fall from grace has almost essentially wiped out most, if not all gains since the pre-White House announcement over two months ago.

Cedar Grove Capital Management decided to sit out this entire time because of just how loosely these moves were being held together on the mere speculation of reform.

When policy drives the narrative, prices can fluctuate on a dime, as you saw above.

Don’t get me wrong though, I am still bullish on the overall cannabis industry and still think it’s THE most undervalued sector of the entire market but there are little to no more catalysts to push it higher for the time being.

There’s still speculation out there that something will get passed in the lame-duck session but call me skeptical. For now, there doesn’t seem to be a solid reason to hold a long position in any names until more substance arises.

The time will come and we’ll see what the 2023 year has in store for cannabis. Hopefully, it’s a good year.

For those of you that have made it this far, take the poll below to see what your fellow cannabis investors think.


Until next time,

Paul Cerro | Cedar Grove Capital Management

Personal Twitter: @paulcerro

Fund Twitter: @cedargrovecm


Disclaimer: All information provided herein by Cedar Grove Capital Management, LLC (“Cedar Grove Capital”) is for informational purposes only and does not constitute investment advice or an offer or solicitation to buy or sell an interest in a private fund or any other security. An offer or solicitation of an investment in a private fund will only be made to accredited investors pursuant to a private placement memorandum and associated documents.
Cedar Grove Capital may change its views about or its investment positions in any of the securities mentioned in this document at any time, for any reason or no reason. Cedar Grove Capital may buy, sell, or otherwise change the form or substance of any of its investments. Cedar Grove Capital disclaims any obligation to notify the market of any such changes.
The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of Cedar Grove Capital. The information in this material is only current as of the date indicated and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only current opinions of Cedar Grove Capital which are subject to change and which Cedar Grove Capital does not undertake to update. Due to, among other things, the volatile nature of the markets, and an investment in the fund/partnership may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal and tax professionals before making any investment.
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