It wasn't Canopy Growth's week, month, or even year

Welcome to another edition of Cultivated, everybody.

I’m digging out from midterms here and preparing to take a few days off over the Fourth.

As a quick plug, I’ve got plenty of ad slots available for newsletters in July and August — if you’re interested, you know where to find me.

I’m also looking for some freelance writers to write some bigger feature stories about the cannabis industry and to help me write this newsletter more frequently.

It’s a big lift for one person. If you want to help, hit me up.

A quick programming note: I’ll be off next week. Cultivated will be back in your inbox on July 5.

Hoping for some good surf.

-Jer

📉 Market moves

What happened: Canopy Growth reported its fiscal ‘23 and fourth-quarter results on June 22 and it hasn’t been the Canadian cannabis company’s week, month, or even year:1

• It lost $3.3 billion CAD in 2023, with $647 million of that coming in the fourth quarter alone.

• That’s on $403 million in revenue for ‘23, a decrease of 21% from the year prior, and just under $88 million for the fourth-quarter.

• KPMG also resigned as the company’s auditor, according to Matt Lamers.

As if that wasn’t enough, the company said it was being investigated by the SEC over misstating sales of BioSteel, the sports beverage it owns.

The company’s management also said in a filing that is has “substantial doubts” that the company will be able to continue operating as a “going concern” because of its debt.

In simple terms, that means management is worried they won’t be able to meet their financial obligations.

Canopy’s stock is down about 81% this year.

Back up: Earlier this year, the company divested from its Canadian cannabis retail operations and laid off around 800 workers, amid other cost-cutting projects pursued under CEO David Klein.

Wait, there’s more:

TerrAscend, a company that sells cannabis in the US, has received conditional approval to list on the Toronto Stock Exchange.

• While it’s not a done deal yet, TerrAscend and its competitors have long sought ways to tap more liquid markets like the TSX to fuel growth.

• They’re frozen out of major US exchanges due to federal illegality and left to trade over-the-counter or on the smaller Canadian Securities Exchange.

• The move could pave the way for other multi-state operators (MSOs) to list on the TSX, if or when it’s final.

The SEC slapped audit firm Marcum LLP, which has a wide roster of cannabis industry clients, with a $10 million fine over what the SEC says are “systemic quality control failures” and violations of audit standards over the firm’s work with SPAC clients.

• Marcum audited more than 400 SPAC offerings in 2020 and 2021, of the 860 total offerings during that period.

• Marcum audits cannabis companies like Acreage Holdings, Trulieve, Ayr Wellness, and Cresco Labs.

LMS Wellness, a Maryland dispensary filed a RICO suit against cannabis company iAnthus over what LMS Wellness says was a scheme to divert $4.5 million into iAnthus, reports Law360.

🗽 Spotlight on New York

What happened: New York likely won’t hit its bullish cannabis tax revenue targets in the state’s full first year of legal weed sales.

That’s according to a new report from the Coalition for Access to Regulated & Safe Cannabis, a group of medical cannabis firms.

• New York has so far raked in only $16.5 million by the end of May, with expectations of around $40 million or so by the end of the year.

• That’s a far cry from Gov. Kathy Hochul’s projected $56 million, and it’s less than half of the $120 million Nevada raised in its first year.

• If trends continue, New York (population 19.84 million), will barely eclipse Montana (population of 1.1 million), which generated nearly $42 million in the first year of legal sales.

• The report blames the state’s “anemic” pace of licensing for the shortfall.

Why it matters: Tax revenue is one of the primary arguments for cannabis legalization.

But the way cannabis is regulated, not legalizing cannabis in of itself, is a primary determinant of whether a state’s program will be successful at generating tax revenue.

Plenty of research shows that giving licensed shops the ability to compete with the untaxed illicit market is crucial.

That means getting stores open quickly, cutting the red-tape, and keeping taxes low.

Read more on that if you’re interested.

Zoom out: New York cannabis regulators have deliberately rolled out licensed stores slowly in an effort to give social equity entrepreneurs a chance to compete with deeper-pocketed medical cannabis firms already operating in the state.

But many in the industry have said (including this newsletter) that while the underlying idea is noble, the execution has been far from it.

There are so far only 15 legal cannabis shops open in the state, while illicit stores flourish due to lax enforcement.

New York had plenty of examples and research to pull from in order to stand up its cannabis program. The state threw a lot of best practices out of the window in an effort to reinvent the wheel.

But, but, but: Despite regulatory hurdles, the business case for New York’s cannabis market remains, somewhat, intact.

A new report from Opus Consulting shows that the state’s cannabis market will be worth $4.2 billion by 2027.

Wait, there’s more:

New York Gov. Kathy Hochul held a press conference last week to explain the state’s new powers to crack down on illicit cannabis shops:

• The state can fine illicit stores $10,000 per day. If they continue to restock and sell, they can be fined $20,000 per day.

• The state will also invest $5 million to crack down, and hire around 40 more agents to inspect shops.

• Watch the rest of the press conference here.

Reuben McDaniel, the CEO of the Dormitory of the State of New York (DASNY), is stepping down from his position on the state’s Cannabis Control Board, The City Reports.

• McDaniel has been one of the most high-profile figures in the state’s troubled cannabis rollout.

• The agency he leads has come under intense criticism over a lack of transparency for the $150 million fund that’s supposed to assist social equity entrepreneurs and other unfulfilled promises.

🗣️ Quote of the week

“I think the cannabis movement is a failure… the whole cannabis movement is fractured — businesses are one page, criminal justice [reformers] on another page.”

That’s from Yetter Coleman Partner Matt Zorn, who spoke on a panel at Psychedelic Science, a conference put on by the nonprofit Multidisciplinary Association for Psychedelic Studies, or MAPS, reports Law360’s Sam Reisman.

🥊 Quick hits

Florida’s dweeb-in-chief Gov. Ron DeSantis said he wouldn’t legalize cannabis if he’s elected president.2 Color me shocked. DeSantis, however, has so far remained hands-off of the state’s medical cannabis program.

Glass House Brands is suing Catalyst for defamation, reports Alex Halperin of WeedWeek. Catalyst alleged in a suit earlier this month that Glass House had been diverting cannabis to the illicit market.

A new study published in the journal Psychological Medicine found that the association between cannabis use disorder and schizophrenia is stronger in young men than young women.

👩 People moves

• New York Gov. Kathy Hochul has appointed Hope Knight, the CEO of the Empire State Development Agency, to sit on the state’s Cannabis Control Board.

• Cannabis tech and HR firm Wurk has a new COO: Jennifer Meadows.