WaPo is reporting that Trump will reschedule cannabis from Schedule I to Schedule III. (That article is behind a paywall, but Bloomberg and others are quoting it.)

The MSOS ETF is up 35 percent in premarket trading. I have a 4.5 percent allocation to it in the risk asset separate accounts, my biggest equity holding. Am I bragging? No. I’ve had the living shit kicked out of me with this investment theme and I’m probably only breakeven after today, after years of being rugged by Chuck Schumer and the criminally negligent inept hapless embarassing spineless Democrats.

However, I did start rebuilding my position at $2.79 211 days ago (I just checked), and it’s going to open today around $5.00. If you played along at home, congratulations and my apologies. What a long, strange, trip it’s been.

So what to do now?

If you’re a trader, go ahead and sell some, or all.

This is not legalization, so don’t be blasting Peter Tosh in the streets. It is, however, a huge milestone and will result in tremendous cost savings and margin expansion for cannabis firms. Remember, under IRS Rule 280E they have not been able to deduct ordinary business expenses, which means their tax rates have been in the 70+ percent range.

If you want to read up on all this, here’s a link to the cannabis section of the Tarot Substack.

Let’s review some charts.

Chart 1: MSOS ETF - Long-Term

Chart 1, above, shows the walk through the Valley of the Shadow of Death. Whatever part of this you traversed, you needed some self-medication to fear no evil in Goblin Town. And evil there was aplenty, mostly in the form of big pharma and the alcohol industry lobbying to keep this plant away from the people.

If you’re against legalization, you can go hang out with the criminally insane Sackler family… I’ll be with Snoop.

Chart 2: MSOS ETF - 1-Year

Chart 2, above, shows where the MSOS will open today (solid white horizontal line), around $5.00. There has been resistance here during previous spikes, so there may be some back-and-fill in this range.

Long-term, I expect the name to continue to move up, and significantly. The multi-state operators will become the cash cows they were always meant to be. There is still a significant amount of illicit cannabis sales that these firms will take for their own. Roughly another $20 billion in annual sales at least.

Plus there could be a M&A kickoff. As these firms relist in the U.S. all the bullshit naked short selling will also go away.

Lastly, don’t forget that litigation sicario David Boies has a constitutional challenge to the federal cannabis ban pending in front of the Supreme Court. SCOTUS is deliberating this month on whether to grant certiorari to the petitioners. If SCOTUS rules for the plaintiffs, it means it will evaluate the constitutionality of the Controlled Substances Act as applied to intrastate cannabis activity. The theory is that Congress’s Commerce Clause does not extend to this activity.

I have no opinion on that, but it generally pays to bet on Boies, one of the greatest litigators in U.S. history.

All told, this will be a huge step forward to reverse the damage done that started with Nixon signing the Controlled Substances Act in 1970… which put cannabis on the Schedule I list. He did this to go after the hippies, who were all voting Democrat.

Translation: Trump needs wins bad, and now.

One win is already on the launchpad and cleared for ignition: cannabis rescheduling.

This is a no-brainer for Trump because he will be taking a traditionally Democratic issue and making it his own, and likely stealing those votes as well. (Especially after Chuck Schumer jerked around the entire industry for four years with a repeated bait-and-switch gag. That guy is a bum, and should be thrown out.)

Chart 1: MSOS ETF Price

Chart 1, above, shows a classic bottoming pattern with a steep left wall (red vertical line) and a steep right wall (green vertical line), and then some retracement back to a support area.

I added this morning at $4.44 and you can get it cheaper right now. (When the rescheduling news hits, I believe this is a $10 name, next tick.)

Image 1: Buy the Rumor

If the MSOS can break through $5.20, it’s going to $11 and then multiples above that.

Chart 1: MSOS Monthly Price

Chart 1, above, shows the monthly candles of the MSOS, from inception. The next stop on this train is $10-11, where it would probably stop to digest gains. If/when we get rescheduling, I expect it to open there.

Remember, I gave this name to you at $2.78, on August 5th: +87 percent.

Reiterate Buy.

NOT INVESTMENT ADVICE, BUT ARE YOU NOT ENTERTAINED?

Chart 1: MSOS Liftoff

Imma make it real simple, because I know some of you are traders.

Image 1: Can You Do It?

The MSOS cannabis ETF is up 10 percent, premarket.

Chart 1: MSOS Price

In Chart 1, above, you can see the clean breakout and that does not include the gap up this morning to $4.13.

Trump has a presser at 10am today to announce the White House takeover of Washington, DC and he will ostensibly talk about “crime”. We’ll see if he talks about decriminalization.

Just to review. I recommended longs on:

• July 21 at $2.78; and,

• August 5 at $3.40.

There’s still time to get on the Willie Nelson tour bus… this name is down from its all-time high of $55/share.

On July 21st, I wrote a post about how I had doubled …

Read more

Gaetz is the most pro-legalization Republican in Congress.

Image 1: Matt Gaetz Cannabis Rating

(Hat Tip Todd Harrison for the above.)

Gaetz has co-sponsored the SAFE Banking Act since 2019 and gets an “A” rating from NORML.

MSOS up 10 percent as I write and many of the individual names I bought two days ago are up multiples of that.

Long everything in the cannabis space.

Read more

Is this a negative? Yes, Florida would have been a huge market, but it has a silver lining. This is just more evidence that the country has definitely shifted on cannabis with a clear majority wanting it.

Florida is also a special case. It is old and full of retirees, many of which still associate cannabis with the BS “reefer madness” propaganda that defined the narrative for the last century.

Furthermore, Ron Desantis made a massive effort to defeat the cannabis ballot initiative. Why? Because he has major big pharma backers, and since Florida is full of retirees, who probably take five+ prescriptions per day, increased cannabis use means lower prescription sales. This, by the way, has played out in multiple states that have legalized cannabis.

For instance, here’s a quote from The Journal of Law and Economics: “the use of prescription drugs for which cannabis could serve as a clinical alternative fell significantly once a medical cannabis law was put in place”.1

The MSOS cannabis ETF is set to open down about 19 percent today. Is that justified by this news? No way. This is a major overreaction.

There was other news, most of which was good:2

• Nebraska approved two separate medical cannabis ballot measures;

• South Dakota approved recreational cannabis (although North Dakota did not);

• Kentucky approved over 100 local measures on the operation of cannabis businesses;

• Texas approved depenalization measures for misdemeanor amount cannabis possession charges in three cities.

Remember also that Trump has come out very clearly in support of Federal legalization of cannabis, Tweeting:

So what to do on the investing side?

A chart is instructive.

Chart 1: MSOS Price

In Chart 1, above, the horizontal white line is where the MSOS will likely open: around $5.50/share. This will be close to the late summer lows from 2023.

It will be a buyer. This is very close to my original entry price. I believe the upside from this level is in the 8 to 10x range.

If you haven’t been in this, now is the time. If you already are, top up your position. It looks like Republicans will have majorities in Congress and the Senate. Rescheduling and SAFER banking are coming.

… what a long, strange, trip it’s been.

Anyone paying even casual attention to the presidential race could see this one coming.

Image 1: Trump Cannabis Announcement

The MSOS cannabis ETF is up 8.4 percent on this news.

I’m sure we’ll get a similar announcement from the Harris campaign shortly as both sides need the youth vote (although Boomers are huge consumers of cannabis as well).

As I’ve written about, ad nauseam, 91 percent of Americans support cannabis legalization in some form. To be against it is politically unwise.

The MSOS was immediately down 14 percent after hours. This is a periodic reminder of how fakakta the regulatory environment is for this industry.

We just came through the 60-day rescheduling comment period where anyone who wanted to could write up their own brief and submit it for consideration. TLDR: big opioid was against it, everyone else was for it.

Now we will get a public hearing on December 2.1 That’s sure to be enlightening and I fully expect ghouls from crystal meth ravaged congressional districts to emerge from their single-wides to inveigh against… Biden? Hell, maybe even the Five Margarita woman will show up.

On one side you have 5,000 years of field testing and on the other, the horse de-wormer crowd and J.D. Vance’s couch. Science is just one more thing they don’t understand, like algebra.

Once again, conservatives want to control other people’s bodies. That’s right, the same people who wanted to fight to the death about wearing a mask in public during COVID also want to control what the rest of the country can ingest.

But they block cannabis reform at their own political peril. Voters in three battleground states support legalization.2

Image 1: Battleground State Cannabis Support

Nationwide, it’s the same: eighty-eight percent of U.S. adults support legalization in some form with 57 percent supporting both medical and recreational legalization and only 11 percent opposing legalization in any form.3

Opposing legalization is a surefire political loser.

Image 2: Cannabis Legalization by State

Twenty-four states have legalized recreational use and 38 states allow medical use. On a population basis, it’s more extreme: 74 percent of Americans live in a state where cannabis is legal for medical or recreational use.

Investment Thesis

This is a definite negative for the timing of cannabis liftoff, but does not affect the overall thesis.

Cannabis continues to be legalized in additional states and eventually it will be legal in every state.

Ohio was the most recent state to legalize and is on track for $1.2 billion in annual cannabis sales. The 10 percent excise tax on that will generate $120 million in tax revenue to be put into schools and other public services. Large multi-state operators (which the MSOS owns) will continue to grow sales in newly legalized states.

Florida will be next and then, one by one, every other state.4 Nebraska and South Dakota will likely have ballot initiatives for cannabis legalization this November.

The MSOS is down 10 percent at the open, at $6.34, back to where it was at the beginning of the year. The chart is hideous but the price is at an old support level. If this can’t hold, it’s going to $5.37, which is just below where I started buying it.

The three-month price z-score is -2.9, which is 2.9 standard deviations below the average. In the past, such levels have been very good entry points.

There are positive near-term catalysts, including the Garland Memo and announcements by Trump and/or Harris.

I’m a buyer on weakness.

Chart 1: MSOS Long-Term Price

Chart 2: MSOS Price Since August 2023 HHS Announcement

Yesterday it was down over six percent on no news, today down another three percent on no news and this whole drawdown has been on low volume.

The only news is the same as it was: Federal rescheduling is coming.

I’m topping up the position to keep the portfolio percentage the same, bought at $7.04 this morning and some more at $7.21 just now. It’s putting in a hammer candle on decent volume, usually a good sign

Chart 1: MSOS Candlestick

Clear eyes, full heart, can’t get shaken out by the shorts.

NOT INVESTMENT ADVICE. But it’s how I’m betting.

Chart 1 - MSOS Drawdowns This Cycle

Massive spikes followed by lower volume sell-offs. This is how the MSOS will stairstep back to $55. (Until institutions can own and custody cannabis firm stocks, this is the way.)

It’s what you do in these moments that counts.

Study George Druckentudor.

You already know the story. Stubborn? Yep.

Buy low, sell high - so easy in theory. Few have the spine for it.

Read more

Chart 1: MSOS Five-Year Price

If you can’t see what’s happening in Chart 1, above, then markets aren’t for you - sell everything and join a monastery.

I just bought more at $9.68.

Why is the market giving you this? Because the markets are full of idiots, and the cannabis names have zero institutional support and get pushed around by a few hedge funds that love to short it.

If you ever wondered, would I have had the common sense to buy brewery and spirits stocks when prohibition ended? You have your answer.

You can read that announcement here. The Notice is 92 pages and can be found here. I have not read it yet, but wanted to pass it along.

Chart 1: We are So Early

Chart 1, above, shows the cannabis ETF (MSOS). It was up almost nine percent on the initial news today but has settled back to up about five percent. On the long-term chart above, you can see that it has barely come off its bottom.

I put out a note nine days ago saying that I was buying more at $9.12 and suggested readers do the same. It’s almost 10 percent higher as I write. It should be up 40+ percent today and the fact that it’s not shows you how there is no institutional sponsorship in the space.

Boys, every cannabis firm in the country is about to have its tax rate go from 70+ percent to 21 percent. That’s all going straight to the bottom line, enabling these firms to be the cash flow machines they were meant to be.

Image 1: President Biden Tweet

President Biden put out a Tweet at 1:03pm today hailing this historic moment.

Indeed, it’s a historic opportunity to BUY.

NOT FINANCIAL ADVICE.

On August 29, 2023, the U.S. Department of Health and Human Services recommended to the U.S. Drug Enforcement Administration (“DEA”) that cannabis be rescheduled from Schedule I (with heroin) to Schedule 3.

On April 30, 2024, the DEA approved rescheduling of cannabis to Schedule 3.

The next step is for the proposed rule to appear in the Federal Register which will start the formal rule-making process under the Controlled Substances Act.

First, the DEA proposal will go to White House Office of Management and Budget (“OMB”) for review. There it will be approved, this will not legalize cannabis for recreational use.

After OMB sign off, DEA will open up the plan for public comment.

Public Comment

There will certainly be those that oppose rescheduling.  None louder than Big Pharma, which rightly sees cannabis as a serious threat to a number of its franchises, the most profitable of which is opioid drug pushing.

Cannabis is an effective pain reliever, is not physically addictive, and McKinsey won't be able to recommend bonuses to distributors based on the number of people that OD on it.1  (To the best of my knowledge, there's never been a recorded fatal overdose from cannabis, and that includes Bob Marley.)  

Better still, cannabis has proven to be very effective in helping opioid addicts get off of these terrible drugs.

Thus cannabis has Big Pharma in a pincer, by keeping people from starting opioids and getting current users off of them.  

It's a gateway drug alright, but the gateway is an off-ramp to get off of hard drugs.

Furthermore, cannabis production and distribution is a labor-intensive business that already employs over 400,000 people in the U.S.  And many cannabis firms are locally owned mom-and-pop shops.

If you don't like all that, your last name must be Sackler, the biggest family-run drug cartel in U.S. history.

As Nietzsche wrote: they muddy their water that it may seem deep.2

But deep it isn’t, and when all the obfuscation is over, a simple truth remains: humans have been ingesting cannabis for at least 5,000 years with no adverse side effects. Indeed, it would appear that humans (and all mammals) and this plant have a symbiotic relationship because every cell in every mammal on the planet has a cannabinoid receptor.

That’s #science, and you can stick it in your pipe and smoke it.

Back to the Future

After the comment period, it goes to an administrative judge and once approved there, the DEA will publish the final rule.

Still outstanding is the "Garland Memo" on DOJ stance about enforcement, which could come at any time and I have yet to see any estimates of when, because it is at the whim of Merrick Garland and not subject to any formal process.

One big question remains about the timing, can all this get done before the election?  A lot of DC people think so and September seems to be a consensus ETA. This is all speculative, but it makes sense. President Biden wants to curry favor with young voters and rescheduling is a way to do it.

Now that HHS and the DEA have come out in favor, there is not much to stop it. Republicans won’t want Biden to have this win, but the truth is that over 90 percent of Americans favor medical cannabis and over 70 percent favor recreational, so if they oppose rescheduling, it will cost them.

Price (In)Action

On the day before the DEA announcement, MSOS (the cannabis ETF) closed at $9.02. It traded up to $11.26 on the news and has now settled back to $9.40.

Chart 1: MSOS Daily

Let me see if I have this straight: overturning a law that’s been in place since 1937, that will almost certainly lead to legalized sales everywhere, plus the removal of 70+ percent tax rates for producers is only worth 4.2 percent.

OK.

Buy.

NOT FINANCIAL ADVICE.

It appears rescheduling is here if an article from the Associate Press is to be believed.

Our vehicle of choice, MSOS, has been halted for a second time, up 24.06 percent.

What to do?

So easy. HOLD FAST.

Chart 1: MSOS 5-Year Price

Like Hank said, I’ve been to the Opry and I’m goin’ back again.

Why was it down? Because volume had dried up and short sellers were in control, squashing the hopes and dreams of ordinary Americans. (And it is ordinary Americans - read: retail - because NO institutions are long cannabis.)

I posited that there was a good chance that Biden would talk cannabis reform during the SOTU speech the next night. Indeed he did. But the big news was that VP Harris came out and announced a roundtable event with Fat Joe on March 13, 2024.

That made me Lean Back.

I was wanting to get my MSOS position back up to 10 percent, but was only at seven after the recent purchase. The day before the Harris/Fat Joe event, MSOS opened down again and I bought another two percent, getting me to nine total.

Why not? All the big cannabis firms have been reporting great with revenue and adjusted EBITDA numbers +20-30 percent. (You HAVE to adjust in cannabis-land.)

Remember, we’re still waiting for the DEA to rule on the Health and Human Services recommendation to reschedule cannabis to Schedule III from Schedule I. I did a quick double-check on the DEA to make sure its leadership is appointed by the President - it is, and I pulled the trigger.

If it went down more, I was going to keep buying.

On Friday, March 15, 2024, MSOS gapped up on some big options trades (H/T Cannabis Confidential) and then at 1:25pm, the Harris/Fat Joe party got started.

That took the MSOS All the Way Up, +15 percent on the day, and now my position is over 10 percent.

Chart 1: MSOS Short-Term Candlestick

Remember, the MSOS is going from the big house to a bigger house.

In the three and a half months since then, not much has changed except for Ohio legalizing recreational use and a host of other states getting closer to doing so. However, that was all widely anticipated. What wasn’t anticipated was anti-cannabis congressman Mike Johnson becoming Speaker of the House.

Read more