Oklahoma rejects legalization, Trulieve's year from hell, and more

Welcome to another edition of Cultivated, everyone.

A lot happened while I was out shredding some sweet powder in the mountains the past few days, so let’s get to it!

A quick programming note: I’m looking to speak with people who have built successful newsletters before as I figure out my revenue strategy.

I’m particularly interested in your take on what metrics I’d need to hit in terms of subscriber growth, churn, and open rate before I start asking for your hard-earned money — and if you have a perspective on pricing structure, that’s super useful.

If that’s you, reach out.

💡What’s the big deal?

What’s happening: Legalization failed in deep-red Oklahoma yesterday, which shouldn’t come as a surprise.

What is a bit surprising was by how much it failed: 62% of Oklahomans rejected legalization, with only 38% supportive. That’s despite the state’s free-for-all medical cannabis industry, and the fact that legalization proponents outspent the “no” side by 20-1.

Why it matters: The initiative was projected to fail by CNN and other news outlets. There’s not much national significance that can be gleaned from this.

Oklahoma is already permeated with “medical” cannabis. The industry is guided by loose restrictions and already has thousands of dispensaries. Pretty much anyone in “Tokelahoma” can get pot if they want it, as Politico’s Paul Demko reports.

It also wasn’t an election year. Turnout was low, and, I’m speculating, but perhaps people that were really against legalization are the ones that showed up.

Still, a bigger proportion of people in the state voted blue in 2020 than voted green in 2023, which is a strange fact in cannabis politics — usually cannabis outperforms Democrats in Red states.

🌿 Jer’s take

Oklahoma is the latest in a line of deep-red states where voters rejected legalization, following the Dakotas and Arkansas last year.

Look, if they don’t want legalization, that’s fine. I’m not going to sit in my apartment in Brooklyn with my fancy liberal arts degree and all my biases and tell them what to do, and neither should you.

But, it’s also important not to draw too many generalizations from this. Nearly 70% of Americans support cannabis legalization, according to Pew. That’s not going to change because a few Heartland states rejected it.

The majority of America’s largest and most economically and culturally impactful cities all share legalization in common. That’s a bigger signal than Oklahoma and North Dakota rejecting it, full stop.

And despite what the anti-legalization group Smarter Approaches to Marijuana maintains in breathless tweets, I don’t think legalization failed in Oklahoma because they made such compelling arguments about the harms of THC that they won the state’s hearts and minds.

It failed because Oklahoma is Oklahoma, and the lack of proper regulations in the state’s freewheeling medical industry likely soured those who were on the line, or who don’t really care either way. For others, the status quo of easy-to-get medical cannabis was probably fine.

That’s also not to say the anti-legalization crowd had super compelling arguments either.

Drug war hysteria remains alive and well in Oklahoma, with the “no” side pointing to bunk theories like cannabis being a gateway drug, causes an increase in crime, or has worse health impacts than smoking cigarettes.

It’s an odd thing that the stigma of cannabis remains so strong that otherwise smart people are keen to reject scientific evidence when it confronts their biases, but if that weren’t the human condition, I guess the climate would be fixed already.

The devil’s in the details

As others have pointed out, not all of Oklahoma’s cannabis community was supportive of this bill in the first place.

Various other legalization measures — each with their own nuances — were proposed before advocates threw their support behind SQ 820 which ultimately went before voters, Kyle Jaeger of Marijuana Moment reported.

That’s becoming a pattern, where the national media and other navel-gazers point to each vote on legalization as a referendum on the idea of legalization as a whole.

But really, and I truly hate to type this phrase out, all politics is local and these ballot questions are as much a vote for or against cannabis as they are for the specifics of the particular bill in front of them.

The cannabis conversation has moved from ‘yes’ or ‘no’, to ‘how’.

As in, whether the new industry will be equitable or create monopolies, whether the proposed tax regime will work, and how legalization will impact public health metrics like teen use and smoking cessation. It’s not simple.

Cannabis investors are searching for few-and-far between wins, and Oklahoma going green would’ve been something to celebrate and might’ve given a couple stocks a slight boost.

But voters aren’t stupid, and they won’t blindly support legalization if they don’t like what’s written.

All that being said, I know a lot of smart people worked hard on getting legalization in Oklahoma passed.

The beauty of a democracy is you can learn from failure and try again.

📉 Market moves

What happened: Florida cannabis giant Trulieve reported its (delayed) fourth quarter and full-year results:

• Revenue’s up 32% year-over-year.

• Q4 revenue fell by 1% from the same quarter last year.

• $77 million net loss in Q4.

• Stock slid 4% on Wednesday.

• You can see the full results for yourself here.

Trulieve also lost around 1,400 employees in 2022: from 9,000 on December 31, 2021 to 7,600 by December 31, 2022, according to securities filings. Oof.

Why it matters: Trulieve is one of the world’s largest cannabis companies and is often considered a bellwether stock for the industry.

In a year full of OSHA complaints, the CEO’s husband’s legal troubles, poorly handled layoffs, and the tragic death of an employee in Massachusetts, I’m sure Trulieve’s executive team is happy that today’s focus is at least on the financials, as underwhelming as they might be.

Trulieve’s auditor, Marcum LLP, has also gotten into hot water in Canada and is now barred from taking on more risky clients, per The Globe and Mail. 

To recap Trulieve’s year from hell:

• In January, 27-year-old Lorna McMurrey collapsed while working in a Trulieve facility in Massachusetts and later died at the hospital.

• In November, Rivers’ husband, JT Burnette, was sentenced to three years in federal prison and fined $1.25 million on corruption charges.

  • Burnette admitted in court to conspiring with his childhood friend, a former state representative, to keep competitors out of Florida’s medical cannabis industry as the laws were being written, The Tallahassee Democrat reported.

• Multiple rounds of poorly-handled layoffs.

• At least four newly opened OSHA investigations, according to the Young Jurks on Twitter.

🌿 Jer’s take

The aforementioned CEO, Kim Rivers, is one of the few women running a large publicly traded cannabis company, and Trulieve was once an investor darling for running a profitable business and pursuing ostensibly strategic acquisitions.

That’s changed.

Trulieve, and Rivers herself, now run the risk of becoming the poster child of corporate cannabis gone wrong. Consumers, if given the option, will vote with their wallets.

Of course, it’s hard to make money in cannabis, with high tax burdens, ever-shifting regulations, free-falling prices, and picky consumers. Rivers has a hard job.

But cannabis companies need to control what they can control well, and Trulieve, under Rivers, frankly, isn’t doing a good job on that front.

If Trulieve can’t deliver attractive financial results, how can the company expect to get ahead of their frequent PR disasters around treatment of workers and complaints about product quality?

You can look at Reddit, Twitter, or my DM’s to see how bad things have gotten and how many workers remain pissed off at Trulieve’s management.

Yes, layoffs happen in emerging industries, and yes, it’s possible that Trulieve’s okay with this information being reported so they can show prospective investors that they’re serious about cutting costs.

But Trulieve seems to have forgotten the human side of business, and in a industry as closely-knit as cannabis, that’s something they’d be wise to remember.

Other things:

• AFC Gamma reported Q4 and full-year results.

• Slang Worldwide exits California.

🗽 Spotlight on New York

What happened: Readers of last Thursday’s newsletter will remember my discussion on the merits and mostly pitfalls of potency taxes. Here’s the link if you need a refresher.

State Sen. Jeremy Cooney and Majority Leader Crystal Peoples-Stokes released a bill, S4831, that would repeal the potency tax on cannabis products.

The bill, in short, proposes replacing the potency tax with an increase in excise tax on cannabis products.

Why it matters: Cooney and others say that potency taxes will throw another obstacle at legal businesses trying to compete with New York’s robust illicit market.

If consumers can’t get strong, cheap weed from the legal market, they’ll probably buy illegally.

The bill’s text also discusses the problem of lab shopping: If a legal crop comes in with an illegal amount of THC, the grower will shop around for a lab that will give them a more favorable result.

Or, they’ll just sell it illegally.

🌿 Jer’s take

Cooney’s bill deals with reality, not what ought to be in a perfect world.

Like banning cigarettes, potency taxes are a data-driven way to limit the public health impacts of the commercialization of an intoxicating drug.

But these taxes would kneecap New York’s already challenged legal cannabis industry. Sometimes, policymakers have to take the lesser of two evils.

And overall, a simpler tax system for cannabis products — one with lower rates and a cheaper cost of compliance for small businesses — will likely result in more tax revenue captured by the state rather than the illicit market.

📜 Policy moves

• Delaware’s House of Representatives passed a limited legalization bill that allows state residents to purchase, possess, and consume up to an ounce of cannabis.

  • The bill now has to clear the Senate. Delaware lawmakers are also weighing another bill that would regulate the commercial sale of cannabis.

  • Delaware Gov. John Carney vetoed a similar version of this bill last year.

• Hawaii’s Senate passed a bill to legalize cannabis.

  • The bill now faces the House, where it’s expected to face a long workshop period, Marijuana Moment reports.

📚 What I’m reading

MJBizDaily’s Matt Lamers has a good story on Aurora Cannabis’s turnaround under CEO Miguel Martin, by zigging where others have zagged:

Lamer’s rightly points out that Aurora isn’t yet profitable, but appears to be trending in the right direction. And the comparison with Canopy is apt. Worth a read.

Aurora’s focus on medical isn’t new — he told me about the plan in my last job back in 2021, but it’s interesting to see it start to work. From that story:

Inside NYC law enforcement efforts to stamp out illegal pot shops (The New York Post)

Concern grows over state’s ability to finance social equity cannabis shops (Crain’s)

Is Cannabis Good or Bad for Sleep? (The New York Times)