Pennsylvania's recent budget approval excludes the legalization of recreational cannabis, marking a significant setback for cannabis companies like Jushi Holdings (OTC:JUSHF) and TILT Holdings (OTC:TILT).
Governor Josh Shapiro, who had championed the cause, faced opposition from a divided legislature. The state House, controlled by Democrats, struggled to reach a consensus on regulation, while the GOP-majority Senate remained opposed to legalization.
The new budget focuses on broad economic and social investments but omits provisions for recreational cannabis. Key investments include $1.11 billion for K-12 public education, $500 million for site development to attract businesses, and $354.8 million for home and community-based services.
Strategic Moves By Jushi And TILT Amid Delays
Jushi Holdings (OTCQB) and TILT Holdings (OTCQB) have made substantial investments in Pennsylvania, anticipating the transition from medical to recreational cannabis sales to drive growth.
Jushi's current enterprise value is considered undervalued, suggesting significant potential upside with regulatory clarity. "Jushi is poised for a market cap surge of over 250% if Pennsylvania initiates recreational cannabis sales," said senior analyst Pablo Zuanic from Zuanic & Associates.
Meanwhile, TILT Holdings, operating Standard Farms, secured a $10.5 million financing arrangement to expand its operations in Pennsylvania. The funds are earmarked for constructing dispensaries authorized by a Department of Health permit.
"We applaud the Commonwealth for providing a positive path forward for a small independent grower like TILT’s Standard Farms to compete in this vibrant marketplace," TILT's CEO Tim Conder stated.
However, the high interest rates tied to their expansion loans, which escalate significantly after six months, may strain TILT’s financial model without the expected recreational market.
State Cannabis Legalization According To Tim Seymour
Tim Seymour, portfolio manager of the CNBS Amplify Seymour Cannabis ETF (NYSE:CNBS), stressed the importance of state-level legalization over federal changes. "The real economy in the cannabis sector is driven by businesses that are actively selling products to a growing consumer base," Seymour stated.
He highlighted the immediate impact of markets like Pennsylvania's in driving industry growth, indicating that state-level decisions are crucial for the future.
Read Also: Bipartisan Push For Pennsylvania Cannabis Law Could Unlock 40,000 Jobs, $250M In Tax Revenue
Cannabis Companies In Pennsylvania
Both Jushi and TILT must navigate the uncertain regulatory environment in Pennsylvania.
The exclusion of recreational cannabis from the budget underscores the complexities of achieving consensus in a divided legislature. As Seymour pointed out, “State-level legalizations bring products to consumers' hands, driving real industry growth.”
In line with Seymour, Zuanic added that if recreational cannabis is not legalized, Jushi Holdings will face constrained growth by being limited to the medical marijuana market.
Despite lagging behind peers in sales momentum and profit margins, Jushi has streamlined operations, improving EBITDA margins significantly. Zuanic considers Jushi's financial situation manageable, with ongoing debt reduction efforts and potential refinancing of $65 million in debt due in December 2024.
Market Reaction Post-Budget Approval
On Monday, July 15, 2024, at mid-day, Jushi Holdings (NYSE:JUSHF) stock price was $0.592, marking a 2.8449% decline, signaling waning investor confidence. Trading volume were low at 8,339 shares, indicating subdued market activity. With a market cap of around $116 million, Jushi remains a smaller entity in the cannabis sector.
TILT Holdings' stock price was $0.02211, showing a 10.55% increase, which could signal positive investor sentiment or reaction to recent news. The trading volume for TILT at mid-day was 6,150, which is moderate, and the market cap is about $8.5 million, positioning it as a micro-cap stock in the cannabis sector.
These are some of the most important MSOs operating in Pennsylvania.
- Curaleaf Holdings (OTC:CURLF)
- Trulieve Cannabis (OTC:TCNNF)
- Cresco Labs (OTC:CRLBF)
- Green Thumb Industries (OTC:GTBIF)
- Ayr Wellness (OTC:AYRWF)
- Verano Holdings (OTC:VRNOF)
- TerrAscend (OTC:TRSSF)
- The Cannabist Co. (OTC:CCHWF)
These issues will be a hot topic at the upcoming Benzinga Cannabis Capital Conference in Chicago this Oct. 8-9. Join us to get more insight into what the wave of weed legalization means for the future of investing in the industry. Hear directly from top executives, investors, advocates, and policymakers. Get your tickets now before prices go up by following this link.
Photo: AI-Generated Image.
