Although game-changing legislation to legalize cannabis at the federal level in the US has been submitted, the US cannabis sector has come under heavy pressure and this is a trend that caught us by surprise.
Over the next month, we expect to learn more about the potential to legalize or decriminalize cannabis in the US and believe that some aspects of the legislation will be approved. We believe the two biggest potential catalysts for the US cannabis industry are:
- The passing of the SAFE Banking Act which would make it easier for companies to utilize US banks
- The removal of 280E, an IRS tax code that prevents US cannabis companies from deducting operating expenses
A Colorado Company that has Been Impacted by the Trend
Schwazze, (OTCQX: SHWZ) is a US cannabis company that has been impacted by the recent decline and we will continue to closely follow the Colorado cannabis company. Schwazze has fallen more than 30% from its 2021 highs and momentum has been trending to the downside. We find the price movements to be significant as the company continues to focus on consolidating the Colorado cannabis market.
Earlier this month, Schwazze reported to have signed definitive documents to acquire Southern Colorado Growers (SCG). The proposed transaction includes 34 acres of land with outdoor cultivation capacity, as well as indoor, greenhouse, and hoop house cultivation facilities and equipment.
The transaction is expected to substantially increase Schwazze’s vertical integration and cultivation capabilities, while providing a major boost to its wholesale supply of distillate to Colorado consumer packaged goods (CPG) manufacturers.
This planned purchase represents the company’s first major move into cultivation, which will provide premium cannabis directly to its Star Buds dispensaries and a significant amount of production of biomass for its PurpleBee’s extraction and manufacturing facility. PurpleBee is considered to be a leading supplier Colorado of wholesale distillate for the CPG market. The brand provides quality distillate to leading vaporizer, concentrates and edibles companies, and we will monitor how Schwazze benefits from the acquisition.
Expect to see Continued Consolidation in the US
During the last year, we have seen a significant increase in the number of companies that are focused on the Colorado cannabis market and this is a trend to be aware. We believe the recent pullback is transitory and expect the passing of cannabis legislation to serve as a catalyst for growth for the entire sector.
If you are interested in learning more about the US cannabis industry, please send an email to email@example.com with the subject “The US Cannabis Industry” to be added to our distribution list.
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