On November 3, 2020, U.S. citizens went to the polls. While in many states, that meant choosing between a Democrat or Republican ticket, in New Jersey it also meant deciding the fate of a recreational cannabis market. Specifically, voters were asked:
“Do you approve amending the Constitution to legalize a controlled form of marijuana called ‘cannabis’?”
Voters in New Jersey authorized adult-use cannabis for consumers 21 and over. Marijuana Business Daily estimates the New Jersey market, with a population of nearly 9 million, could reach sales of US$850-$950 million by 2024. The outlet also predicts that New Jersey approval could also cause a domino effect across the eastern seaboard, in turn creating an adult-use region that would be among the largest in the world. The four most populous states that have been discussing legalization — New Jersey, New York, Pennsylvania, and Connecticut — total 37 million, more than the population of Canada.
We might already be seeing signs of this potential domino effect, too. On October 19, Marijuana Moment reported that the top cannabis advisor to Gov. Andrew Cuomo, Axel Bernabe, said that cannabis legalization will be introduced to the state budget in January, with an eye towards enacting reform in April. In a video interview with Canopy Growth, Bernabe even emphasized that he would like to see New York legalize before New Jersey. With this level of competition brewing, we find it hard to believe that neighbouring states will continue to voluntarily sideline themselves from the adult-use market.
Pennsylvania, a state that has run a very successful medical program, is also on the cusp of legalizing adult-use. In August, Pennsylvania governor Tom Wolf called on lawmakers to approve adult-use cannabis in the fall legislative session. Marijuana Business Daily noted that the governor’s urgency surrounding legalization reflects the budget shortfall amid the coronavirus pandemic, an issue that is not unique to Pennsylvania. The approval of a successful recreational program, paired with the potential momentum that a Democrat win at the federal level could trigger, could very well expedite Wolf’s wishes to create a legal adult-use market in Pennsylvania.
Over the summer, New Cannabis Ventures reported that three multi-state operators, including Canopy Rivers portfolio company TerrAscend Corp., had been approved to build out cultivation facilities under the state’s medical cannabis program. TerrAscend announced the cultivation at this facility commenced in August with the expectation that it will have medical cannabis products available for patients in November of this year. These products will be available at TerrAscend’s Apothecarium dispensary in Phillipsburg, its first dispensary in the state.
TerrAscend’s recent performance reflects the market’s excitement about its prospects in an increasingly liberalized U.S. cannabis market. Following the vote in New Jersey and the Biden-Harris policy announcement to decriminalize cannabis federally, TerrAscend has seen its shares rise. TerrAscend’s shares have risen from a low of CA$2 on March 18 to CA$8.80 as of market open on November 4. TerrAscend was the first cannabis company with sales in Canada, the U.S., and Europe, and currently operates in New Jersey, Utah, California, and Pennsylvania.
TerrAscend’s position as one of only a few operators in New Jersey’s growing medical market spells good news for its prospects in the state’s recreational market. The Philadelphia Inquirer notes that it could take regulators up to two years to draft the rules around an adult-use cannabis market, meaning that current operators could have plenty of time to prove themselves as stable, capable, and safe providers of medical cannabis. This time frame would give TerrAscend time to potentially capture more of the state’s growing medical market, which added 20,000 patients in 2019 (for a total of 63,000) and grew more than 200% from 2018 to 2019 (from US$30 million to US$100 million).
The prominence of social justice issues over the summer has only further highlighted the need for cannabis legalization. Alongside these broader social justice issues, cannabis legalization can, and should be, viewed not just as a business opportunity, but as a path to undoing policies that have unfairly targeted Black people. The New York Times reported in September that Black residents in New Jersey are three times as likely to be charged with marijuana possession as white residents. This dissonance is screaming for change.
With a number of strong operators already positioned in the state, the business opportunity in New Jersey is clear. Polling numbers also indicated that its residents were eager to topple prohibitionist policies that sidelined cannabis for generations. The state’s efforts to legalize cannabis could come to be seen as a domino effect across the east coast, opening up new markets for quality operators like TerrAscend while undoing regressive policies that reflect poorly on the industry, and the plant.
This is not an offer to sell or a recommendation to trade in any securities. This information is provided as of the date hereof. This document contains data obtained from third parties that Canopy Rivers has not independently verified. This document also contains forward-looking information within the meaning of Canadian securities law, which is based on certain assumptions. While management believes these assumptions are reasonable based on information available as of the current date, they may prove to be incorrect. Many assumptions are based on factors outside of Canopy Rivers’ control and actual results may differ materially from current expectations. Forward-looking information involves risks, including, but not limited to, the risk factors set out in Canopy Rivers’ most recent Management’s Discussion and Analysis and Annual Information Form. You should not place undue reliance on forward-looking information. Except as required by applicable law, Canopy Rivers assumes no obligation to update or revise any forward-looking information to reflect new events or circumstances.
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