Cannabis Rescheduling Is Here. What Happens Next? | Hirsh Jain

Cannabis rescheduling is officially here. Now what?

This week, Jesse Redmond and Morgan Paxhia welcome back Hirsh Jain to discuss what Schedule III means for the industry, how states are responding, and what comes next.

We cover the upcoming adult-use hearings, interstate commerce, export opportunities, Virginia's latest legalization setback, Pennsylvania's outlook, and which operators stand to benefit most from the next phase of cannabis reform.

Topics:
• Schedule III implementation
• Interstate commerce
• Export opportunities
• Virginia adult-use
• Pennsylvania legalization
• MSO winners and losers
• Cannabis investing in 2026

Higher Exchanges is powered by Flowhub. 

Transcript

SPEAKER_00 0:03

Welcome back to Higher Exchanges, the number one independent cannabis investing show, where we break down complex cannabis markets into clear insights that you can actually use. Here are your hosts, Jesse Redman and Morgan Pack.

SPEAKER_01 0:29

Welcome back indeed. I'm Jesse Redman, Chief Strategy and Investor Relations Officer at Leaf Brands. I am back again with one of the smartest cannabis investors I know. He's the grizzled veteran with a sunglasses tan that looks like it's from sailing. He's Morgan Paxia. Morgan, what's up, man? How are you?

SPEAKER_02 0:47

I'm doing just fine. Uh yeah. Feeling some energy out there, which is great. And uh getting some SoCal sun when the uh May Gray clouds break a bit.

SPEAKER_01 0:59

So are you feeling energy on the ocean or are you feeling energy in the cannabis space? A little bit of both.

unknown 1:07

Okay.

SPEAKER_01 1:08

I thought that was gonna be your answer. I'm getting to know you better.

SPEAKER_02 1:12

Yeah. How's it going up there? I hear you guys are getting some rain.

SPEAKER_01 1:16

Yeah, not much, man. I was debating whether to water my tomato plants yesterday, and I decided to go ahead and water them. And as I look out the window, it looks like it may sprinkle a little bit, but not too much. Um, no cannabis this year. I feel like I'm gone too much from my house these days to pull off a successful cannabis grow, but I do have some cherry tomatoes and some slicing tomatoes out in the garden that I'm getting excited about.

SPEAKER_02 1:38

Nice. I got some lemons about ready to be picked, so I'm pretty excited about that.

SPEAKER_01 1:44

Well, cool. Well, we are back with one of our favorite guests. For folks that may not know, and Hirsch get ready. He has a law. Oh, I blew it, I blew it. He has a law degree from Harvard and it was head of government affairs at Airbnb. And in 2019, he pivoted to cannabis, and somehow he's still here. He's the incomparable Hirsch Jane. Hirsch, welcome back.

SPEAKER_04 2:07

Thanks, guys. So so great to be back with you.

SPEAKER_01 2:11

You were laughing before we got started, and I did have a chance to ask you why we were playing the higher exchanges intro backstage to make sure I had things set up correctly. You started to laugh, and I forgot to ask you why, so I'm gonna do it publicly.

SPEAKER_04 2:21

Yeah, you know, I was laughing because I was thinking about the evolution of this show over time, you know, the increasing sophistication of this show, right? As someone who was, you know, on back in the day before I think we were even on video and when we were on spaces, and so now I see the mics and the music and different sounds. So that gave me a little chuckle. I'm not gonna lie.

SPEAKER_01 2:41

Growing up. What's one second guys? I had a little audio snaff, we'll be right back.

SPEAKER_04 2:48

But I'm feeling the energy too, just just like you, more. So yeah.

SPEAKER_02 2:53

That's good. Yeah. We'll uh well we'll get into it maybe while Jesse's uh sorting that out. I can jump in and because another thing that we've added to higher higher exchanges is um our sponsorship. We have a great sponsor with uh with Flow Hub. And uh I'm excited to talk about this week is um they just last week had episode four of the Great American Dispensary Tour, which is a documentary series uh where CEO Kyle Sherman travels state by state to show what legal cannabis really looks like in America. In this episode, they head to Florida, uh, home of the largest medical-only cannabis market in the country and a $2 billion industry that flies under the radar. Kyle gets his medical card on camera and goes behind the scenes with craft dispensaries to massive operations producing 37 or 30,000 joints a day. And yes, there are gators. Uh favorite quote of mine from the episode was no stop, no reverse, sounds like my life. And that was from Kyle Sherman. Uh check it out on their YouTube page. And while you're on YouTube, check out higher exchanges, click like and subscribe. We're growing that page as well. But that it was, I truly love that episode. I mean, if you look, it's it's you know getting a ton of views, but it's a lot of fun and um you know, great overall series, but they really uh stepped it up a notch in that episode.

SPEAKER_01 4:16

Yeah, that was a really good one. That was a really good one. I'm sorry about that, guys. That's the danger of using Bluetooth headphones. I thought I was gonna use some new Bluetooth headphones, but the audio got stolen by something else. So I apologize for my screw up there. But yeah, these have been these have been awesome, Morgan. And that Florida one is one I really liked. Have you guys ever had gator bites before? Hirsch, I'm guessing being a vegetarian, eating alligator is probably not too high on your list. But how about you, Morgan? Never eaten any gator?

SPEAKER_02 4:38

Not yet, but what about you?

SPEAKER_01 4:42

I've had the gator bites. I think it was in Tampa once when I was younger. And yeah, it was something you're supposed to get at a restaurant. And uh I should most people say it tastes like chicken. I thought it tasted like alligator.

SPEAKER_04 4:53

Eating alligator is not on my list, but I did watch that episode yesterday. Um, you know, the Flow Hub episode in Florida, and I thought it was great. The profile of sunburn, the alligators mating, that was kind of crazy too. So Kyle does such a great job. Um I really enjoyed it.

SPEAKER_01 5:07

So well, I dropped out uh Hirsch when you're talking about higher exchanges too. But yeah, thank you for the kind words. I was I reflect on that sometimes to think that this started as as a spaces, you know, that we're Julie. We had three hosts and we got down to two hosts, and then we went to video, then we went to YouTube, and we're slowly inching up more and more on the production side. So, man, it's been a journey. I think we're what episode 98 today, Morgan.

SPEAKER_02 5:31

So just a couple away from uh 100 episodes. Yeah, and we've got a special 100 episode, but we also this week, hopefully, we'll have Apple video podcasts. So, you know, we just keep up in the game, baby.

SPEAKER_01 5:46

Wow. Yeah, they just started video podcasts at Apple. So we're optimistic when we upload this one. If you want to watch it in video, you can do that on Apple as well, which will be cool.

SPEAKER_04 5:56

But congrats on the episodes almost. That's that's awesome, guys. Really great work. And and I should say I I enjoy being on the show, but I learn a tremendous amount from all of the outstanding guests you have on that show. And I know I'm not the only one. So congrats and excellent work. Seriously.

SPEAKER_01 6:11

Well, thank you very much. Let's jump right into it, boys. Um, so much to talk about on rescheduling, and sometimes I think Morgan, especially, but both of us cringe around some of the political conversations because it feels like sometimes so much talk and so little action. But maybe we're rounding the corner here to some pretty meaningful stuff. So let's jump into it, Hirsch. And on the rescheduling side, we're gonna get into the hearings, we're gonna get into export, we're gonna get again, get into potential interstate opportunities. But let's start at the top and talk about how some different states are are responding to the rescheduling order.

SPEAKER_04 6:45

Yeah, you know, I think it's been interesting to observe exactly, as you said, Jesse, how different states are responding to the order and what those the differences, right, in those state level responses are. And I think there the reason that there are differences is really, you know, state regulators are facing a lack of guidance from the DEA, right? Like on the registration process. You know, like many of us, state regulators don't know, like, is completion of the registration process necessary in order to obtain to ADE relief? You know, we have this June 26th deadline for expedited review, but it's not clear what happens if you apply after that deadline. And so I think it's important to note that state regulators have the same questions that many of us have. And, you know, I know that both from my private conversations with many state regulators, but also if you look at some of the press releases they've issued, whether it's California or Maryland or Nevada, you know, these states have said, like, we will not get this information before the general public does. So we're responding to this in real time. And, you know, I think it's also important to note those states, just like us, are waiting on guidance, you know, from Treasury and the IRS about, you know, whether 280E will be retroactive and, you know, how you know uh adult use and medical might be bifurcated for those purposes. Um, and just the other thing to note is I think we're all still waiting on the non-retail portion of the portal to open up, right? We have this dispensary portal. And, you know, there's another form, as folks may know, called Form 225, through which non-retail licensees can complete the process. But, you know, although the DEA told us those non-retail portals would be opening in the coming weeks, we we haven't seen it yet. And so I think that's the context that we're all operating in, state regulators and licensees ourselves. Um, before we get to different state level responses, I think now more than 400 operators have completed the process. So the way that I think about that is like all of these operators, including some of the you know large publicly traded operators, are operating, you know, under uncertainty. And they think all things being equal, despite that uncertainty, completing the process is the best way for them to demonstrate compliance and obtain the benefits of rescheduling. And we can talk about what that is. But it's important to note like they don't know that for sure, right? That's just like the the what they're doing with the information that they have. So, in that context of ambiguity, I think we see different models about how states are responding. And so I'll give you one model. Like on the one hand, there's a state like Oklahoma. So Oklahoma is actually the only state that has indicated that it's mandatory for its licensees to complete the DEA registration process, or else their state license will be at risk. So, what Oklahoma has said is that, hey, licensees, you need to complete this process by January 1st of 2027, or you're subject to potential penalties or revocation of your license. Now, we don't really have a lot of detail about how that will work, but it is interesting that there is one regulator out there, at least one so far, that has said, look, you know, you need to complete this process. It's mandatory from a state compliance perspective. Uh, and then you can contrast that with a state like California. And if you look at California, California has been very careful to say, we are not going to give you advice about whether you ought to complete this process or not. And you should consult with your legal counsel, right, about whether you should complete this process. And, you know, having spoken to a number of different state regulators out there and flagged for them that Oklahoma is saying it's mandatory, um, a bunch of them are like, well, we're not there yet. And so I think that's one interesting thing. Some states are saying you need to do this or it's a compliance issue. And others are saying you could do this if you want. Um, and then on that second model, as it pertains to California, I think what many of us know is that even though California is not endorsing or requiring its licensees to go through this process, they seem to recognize that the rescheduling order provides benefits to medical operators, and we can talk about what those are. And so what they're trying to do is to expedite or ease the process by which licensees can qualify as medical. And they're doing this in two different ways. One, it used to be a really time-intensive process for adult use operators to also obtain a medical designation. So what the DCC in California has done is through this form called Form 27, you can really easily, if you're an adult use operator, also identify as medical. So that's one thing. And then the second thing that the state of California is doing is there's there they currently have issued some emergency regulations, and there's a few more days of public comment before those take effect. And those emergency regulations will expedite the process through which you can create a distinct entity and thus bifurcate um, you know, your adult use in medical operations. And so my subjective commentary on this is like the state of California, like every other state, still doesn't know how this is going to unfold. And so what they're trying to do is to do what they can to enable their operators to qualify as medical so that those operators can obtain um the benefits of being a medical operator. And I think it's great that they've done so despite that uncertainty. And maybe one or two more things I'll say and then I'll pause as it pertains to the state perspective. I think we should note that California, in my opinion, maybe in all of our opinions, has the most to gain from approaching this rescheduling process intelligently. California is a huge potential market. It could be a $13 or $14 billion market, as we've talked about, unfortunately, for years, right? It is operating at a fraction of that potential because of a surplus of product, because of the illicit market. And rescheduling, right, maybe over the medium term, right, could create outlets for California to truly reach its market potential, say via interstate commerce or export. So I think that's part of the logic here. California knows that it arguably has the most to gain, and its licensees arguably have the most to gain if this rescheduling process unfolds in a certain way. So I think that's part of the context here. Um, and then the other thing I should say is it'll be interesting to see how other states copy one of these two models. So one example I'll give you is like Illinois is currently thinking through how it is going to interpret and approach rescheduling. And right now there's a bill that would considerably ease the process by which medical patients could obtain medical product. I mean, it's it's not exactly the same thing as what California is doing, but in light of this rescheduling order, Illinois seems to be saying we wanted to make it easier for consumers to purchase via medical dispensaries by allowing every dispensary, not just a set of dispensaries, to sell medical product in Illinois and to do kind of other such things. And they they've referenced California as an example. And so I guess I would just conclude by saying it will be interesting to observe in the coming weeks how different states fall into different camps or archetypes as they approach this order with uh with limited information.

SPEAKER_01 13:09

And why do you think Oklahoma is taking the taking the route that they are?

SPEAKER_04 13:13

I, you know, I don't know. I don't really have a great answer there. Um, so this is all speculative. I mean, I'll say the the first thing, like Adria Berry, who's the head regulator in Oklahoma, is like the head of Canada and is like a longtime regulator. So this isn't really an answer to your question, Jesse, but this is a very experienced regulator, kind of like in in that role. So I thought that was interesting that one of the leaders of the regulators is taking that stance. Um, maybe another hypothesis is like uh Oklahoma, after having opened in a very wild west, like kind of anarchic fashion, has been very intentional about compliance and regulation. And so this might be another means through which they try to winnow down their large universe of medical licensees to those who can really come to the table and play. And so I think that culture of compliance um has been embedded in Oklahoma for at least the past couple of years. And this might be just another another example of that. And perhaps the only other thing I'll say is Oklahoma is obviously a medical-only state. So perhaps they don't have to consider the complicated issues associated with having like dual licensees and how that might affect, you know, the different operators uh in Oklahoma.

SPEAKER_02 14:16

What would some of the cons be for requiring like that Oklahoma model? I'm trying to think of the downside because I hadn't heard that. So this is interesting.

SPEAKER_04 14:25

Yeah, and and so folks can look it up. Again, the deadline that they've put out there is by January 1st, 2027, right? So uh longer than the deadline for expedited processing. I think one of the downsides and one of the reasons that maybe California is cautious, and I'm not breaking any new ground here, it's that the DEA application like asks a lot of intrusive questions, right? It asks whether you have ever been guilty of a federal crime or improperly handling like a Schedule One substance. It asks, you know, you to disclose a lot of personal information for the people in your facility who are handling Schedule One product. So I think one downside might be that Oklahoma, and you know, this is just theoretically speaking, right, might be subjecting its licensees to to potential risk, right? Especially given that a lot of Oklahoma licensees have probably been coloring outside the lines, right, shall we say, um, when when it comes to to their um comes to their activity. So I I think that that could be one downside um uh of requiring it.

SPEAKER_02 15:21

I mean, there is the additional cost. And sorry, Jesse, I'm just this is really interesting. Um, you know, I do understand that. And the DEA is not a it's not free to register, you know, you know, every store, every facility, you know, it's there's a cost to it, so it's another tax we got to pay. Um I'm I'm just stuck on the pros of it, and and so that's why I'm just not wanting to be too closed-minded because it's like to me, it's like this creates a very bright line between legal business and gray area or illicit, because either you are just legal or you're not, right? So, you know, and I think California would actually benefit from that because we do have so much you know, gray and illicit activity going on here, and it would be very clear either you are DEA registered or you're not. And so that's why I'm just trying to think of like what would be so, other than this, you know, subjecting employees, because that's a good point of like when you're doing state licensing, you know, it's usually like board members and stuff that have to disclose personal information, but it stops there, it doesn't go you know into the employees button.

SPEAKER_04 16:29

So it's interesting. Totally. I I think maybe one other thing to mention on this topic is California obviously has a big, you know, history of legacy operators that probably have very negative experiences with the DEA. So again, not speaking for the DCC in California, one might imagine that they could be somewhat reluctant to require those operators to re-engage with a federal agency that had been prosecuting them for decades, and maybe they're a little more sensitive to that fact. Um, so that could have played into the calculus um as well.

SPEAKER_01 16:57

Yeah, what I thought of Oklahoma and the requirement, Hirsch and Morgan, the first thing I thought was compliance, in that that has been the wild west out there. And I didn't know the vibes around Oklahoma. We don't do any business there, I haven't spent any time there on the cannabis side. So I didn't know if they were cool with it or if they're trying to clean it up. But if you're trying to clean up and scare out the bad bad actors and unfortunately probably kick out some good people too, that maybe had some issues in their past requiring DEA registration, it seems like you know, one firm step in that direction.

SPEAKER_04 17:24

Totally. Totally.

SPEAKER_01 17:26

Well, why don't we jump into the next thing, Hirsch, and talk a little bit about these adult use hearings? Today is Tuesday, May 28th. So we're just over a month away from those kicking off on June 29th. Talk to us, Hirsch, about what that process is and what our expectations should be.

SPEAKER_04 17:42

Yeah, I mean, here's my take, right? So I think everybody knows the hearing starts on June 29th and it ends on July 15th, right? So it'll be over in six, seven weeks or so. I think the very important thing we all need to remind ourselves of is that there is a legal challenge, right, to like this entire rescheduling process. And although we've seen one of those legal challenges be dismissed when it came to the Medicare CVD program, this rescheduling order, like all aspects of it, are still subject to a legal challenge. And so I think it comes as no surprise that, you know, Sam filed a lawsuit, I think, in early May, just a few days, right, after this rescheduling hit, challenging this legally. And without getting into all the legalese, one of the arguments that they made was that the rescheduling process violated a law called the Administrative Procedure Act, which requires you to go through like a notice and comment procedure for these kinds of regulations, right? So Sam filed a lawsuit. And then I think the other interesting and relevant development is that three states, right, um filed a lawsuit after Sam. And uh those three states are Nebraska, Louisiana, and Indiana. Um, first of all, it's kind of absurd. Two of these three states have medical programs. So I think it's it's it's kind of ridiculous that they filed this challenge. I also want to remind people that 77% of Nebraskans voted to legalize medical cannabis, right, um, last November, even though that program is still being obstructed by politicians there. So it's particularly egregious that the attorney general is wasting taxpayer money on something that his own citizens clearly support. So that's the first thing, right? That they'll they'll file a law a lawsuit. Um, and so we'll see how all that unfolds. I think the second thing to pay attention to as it pertains to this process is who the list of participants are, right? I think that just will be an interesting thing for us to observe. And I imagine, you know, a week from now we'll start to get more clarity on who the witnesses are. People may have been following those organizations that have made public that they have filed a notice to participate. And so those are some of our allies, right? So, like Normal, um MPP, right? The marijuana policy project, um, attach, an organization led by Michael Bronstein, who I think folks know, and being represented by Shane Pennington, right? Who I think a lot of folks know. So those are the folks who have filed a notice to participate. And then the most prominent opponent that has filed a notice to participate is Sam. So I think that's just the other thing for us to be watching um in the coming weeks, is who is actually admitted, right? Because I think that will give us a clue into what the discourse will be on the hearing. And look, in terms of how this all unfolds, obviously I don't know, right? And this is just my educated opinion. I'll give you a few reasons why I am optimistic and hopeful that, you know, in the weeks and months after this process concludes on July 15th, we might see a full rescheduling. Again, obviously none of us know, but these are some of the things in my head. Um, first, it's notable that there's an end date here, right? You might remember from our last ALJ hearing in front of like Judge Mulrooney, there was no end date for the proceedings. Here, the proceedings begin on June 29th and end on July 15th. And in the middle, we got a long like July 4th holiday, right? I don't know the exact number of hours they'll this hearing will take place, but it's a pretty compressed timeline. So that makes me optimistic that this process won't go on interminably. So that's one thing. Um, I think that the the second thing is like we've heard confidence being expressed by a lot of people who are closest to the process. So if I think about Boris Jordan, you know, of Cure Leaf or Kim Rivers of TrueLeaf, um, you know, they have expressed optimism that this process could wrap up in Q3, or they think for sure by the end of the year. Now, look, have those people been wrong before? Yes, right. Like everyone in cannabis has been wrong before. So that's no guarantee of anything. But I think it's a relevant data point that some of the people that, at least in my opinion, have been closest to the Trump administration on this process, right, believe it'll be wrapped up expeditiously. And one could further, you know, sort of conclude that, like, you know, obviously Cure Leaf did this reverse split right a few days ago, which will enable their stock price to remain above like $4 for 90 days. And that would mean, you know, if that's the case, that they might be able to uplist by October or or so. And so again, I'm sure Boris Jordan is speculating just like all of us, but it is um interesting that they took that kind of uh preemptive uh step to prepare themselves for a world in which uplisting might be possible. And then a couple more things I'll say. I do think that there is merit to the argument that this is an argument that you know Donald Trump and the Republican Party want to make, like in the midterm elections, just a crude way of putting it. It is that like his approval ratings, no matter your politics, are really in the tank, and he's going to be looking to play like every card he can, right? In the same way that Joe Biden initiated the rescheduling process in October of 2022, a week before his kind of like midterm election, right? As one potential argument, maybe this is an argument that Trump wants to make as well. So I think there's a relevant political consideration. And then the final thing, I think, guys, is just like, I don't think this bifurcation is tenable over the long term, right? There are some people have said, like, look, what if only medical gets rescheduled? Like, how should we prepare our operations? And look, I guess it's possible. We could be living in a world two years from now where only medical cannabis is rescheduled and adult use is not rescheduled. I guess that is possible. But that is just so untenable. First, like conceptually, it makes no sense. I think we all in the industry understand how these categories are very malleable and aren't rigid. And even like US senators, like Senator Lisa Murkowski of Alaska, has said, like, well, how do you know if it's adult use or medical cannabis? So I think there's an intuitive understanding that this distinction doesn't make sense. And then one wonders, right? So if medical cannabis only gets rescheduled and then California allows everyone to become medical, right? Like what kind of happens then? Is the response to a medical-only rescheduling states passing policies that enable their licensees to become medical designees to take advantage of these benefits? And that further illustrates like kind of the incoherence of these two categories. So I could be wrong. I just can't imagine a world in which these categories continue to exist. And that's why I'm cautiously optimistic that that we could see this get done later this year, but we'll see.

SPEAKER_02 23:34

Sadly, I can. Go, go, go on, Morgan. Well, because politicians are regardless. I mean, it's just adult use in a lot of their minds is like a dirty word, but medical seems okay. So I could see them, you know, if depend so like after July 15th, we're gonna have this period of time where we're gonna have to just see how these lawsuits come out. And you know, this is this is where the timeline gets a little murky again, right? Is there's just a lack of clarity of where adult use could be resolved, right? There's no follow-up date, right, after July 15th, right, Hirsch?

SPEAKER_04 24:13

Yeah, there's no there's no there's no deadline. Yeah, that's right.

SPEAKER_02 24:16

So if this drags on six months, a year, who knows? What's gonna happen in the meantime? People that are already medical and are able to sell without 280e, they're gonna be able to have different pricing capabilities, markets are gonna start moving in that direction. So if if adult use doesn't get consolidated, if it doesn't all get consolidated, as it should, I totally get what you mean. Like it's nonsense, but it's just purely political in my mind. Market forces will shift. And then by the time they finally clean up adult use, it's just gonna be like when medical first started and adult use came in, and adult use took up 80% of the market share, and now it's gonna just potentially be a reverse of it. And so by the time they actually come around to sorting it out, people are gonna be like, Well, what's the point? I mean, we're medical, we're already selling this, like you know, maybe they'll still do it and maybe it'll balance out, but just so people don't have to pay for prescriptions or you know whatever they need to do in their states. Um, so I think it's it's more of a time function of what you know, what adult use will ultimately look like. Obviously, if it gets done right away, then sure, both markets can coexist. But the longer it takes for adult use to get clarified, the smaller market share it's gonna have. And then how meaningful is it really gonna be?

SPEAKER_04 25:29

Totally. And and just to that point, Morgan, I can't really argue with what you said there. And I'll just quickly note you know, one argument in your favor is just history tells us, I hate to put it this way, but everything that can go wrong in cannabis goes wrong. Like any bounce that happened does not bounce our way. So if passed is precedent, then that would support kind of what you're saying. And you can't argue with that. The only other point I'll make is that if that's the case, if we have a sustained period where only medical is rescheduled, not only is it incoherent for the reasons we discussed, we should acknowledge that that overwhelmingly benefits like the larger, you know, more well-capitalized operators like the MSOs that have a medical footprint, and it disadvantages, you know, social equity operators and newer operators that are adult use only. I'm not saying that'll be dispositive, but I imagine a lot of state regulators in different states, especially those that have given a lot of lip service to wanting to help smaller operators, will highlight like not only is this oat incoherent, but it disadvantages the smaller, less well-capitalized operators, which everyone I think um would think is unjust.

unknown 26:30

Yeah.

SPEAKER_02 26:30

And this is where the 280E resolution comes into play because those larger operators also have massive amounts of 280E that they've accumulated. And so it the that is kind of an equalizer, is these newer entrants don't have all of that legacy debt if those bigger groups have to pay for that. We'll have to see. But that does equalize it where they don't have largely any, and then they become medical and they're they don't have any of those debts to deal with.

SPEAKER_01 26:58

So totally yeah, a couple thoughts here, gentlemen. First, I'd like to go back to someone that's you know so important in the cannabis movement from the book Smoke Signals Hirsch, which I know you and I both enjoyed. The Dennis Perone quote that every cannabis user is a medical patient, whether they know it or not. And so obviously at a fundamental level, this is so flawed. And that even think about the context of me in California, if I go grab an ounce of flour, call me a rec user. I split it with my dad. He is for sure a medical user. You know, is that medical cannabis or is it recreational cannabis? It's a, you know, obviously a very flawed distinction up top. And so I say that philosophically, which is probably worth about nothing, but is sincerely how I feel. And number two is what happens, Hirsch, to states like California and New York in that context, where you have, you know, Michigan, um, you know, all the you know, there's a handful of meaningful medical markets, and most of those are just waiting at going rack, thinking that's going to be awesome. But if this framework were to happen where this just gets delayed, what happens to these big states that have converted to 90-some percent adult use?

SPEAKER_04 28:02

Totally. I I think that's that's exactly the question, right? Um, and I think those states like California will try to find some creative means to situate their licensees within the medical bucket and we'll see whether it's successful or not. But but you're right. That I think that totally is the big question. Umly other thing I'll say is you mentioned Dennis Perrone, I think a really important historical figure who was crucial to the passage of Prop 215 in California in 1996. For those that don't know him, I recommend to everyone to watch the documentary that just came out called Join the Club that features Dennis Perone. If you're ever a little depressed about spending your life in cannabis and whether you're doing something meaningful when comparing it to other things you might be able to do, watch that documentary. And I think that'll give you some historical perspective on not just what an incredible man he was, but how we are kind of following in his footsteps. So join the club. Um, highly recommended.

SPEAKER_01 28:53

If you were to grab your very foggy crystal ball and look through it, Hirsch, what do you think are reasonable expectations in terms of getting feedback on the hearings and knowing if it's going to be a yes or no on adult use? Like what do you hear a lot from you know MSO leaders about this being a third quarter event. I think some of the bigger analysts out there have written that as well. But what are your expectations of the timeline?

SPEAKER_04 29:16

I mean, I I will just go with, you know, I'll just kind of copy what Kim Rivers and Boris Jordan has said that it could happen in Q3, and then we think it's likely to happen by the end of the year. Again, acknowledging the merits and everything that Morgan said about potential delays, I guess that would be my rough expectation on timeline for all the reasons that I kind of like mentioned before, the midterm elections, et cetera. Um, and I guess my signal would be like if the hearings kind of go off without a hitch, right? I mean, just theoretically speaking, let's just say Sam doesn't get admitted, right? And um, you know, they they aren't a witness there, I would take that as a positive sign if there isn't something extremely disruptive that that happens in the hearing. Now, is that foolproof? No, because a lot of this power lies within the attorney general, right? So, so obviously that's just um, you know, maybe one kind of data point. But I I think if these hearings proceed smoothly and without interruption and conclude on time, then that would increase my optimism um a little bit.

SPEAKER_01 30:11

So let's move on to one more one more there, Morgan.

SPEAKER_02 30:14

Go ahead. Yeah, yeah, go ahead. Oh, yeah, oh one more. Yeah, yeah. Um on the state stuff, um, you know, you were mentioning about like California and something we've labored on to no end, is the amount of um municipalities that have not opted into adult use, but now that there's this DEA registration, are we seeing anything at the local level that is an encouraging more municipalities of say, like, hey, we can have a medical retail market now because there's this DEA process. Like if California is cities that have not had anything pretending like it doesn't exist, but now all of a sudden can start doing this. Like, are we seeing this pull more conservative local uh you know, municipalities, you know, up and saying, like, we can do this now. Are you seeing any movement?

SPEAKER_04 31:04

Totally. We we haven't seen movement yet, but I do think your your train of thinking is exactly right, Morgan. And I do think if once this process like resolves itself and is codified, we will start to see that movement. You know, one of the ironies, if you compare Prop 215, California's medical framework versus Prop 64, right? Prop 215, the basic premise is that cannabis is medicine, right? And in that context, it was much easier to open up facilities in different jurisdictions kind of across the state. Prop 64 was premised on the idea of cannabis as vice, right? Like if it's a medicine, it's much more difficult to ban, right, people in your jurisdiction from conveniently accessing medicine. If it's a medicine, it's much more difficult to justify these really high tax rates. And so what I would say is the more that cannabis is framed as medicine, the more that we will be able to unwork this really unworkable framework, which is premised on the idea that cannabis is a vice. And that's reflected, right, both in the tax rates that our legal cannabis is subjected to and also in these municipal bans. So have we seen anything yet, Morgan? No, we haven't, but I do think we will. And just to kind of under-agurd that with a little bit more substance, right? Like California recently passed a law that does not impinge upon local control, but which requires cities to make medical cannabis delivery available to qualified patients. Now, I know that's a really small universe, right? Making delivery available to the small universe of medical patients in California. But the implicit logic there, right, is that access to medicine is important, right? Um, and so the more that this is reframed as medicine, I think the more that access will increase as a result.

SPEAKER_01 32:40

And so when I put on my greedy investor hat, Hirsch, which I wear sometimes, I look at Schedule three and I think about the 280E tax relief, which is right, the biggest headline benefit that we're all excited about. With this DEA pathway, it opened up a couple other things that could be meaningful on the investor side, which is the potential for interstate and global commerce. So why don't we start, Hirsch, with interstate, and maybe you can frame up what's opening up here and how does this work?

SPEAKER_04 33:10

Totally. Yeah, I'll give you my thoughts on interstate. Obviously, there are heated debates here. There are some people that think interstate are going to happen next month. There's some people that'll that think it'll take five years. Um, I don't think we have time to give a precise answer to that question on this show. But maybe I'll just lay out what are the relevant kind of legal, political, and legislative considerations that you should have in mind if you're trying to game this out. So, and and a lot of these are things you know folks have heard before, but just to kind of rehash them. So on the legal side, right? So the argument is that if medical cannabis is now federally legal because it's Schedule III, then federally legal products are eligible to participate in interstate commerce, right? That's like the very simplified version of the legal argument, which says that the dormant commerce clause prevents you from limiting um, you know, this to in-state activity if it's federally legal. So that's that's a smart argument and it's hard to argue with. So we have that legal argument that says, hey, if it's federally legal, interstate commerce should be okay. So fair enough. I think it's also important for us to consider the politics here, right? I think there are some states that will be very resistant to the idea of interstate commerce, and there are some that might be quite receptive, even receiver states, right? So I can imagine a world in which New York, for example, is not really thrilled, right, about allowing in a lot of California cannabis. I'm not saying that's right or wrong, but they might not be thrilled. That might impact their pricing, it might hurt their domestic licensees. On the other hand, there are states that have no such program, and some of those states are legally required to set up a medical infrastructure following reschedule. So South Carolina is a great example of a state that has no program that has a statute on the books that says if cannabis is rescheduled and needs to be made available medically, right, to the citizens of the state. Now, the Department of Health in South Carolina has basically said, yes, we've acknowledged that law. We're still interpreting it and understanding it. But I think the point there is like there are at least nine states in this country that lack any kind of medical cannabis program. And, you know, one could make the argument that those states would be far more receptive than, say, an adult use state to interstate commerce. And so I think people who are trying to move towards a world of interstate commerce might tactically focus on those prohibition states because that might minimize some of the political friction. So look, there's that legal argument that I laid out before about why a court of law might say this should be able to happen. There's the politics we have to keep in mind. They will be tough in some places and they will be less tough in other places. So I think that's important. Um, a few more things that I think are just important as we all kind of game this out here, is there are, despite that legal argument that allows interstate commerce for federally legal goods, there are existing state laws that still prohibit this interstate commerce, right? So there are a bunch of laws on the books in states across this country, right, that do not allow this to be the case. And, you know, without getting too nerdy here, if that's the case, we have to consider the legislative calendars in each of those states, right? We all know that Virginia's legislative session is over, you know, essentially for the year, right? Um, for example, Illinois' legislative session will end next week. Texas only meets every two years. So that's one important thing to note that like if we're trying to change state laws, it doesn't matter if the governor is like, yeah, let's do it. You need to do it through a normal legislative process. And so that kind of begs the question of whether interstate commerce might unfold in an iterative way, right? Um, by which we mean that it might start in some states before other states and it may not be a kind of universal thing. So I think that's another concept uh to kind of keep in mind. Um, I think as it pertains to California, right? Since California is a very relevant state here, reminder to everyone that California has a law on the books called SB 1326, right, that authorizes the governor to develop interstate compacts with other states, right? And they can develop, you know, the governor can develop those interstate compacts. One, if the federal government kind of like explicitly says that interstate commerce is allowed, or two, if the attorney general of California deems that California would not be put at legal risk there. So I think that's a relevant part of the calculation. Is one of those two criteria triggered? And does that give California the comfort that can engage that it can engage in interstate commerce? Now, it'll still need to find a dance partner, right? It will still need to find another state. And this only allows the governor to negotiate a one-on-one agreement with another state. But I think that's that's important to keep in mind. And then a couple more, I mean, I could talk for a while, but maybe a couple more things and then I'll pause here. You know, on the interstate commerce thing, again, without making this a legal seminar, right? Yes, you know, the dormant commerce clause prohibits um you from creating these siloed state markets. But a lot of these questions are quite complicated legally, right? So just as an example, there was a proposition that passed in California called Prop 12 that pertained to pigs, right? And it basically said, like, pork that is sold in California, you know, must be raised under minimum confinement standards, right? So California adopting that law basically locked out a lot of other states from selling pork into California. And this was challenged, right, under the Dormant Goners Clause. Like, are you obstructing commerce between the states because you're not letting folks who are, you know, raising pigs in Montana sell into California because they don't meet your like health and welfare standards for animals. Um, think about, and and I should note, like on a 5-4 decision, right, the United States Supreme Court said that was okay. Like that gives you a sense of how complicated this is. The United States Supreme Court said in a very narrow five-to-four decision, look, it is okay for California to impose these standards under health and safety and welfare reasons. So one might imagine, like, how might this apply to cannabis, right? Just imagine a world in which, you know, California has certain pesticide standards, right, that are different from other states. And there is some justification that we ought not engage in commerce with other states because they don't have the pesticide standards we do. And again, I'm not saying that's what California would do. I'm just, you know, saying this for the purpose of legal argument. Um, and we all know California just spent a year revising its action limits for its pesticides. And so I think that's an example of how there could be regulations on pesticides or labeling and packaging that function as a de facto ban on interstate commerce that that kind of could get um legally challenged. And so um I would conclude all this by saying that I certainly think that rescheduling creates really meaningful momentum for interstate commerce. But if I were trying to game out a timeline here, these are the things that I would be thinking about. State legislative calendars, right? What the process is performing these interstate agreements and what what the challenging mechanics of setting up that market might be from a pesticide and labeling and packaging and metric perspective. And I could be wrong, but my suspicion is that those challenges aren't going to be solved overnight. Um, but we'll we'll have to see.

SPEAKER_01 39:44

So we often look to the alcohol industry as a potential model for how cannabis evolves. And if Google is correct, if you buy wine in Napa, you can ship that to 48 states. The only two states that you can't ship it to are Mississippi and Utah. Why do you think that is, Hirsch, that it's easy to ship one, relatively easy to ship wine from California, but we're talking about being so difficult to talk people into bringing cannabis into their state from California?

SPEAKER_04 40:12

Um, I think my super simple answer here is that like can uh alcohol is now a clearly recognized, like federally legal product, right? And so it's treated as other products are, you know, generally. And so that interstate commerce exists. And cannabis historically has been an illegal product, right? Um, and so that um that's that's the reason, right? It hasn't been the beneficiary of this interstate commerce uh protections. And part of that is, I guess, the legacy of things like the coal memo, for example, right, right. So when Colorado and Washington passed adult use in 2012, right, the Obama administration issued a coal memo, which is like, all right, we will allow you to do your thing, but like keep it in state, right, and make sure it's properly regulated. And I think that just kind of got embedded into the legal architecture here. Now, I think that will clearly change at some point, but I think that's why, you know, maybe it won't change tomorrow.

SPEAKER_01 41:03

And I was thinking too, Hirsch, maybe it's also because there aren't built-out indoor wine grows across the country that they're trying to preserve as well. Like it seems like a lot of this is about self-preservation, right? Like on one side I see customer choice, the other side I see self-preservation. Um, you know, New York's an easy example. If you're in New York, is there a demand for California cannabis? 100%. Like we, you know, maybe more than any other state, California cannabis is huge. So the consumer raises his hand and said, Boy, I'd love to have that choice. I could support local, or I could buy, you know, this other product, which you often see in the stores, right? In Santa Barbara, I could buy Santa Barbara strawberries, or I could buy maybe something imported from Honduras, depending on the time of year. So we're given that choice. But it seems like there's friction between consumer choice and self-preservation of those businesses that don't want to compete in that open market.

SPEAKER_04 41:51

Totally. I think that's exactly right. And that's kind of what I was implying by the politics argument before, right? Imagine you're a senator in New York, right? And even if you're a very well-educated constitutional lawyer who understands the dormant commerce clause, like you have a bunch of constituents whose jobs will be at risk, right? Arguably, potentially, if this interstate commerce is allowed. And so even if you know the courts are going to strike it down, maybe you pick put up a big fight, you know, for your own electoral reasons because the people of New York elect you, not people around the country. So I think you're totally right about the self-preservation. And I would say that pull those political dynamics, I don't think are enough to obstruct this in perpetuity, but maybe some of like the gum in the wheels or the gum in the ointment that that you know obstructs this process, even if that's eventually overcome by things like court decisions.

SPEAKER_01 42:38

I think the obvious beneficiaries are the scaled California players. And I say this not just in a self-serving manner, but you have glasshouse, you know, on the flower side, that's the probably the biggest producer of you know flour in California. And they've obviously built a business that will perform really well in export. Leaf similar on the concentrate side, you know, by the end of the year, we're going to be at 180 acres, which is about 7.00 square feet of cultivation, have a massive extraction facility in Mendocino County, and we're able to meet more demand across the U.S. So I think you look at businesses like Leaf and Glasshouse as potential obvious beneficiaries. But is there a second layer to this? And I'd like to hear from both of you on it. But if you're Cure Leaf, Terracent, you're any of the big players, and you have facilities in different states, and let's say you have, you know, 150,000 square feet in Pennsylvania, that's putting out fire flower. But in Maryland, you've got 40,000 square feet and you're struggling a little bit. Is this the pathway for the MSOs to streamline and move things across markets? Let me start with you, uh Hirsch, and then I'll go over to you, Morgan, and see if you see that as a benefit.

SPEAKER_04 43:39

Yeah, my thoughts. I mean, first, I I broadly agree with you, right, that the California operators will be are likely to be beneficiaries of this, both because many of them have the scale, right, to be very price competitive and because there's a latent consumer demand uh for the product. Um, I will say you hear countervailing arguments that like there are regional preferences when it exists to cannabis and like people in Ohio, right, um, or or otherwise have. A deep cannabis culture and they respect local brands. I think that's true to some extent, but still like that can exist alongside a deep consumer desire for California brands. So I think both of those things can be true. And then on your question of like, you know, are there other potential beneficiaries? I think, I think yes, right. And you can think about this both in terms of operators or in terms of states, right? There are states out there that we all know, maybe Michigan being a great example, that are dealing with a huge kind of surplus of product, right? And so they arguably could be one of the beneficiaries here because interstate commerce gives them an outlet to dispose of that surplus of product in the same way it gave Canada, right, an outlet to dispose of its surplus of product when it came uh to Europe. And so I think there's a good argument that the California operators could be the biggest beneficiaries, but there are MSOs with scaled facilities, and there are, you know, even non-MSOs that are operating in some of those oversupplied states that would probably welcome this because it expands uh their their market. And um, you know, I think in addition to the states I mentioned, Oregon is another great example, right? There are operators, for example, like a grown rogue that is not what I think of as like a big MSO and is not a California operator, but also has a huge kind of outdoor facility that might benefit from interstate commerce and higher prices well, one quick question before I answer was, you know, Hirsch, when you were talking about the uh like the federal test around interstate commerce, was you're saying federal legality, but rescheduling is not changing the legal status, correct? I mean, you know, you have people frame this in different ways. There are people who debate like, does rescheduling like make medical cannabis federally legal? There's some people that say yes, and there are some people that say no, it's still on the Controlled Substance Act, and so it's still like illegal. So I I think that's kind of a semantic question. Maybe I would say, like, is it it makes it like appreciably legal or much more legal from the first time, whereas on Schedule One, it was definitely illegal. I know that's not a great answer to your question, but it's sort of like a I think a semantic debate we have about is this legal, right? Um, or or not.

SPEAKER_02 45:57

Would it take an act of Congress to clarify that? Or what would what would be needed so that it's not a semantic and it's like just clear?

SPEAKER_04 46:06

Yeah, I mean, I I think an act of Congress would would help, um, for sure. I don't know if that's one we should expect. Um yeah, right. But yeah, I I mean I I I I think that that would help for sure. And I guess the question is like, you know, we consider other schedule three drugs. I think Tylenol is a schedule three drug, if I'm not mistaken. Like, obviously, we consider that to be to be legal. So with code. Um with Tylenol, with coating. With coding, got it, got it, got it. Yeah, yeah. So I don't know if I have a great answer to you on on that subject. I but I've just seen people have really different opinions on is this legal or not.

SPEAKER_02 46:39

Right, right. So, you know, to answer your question, Jesse, I mean, I think we talked about this maybe like a year or so ago while we were in the purgatory of not knowing where we were going to be with rescheduling. Uh, you know, I've kind of had this long thesis that obviously uh it's incredibly inefficient, this state-to-state interstate market system is just it's it's not good capital allocation, but it's been forced. So companies have had to do this, they've had to build out all of duplicative infrastructure in multiple states. It's not smart, but it's what they had to do. Um, so I'm not blaming them for doing it. Um you know, it's just the challenges of this emerging industry. And you know, I thought an initial step would be it would be interstate uh transport within a licensee. So if you're a cure leaf or GTI, whatever. And to your point, like you've got a scaled grow in a state, you don't need to go stand up another scaled grow in all these other states, you would be able to transfer products that you made in your license facility to your licensed retail in another state. And that way, you know, it's but it's only contained within your ecosystem. So the manifest would be super easy. There would be total transparency, and I thought it would be a a natural way for this industry to get some more scale without so much capital requirements that have been needed. Um but you know, the the overarching question, I think, of around the interstate commerce is yeah, is is um the competing forces around it. Um, you know, about where's the incentive lie? And I Jesse, you hit on it, I think, pretty you know, square on is you know, when you think about when prohibition unwound, it wasn't like we immediately had 48 states we were shipping wine to. It took decades to get there. And as Hirsch was saying, with these different legislative sessions and you know, different political wins and all this stuff, you know, how long could it take for some of these things? And and you know, I'm gonna end it with a question back to Hirsch is do these have to be neighboring states to have these packs? Or can so like if you're sending product from California to New York, and are you going through Nebraska or do they have to have legal states? Like what how does that all work?

SPEAKER_04 49:00

Totally. I think that's a that's a great question. But like, you know, for example, when it comes to SB 1326, the bill in California, it wasn't envisioned that those packs could only be formed with, you know, Nevada and Arizona, right, and and and Oregon, right? California, under that law, if the federal government gives it permission, has the ability to develop a pact, you know, with another state. And I think it was always envisioned that East Coast states might be a potential dancing partner. So so no, I don't expect it to be limited to just neighboring states, but your question is a fair one, right? I think that's one of those things along with tracking, right, and testing that will need to be kind of worked out as commerce begins uh between these two different states.

SPEAKER_01 49:40

Yeah, and I'm a little rusty on flour prices, but just to try to put some numbers around this, guys, on the concentrate world, because that's where I live. In California, distillate is about a dollar a gram. Places like New Jersey, last time I checked, it was seven, eight bucks a gram. And a lot of the country, it's in that three, four, five dollars a gram range. So if you're someone, again, I'm just using my company's example because I know it best, like Leaf, who's used to selling distillate at a buck a gram, and all of a sudden you can even sell it for $2, right? Which is on the low end of where other states are. If we sold 25% of our output at twice the cost, our margins would go down, would go from 49% to 59%. So again, that's 25% at twice the twice the not twice the cost, twice the price that you're selling it now. So that's real napkin mathy, but it does just show that for California operators, Leafs, Glasshouse of the World, I'm sure there's a bunch of others as others as well. When you start to change the math and get into some of these other markets, that's what a lot of these businesses were really built around. Like, you know, Glasshouse, you know, for sure, Leaf that's been, you know, on our radar this whole time. So it's really exciting to see that thesis getting pulled forward, like you said, Mark. And you know, we're talking about this a year ago. I started having some export conversations a couple of months ago, just kind of on a hunch around how this could play out. You know, and here we are now, and those conversations are thankfully getting a lot more serious. And so I think it's a really exciting avenue. You know, we talked about the interstate side, Hirsch, which um I think most people think could take a little bit longer to play out, but there's another side to it too, which is leaving the country on the export side. So can you frame that opportunity a bit for us as well?

SPEAKER_04 51:14

Totally. Yeah. So first I agree that, you know, it it seems plausible to me that, you know, export might happen in a meaningful way before interstate, in part because of the political resistance that we discussed before, right? That could be a real hindrance in the United States. So I agree with that. Um, I think maybe the second thing to note is like export is an opportunity because we're seeing a pretty robust growth in medical cannabis programs, right? Kind of across the world. I know that's obvious, but just to enumerate them, and we don't have time to go through each example. But like Germany, right, obviously like the most robust medical market in the world. Australia, a really robust medical market, UK, their market is growing. The Czech Republic, their market is growing. France's program is just getting off the ground, Poland, you know, et cetera. So that's exciting, right? This is happening as a consequence of those medical programs being kind of stood up. And, you know, what I would say is what is great about, you know, can't cannabis being rescheduled or potentially being rescheduled is that like Schedule One drugs, there's a huge barrier to export right there. So and this like makes it meaningfully easier. But then the other obvious thing to note is that, you know, it won't simply be a free-for-all, that there are requirements to participate in that international supply chain. I think the ones that we've heard about, which obviously we don't have time to get into today, are things like GACP, right, um and CGMP right here in the United States that are important for operators to uh kind of engage with. And I would say not all operators will be able to meet those standards. So I think that's quite important. Um, and then we should also note that obviously there's EU GMP, which folks need to be educated on. And, you know, the German regulator, as an example, keeps getting stricter and stricter in their application of those requirements. And so I think it's important to note that you're gonna have to check a lot of boxes and obtaining those certifications can take six, 12, 18, 24 months. Um, and so I don't think anyone should assume that that it's kind of overnight. Um, so I think that's relevant. And maybe two like kind of more political points I'll make is that I think one exciting thing is like you're starting to see Canada take notice of the fact that the US is rescheduling and is starting to get jealous about preserving its competitive advantage when it comes to international trade. I think that's what we want to see. We want to see what I would call a race to the top, right? Or a virtuous cycle where Canada's like, oh, we're kind of already playing this game, but the Americans might catch up to us. So let us ease our regulations to build this international supply chain. And then you need the United States to say, America first, baby, right? Like Canada is running away with this. We need to catch up with them. So I'm excited for that political dynamic to develop, even though I think, you know, as much as I love America, um, I think we'll be playing catch up for for a little while just because of the infrastructure and the certifications Canada has developed. Not forever, but I think for a little while. So I'm excited about that political dynamic, that competitive political dynamic to develop. And I think we should do everything we can to encourage it to push these countries forward. And then the other kind of political point I'll make that isn't really an answer to your question, Jesse, but I think is important is that the development of an international supply chain has a deeply legitimizing effect, right? Like we are all so frustrated at the lingering presence of cannabis stigma and how it is impeding our ability to build the cannabis economy that we know is possible in this country. The development of an international supply chain really destigmatizes cannabis, especially when you see other Western industrial democracies engaging in cannabis commerce. So I'm excited for for that too, to kind of expunge some of um that old legacy thinking uh on cannabis. And I think that'll have ripple effects.

SPEAKER_02 54:35

Do we need EU GMP for exporting to Canada?

SPEAKER_04 54:41

I I don't know the exact answer to that question. Um I I don't know. That that is a good question.

SPEAKER_02 54:48

Just uh just thinking about Jesse's point on the pricing differential. Um, it's been a while since I've looked at Canadian prices, but they're up because I have benefited from their ability to export to Europe. I'm wondering if there's a world where we could be exporting to Canada.

SPEAKER_04 55:05

I think that'll be part of the conversation, both back and forth, right? I think Canada would want to export to us and we would want to export to Canada, you know?

SPEAKER_02 55:12

Yeah, sure. We'll we'll we we'll we'll enter that agreement all day long. I'm sure Jeff Martin, you'd be very happy about that, right? Yeah.

SPEAKER_01 55:20

Yeah, Morgan, I had that conversation the other day with somebody just kind of kicking it around like you were like, is there is there is there a path that we would you know run material from the US through Canada, and then that would be you know the EU GMP station to you know move it abroad. So I think that's definitely something to be thinking about. Yeah, and I think what we're what when we talk about this again, the opportunity here is you know, right now to sell things for a lot of operators on the West Coast, especially other low-cost states at higher prices, and depending on the market, similar math to what I laid out in terms of uh interstate, where you know, two, three, four, five times or more where we are in California, depending on which market. And these opportunities, guys, are very market specific. And Hirsch, I've been having a lot of these conversations with folks across the world. I know you've been attending the conferences, but man, oh, it's just like learning all the states again, right? I mean, we've got 24 adult use states and I don't know, another 16 or whatever it is, medical states. You've got to know all that stuff, which is already like running a multinational corporation. Now tack on you know what's going on in Australia and Germany and Portugal and Spain and even the UK is different. And man, there's a lot to a lot to unravel over there. But I think thesis-wise, again, the opportunity to sell things at a higher price, which is awesome. But Morgan, we were talking backstage where we came on that this is still not a huge opportunity relative to like the scale of some markets in the markets in the US. Do you want to expand upon that a little bit, Morgan? Kind of where we are in our evolution over there.

SPEAKER_02 56:49

Yeah, I mean, I we were just, you know, the idea of should international export happen in the US. And um my question is just around how big is the demand for international export relative to what we have within our own states? And you know, just taking California's own market size, you can pretty probably add up all of these international markets and still not even be the totality of California. Um, so how much is it going to be incremental demand? How much cost is there gonna be associated with being able to in uh export internationally? So is there positive ROI there, even if prices are higher? Like how much actual additional units will it help you do? Or, you know, it's just like this idea around the focus of a business and how material is it going to be, or is it gonna be a distraction that's going to cost money and take away from your core business? Um, and Hirsch was told me it's a million patients in Germany. Yep. So, and so really to in my mind, it's a it's a competitive game where you're going to largely be competing against the Canadian export market. And do we have better quality? Do we have better pricing? What's going to give us a competitive advantage where we could take meaningful share that could add meaningfully? And I know I'm talking at a at a macro level, at the individual company level, it certainly can be material, right? For a company like Leaf, if you could all of a sudden be doing a hundred million in export, that's obviously extremely important for your business. Um, it might, you know, for the state of California in total, like it doesn't look like that big of a number, but at the company level, it absolutely can be. Um, so I was just trying to get like my arms around of like what is the opportunity and how does it translate to at the at a company level um to go through that process and the costs associated and and um you know how much attention is needed to do it. And does it just largely conform with what the DEA registration is going to be anyway? So it's kind of like a amortized cost against your existing business so that it is just truly an additive potential outlet. You know, so this is kind of like my wandering thoughts around export. Um, I'm still stuck on this Canada thing, though, because I think this could be really interesting. The other one is Mexico, which, you know, just for give me a second here is you know, Mexico has been so stuck in proceeding forward with any kind of cannabis. And and from my understanding, has been it's a lot of fear around the cartels controlling it. Well, if they don't have any domestic supply of it, the only opportunity for them is to import it. And who better to do partner with is their largest trading partner, the United States. You know, they could still bring it in and they can do their finished goods and make it into products that they want for their domestic market, but we could be a supply source for them, and that could be fantastic. I mean, especially for us in California. I mean, we're like this is just a natural thing. And so I'm just kind of hypothesizing. And I think that could actually so some of these, maybe not the immediately definable international markets, but maybe some of these others that could become very meaningful by the time we're ready to actually do international export.

SPEAKER_03 1:00:04

Totally.

SPEAKER_02 1:00:06

Okay. No pushback on that, Hirsch?

SPEAKER_04 1:00:10

No, no, I mean, I think those are all totally the the right questions for sure. And the Mexico thing is certainly interesting. And we know how long it takes to stand up domestic cultivation. I think Germany is an example that, right, that imports a lot of product because of the time required to stand up domestic cultivation. So I think that's totally plausible. Like you said, the politics in Mexico are weird. You know, it's been like seven or eight years now since the Supreme Court of Mexico um deemed cannabis prohibition unconstitutional because it interferes with a right in their constitution called the right to the development of the personality. And so I don't know, it's been seven or eight years, right? Um, so hopefully they get moving soon.

SPEAKER_01 1:00:46

And I think Morgan's there's maybe been some misleading information I've seen on some of the social media channels about what is required, what is not required, and the costs associated with it. So it's real easy to look at this and say, oh, well, you need to need to spend X million to make it make your facility of the US a EU GMP facility. And I think that the premise and the cost are both incorrect in some of these occasions. Every situation is going to be different. But I've got a lot of hours under my belt in the last month or two learning about this. And I don't want to give away information that I've worked hard to find out myself, uh, you know, for free to everybody. But I will say just from an investment and a process perspective, it looks like it's completely manageable and you know, might take something to the order for a leaf of something like you know, six months to do the necessary, you know, SOP upgrades and all the other things you have to do to get the right certifications in place. There's a certain number of hours it would take you to get there. But in terms of ROI, it's a complete, in our in our case, no-brainer. But if you have a different facility, different supply chain, it could be different. But on my side, that is not something that's uh giving us any pause. It's it's it's it's a lift, it's it's more time in some ways than capital. It's a bit of a lift, but there's a complete, you know, the ROI is a is is a no-brainer. Well, guys, we're an hour and three minutes in and we got to topic number one. So I think we're doing great. Why don't we move things ahead, Morgan? And let's do a bit of a speed round and see if we can get out of here in the next you know 27 minutes or so, boys. And let's hit a couple of states for sure. And uh, if we have time to get anything else, we will. But Morgan, why don't you kick us off? Um, you know, we talked about so much cool stuff with Schedule Three on the state side, man, still slow movements. We want to hit two states, Virginia and Pennsylvania. And let me kick it off uh first with you, uh Morgan, on the Virginia side.

SPEAKER_02 1:02:35

Yeah, so Virginia, you know, had a new governor come in that was pro-cannabis, supposedly. Vote for me, and we'll have legal cannabis. Gets in, and what is it? Very shortly after becoming governor, veto yet again. And it feels like a bit of a punch in the face. I'm gonna just be honest, because it's like, you know, this once again a politician says, vote for me and I'm gonna do this, and then they turn around and just you know, crush it. And you know, and I looked over the the list of the things, I don't have it in front of me, so I can't really regurgitate, but it didn't seem like it was that far off that it needed to be vetoed. And but you know, Hirsch, you're obviously you probably have these all off the top of your head exactly what happened. So what is happening in Virginia that they can't get it done? Why? And what I can't get out of my mind is the moniker that you hear from Trump of the do nothing Democrats. And I'm like, here it is again, as a Democrat comes into power and immediately stops progress from happening over what seemed like things that could have been resolved instead of just a hard-line veto, denying the people once again what they voted for, what they want. Like you said, this is not unique to in that context, it's not unique to Democrats. You said, like in in Nebraska, 77% of the population wanted it. We've seen it in Florida, DeSantis clearly, you know, going against the will of the people. So it's not like it's that is bipartisan, is like not acknowledging the will of the people, um, sadly. But um, but what's what's going on in Cal uh in uh Virginia?

SPEAKER_04 1:04:18

Yeah, I mean, you know, I think the first thing is it's really impossible to overstate how devastating what happened in Virginia is. Like I would say this hurts more than amendment three in Florida in 2024. And the reason I would say that is first we were on the one-yard line, like we had this in the bag. That's why it's so devastating. But also if you think about Virginia, Virginia was such a limited medical market that the growth potential there was enormous, right? Like Virginia does less than $200 million in sales and it's very limited medical market. By most estimates, it was going to be a $2 billion market, maybe higher, because of all of the states that have bordered. So you could credibly say Virginia could have 10X'd. Now, Florida would have maybe 3X'd, maybe 2.5x, but you could say Virginia would have 3X'd. So that's why it's so devastating. And then also just regionally, where Virginia is situated, like Virginia would have opened up both Appalachia and the Upper South. That's why it's so devastating, right? If Virginia would have gone online, then West Virginia would have been surrounded and Kentucky would have been surrounded, and then you know, all these southern states, you would have the first adult use state in the South, and then that would trickle into North Carolina. So we can unpack why it happened, but I think there's no way to overstate that like this was extremely devastating and and really impeded the growth story. So that sucks. Um, second, I mean, it's hard for me to argue with you that this reinforces the perception of the do-nothing Democrats. And look, I see some of these debates on Twitter where people argue about who's better, the Republicans or the Democrats. And I guess just coincidentally, people's opinions seem to track their larger political opinions, um, which is which is sort of interesting. And people will say, hey, like there's 19 blue states that are adult use, and there's only four red states, so like the Democrats are better. It's like, yeah, but like it was the voters in most of those 19 states that passed, you know, those adult use initiatives. It was not the the policymakers uh themselves, right? So I wouldn't give the democratic policy. Politicians, too much credit for that. And I would also say the few states that are red states, you know, the Ohio's, the Missouri's, you know, the Montanas, those are some of the best performing states in the country, right? And so, look, it's hard to argue with the idea that the Democrats totally screwed uh the pooch here. And you know, the other thing is like if the if if Virginia had gone the way it was supposed to, the Democrats would have had a really good argument in the sense that they could have said, look at the track record, look back at Minnesota. We were trying to legalize weed in Minnesota for a long time, but the Republicans and one branch of government kind of impeded our ability to do so. And then we kicked them out, and then we passed an adult use law. And then look, we did the same thing in Virginia. And then they would have been able to go into Pennsylvania, right, and say, look, the same thing happened, right? There's one branch of the Republican government that's impeding adult use. Elect us, right? Um, and then, which is like an argument that Josh Shapiro is making, and then we will pass adult use. So the I would say that the Democrats did themselves a huge disservice. They would have been able to campaign on the argument that giving them control of government would unlock adult use, not only in Pennsylvania and also in places like Wisconsin, right? Um, for example, or North Carolina, where there's a Democratic governor, but some Republican obstruction. Now, on Spanberger, I mean, I don't think there's any way to shade the truth here. Her arguments here are totally incoherent and deserve, I think, our complete scorn, right? So the first thing is she campaigned on this idea that, like, I'm a mom and I have three teenage kids, and I understand the illicit market is bad and that a regulated market is better, right? She very explicitly leaned into the idea that an illicit market was bad for kids and that she as a mom would sort of advance a legal market for that reason. And then she just totally abandoned that thinking, right? And so I know we expect politicians to be dishonest, but this level of like dishonesty, I think, is particularly noteworthy. So that's number one. Number two, right? She said, like, oh, I've talked to other governors and they've said that we shouldn't rush into this too fast. As has been widely reported, like she can't name the other governors that she talked to. I think we all know that it's hard to identify a governor out there who's like, oh, I'm really glad we waited, right? And created three or four or five years for an illicit market to kind of fill the vacuum here. So it's sort of like, you know, when someone says something so crazy that you know they're lying to you, right? Like this is an example of that because there's no plausible way she would have talked uh to those other governors. And then even her arguments are incoherent. Like on the one hand, she said, 350 dispensaries is too many, right? And which is crazy for a state of nine million people, right? Um, so like that's why I vetoed the bill. But on the other hand, she said, well, I don't think it's right that these well-capitalized actors should monopolize the market and like I want to give everyone a fair chance. So what is it, right? Do you want to limit the number of dispensaries and concentrate opportunity in a small number of actors, or do you want to broaden opportunity? So again, everything she's saying is so incoherent that it's very obvious she's lying. Now, why is she lying? I don't know. It's sort of like a mix between what I would call hemp talking points and Sam talking points, right? There's sort of like the hemp obstructionists who make this argument about delay that is supposedly about like equal opportunity, but really is a way for hemp to capture more of the market, right? And then there are these like Sam arguments that we should take it slow and like this has been rolled out and devastating. So I don't have any special insight into what's motivating her here. All I can say is like what she's saying is very objectively dishonest and seems to be an amalgamation of those two talking points. And the final thing I want to say is like, I don't think you should be able to call yourself, there are some like cannabis associations that are calling for, you know, that have really been pushing her to delay. I don't think you can call yourself a cannabis advocate if you're trying to delay the moment where people will freely have access to this product. You're not a cannabis, you know, advocate there. You're some sort of like an economic, right, or a social justice actor. You should not be able to label yourself as a cannabis advocate if you're trying to delay how long it'll take to obtain adult use. So that's the situation in Virginia, unfortunately. Right. There is some discussion about, hey, maybe we'll fold it into the budget process this year. I'm not really that optimistic about that. I think there's talk about that. I would be thrilled if that's successful. I don't think that's gonna happen. I think we'll take another shot at it next year. I think we have to resign ourselves to the fact that adult use sales in Virginia probably don't start until 2028. Um, and look, everyone, everyone is pissed at her. So maybe this creates a fire, but I think we have to resign ourselves to that fact. And look, while I'm somewhat optimistic about what might happen on rescheduling, I think the challenging thing is both in Virginia and Pennsylvania, like you used to say, Jesse, right? Like state-led growth story with hard-to-time political catalysts. Now we have a better sense of the timing, perhaps of the political catalysts, but the state-led growth story has evaporated. And that's because Pennsylvania, Virginia, and Florida are big three, have not come online, right? Um, and we're still years away from all three of those big three that we've been talking about for years. And then I would say the other big three have been half-hearted. And those I would label as New York, Minnesota, and Ohio, three states that have come online that we have good reason to be excited about, but all of them are still operating at half of their potential, even though it's been five years since New York legalized, and three years since Minnesota legalized, and two and a half years since Ohio. So those six states explain why the state growth story has stalled. And look, there's some people that make the argument that the hemp ban will drive more demand to legal operators. And I think there's some truth there, but I am resigned to the fact that we're not going to see the level of growth we need to over the next couple of years. And that sucks. But that's the fact.

SPEAKER_02 1:11:18

Well, yeah, I mean, like to your like California's two and a half X off the market where it should be. Like, I mean, that's just you know, that alone is worth all those states, basically. Um, so it's pathetic about how these um politicians continue to, you know, be a big problem. But with with Virginia, um, I I tend to agree that this budget reconciliation is just a carrot dangling to kind of seem like they still are trying to do something, but uh, you know, it's like we're gonna pass safe banking in the special session at the end of the year, kind of thing, and years past. Um, so you know, we're there was never gonna happen. But um, I can say that now in hindsight that it was never gonna happen. But you know, at the time we all were hoping it was still gonna happen. But in this case, I think it's it's kind of like that situation. You know, the other challenge I saw, one of the one of the things that really stood out for me with her though was one of the reasons she vetoed it was because the she wanted to charge a much higher excise tax. And it's like, once again, we are not learning if she claims she's talking to these other governors, and I know to your point, like she's just been incoherent in her responses and like you know, totally waffling around, you know, so there's no real sense of it. But it's like if there's one thing that these governors should learn is that high excise tax does not actually penetrate the illicit market. If that's what we really care about doing, then you got to make sure that the playing field is level and so that businesses can have a fair shot at competition and you know, converting people that are easily accessing illicit product by doing so legally. Um, and then I saw that and I'm like, she just doesn't care. Like, clearly, she doesn't care about a legal market if this is her sense. She's not learning, she's not going out and talking to other governors of what's working, what's not working. She's just pushing whatever agenda that's she probably knows will just kill it. Or, you know, in her sense, she can just kill it. But it's just like seems like to me, is the Virginians sadly got hoodwinked and just elected the status quo.

SPEAKER_04 1:13:17

Totally devastating.

SPEAKER_01 1:13:19

Yeah, so it's a pretty good, it's a pretty concentrated landscape too in Virginia, if I recall correctly. Can you refresh us, Hirsch, on how the licensing's licensing works there?

SPEAKER_04 1:13:30

Totally. It is a concentrated landscape. And I'm sympathetic to people who are like, dude, carving the state up into five regions is monopolistic, right? So I I don't kind of dispute that at all, right? And there's good reasons to to kind of critique that existing infrastructure. But in in short, right, Virginia carved its state up into five health service areas, right? Um, and so basically divided up the state into five regions, and people won licenses in each of those regions. And so the existing operators there are GTI, Juci, and Verano, right? Um, and then there are a couple of other operators, historic operators, uh, Air and the Cannabis that had obtained licenses there, but those licenses have since been taken over by by Mill Street. So those are the five players uh in in Virginia. Um yeah, and I'll just say again, like if you want to see a more democratized marketplace, you can't say that and then say 350 stores are too many. Like if you want to open up opportunity, do it. Make it a more democratic market, but you can't say that and then say 350 stores are too many. That just doesn't square, right?

SPEAKER_01 1:14:26

So yeah, that felt terrible, Hirsch, when you said 2028. I totally appreciate the honesty, but man, this was a market we were talking about back, it feels like in 2024. And uh it sure is disappointing to see that get kicked down the road that far.

SPEAKER_04 1:14:39

Totally. Yeah. I mean, the Virginia legalized cannabis in 2021, guys. In 2021, they passed that when the Democrats they legalized it in 2021. And so that's one of the interesting arguments about waiting. It's like, why not wait five more years, guys? Like maybe we'll be ready then. You know, why not wait ten more years? So we're all prepared for this opportunity.

SPEAKER_02 1:14:59

Just one question before we pass move on to Pennsylvania is like, what what is a is a person living in Virginia, like what is the what's the lesson learned here? Like what you know what I mean? Like, what's kind of the takeaway? Unfortunately, is like, you know, politicians lie. Like, how do you know, like, if and most people are not single issue voters, but like like, you know, as what's kind of the learning lesson from where why we're still here?

SPEAKER_04 1:15:28

I would say, you know, we we treat it as a fact that politicians lie, but we have an obligation as citizens to hold them accountable. And there are certain like l levels of dishonesty that are so egregious that we should kind of speak up about them. So, you know, that's just I know we kind of like say that with resignation sometimes, but we should be angry about things like this. What is the lesson there? I mean, the one lesson is an indictment of the of the coherence and the organization of the Democratic Party, right? They had an overwhelming majority here and they weren't able to get this done. And it wasn't just on this issue. There's a host of other issues in which the Democratic legislature and the governor like couldn't see eye to eye. Um, it reminds me kind of of like that famous Will Rogers quote where he says, I'm not a member of any of any organized political party. I'm a Democrat, right? So like that's kind of like the the the perhaps the the lesson here. And so um look, what is your alternative? Are you gonna vote for a Republican? No, right? Because they probably wouldn't have passed this bill. But I think Democratic voters have every right to be kind of like um to be angry here. So I don't know if that's a great lesson, but like, but she didn't say what she was gonna do that that she campaigned on, and we should speak up about it.

SPEAKER_02 1:16:32

Yeah, so re-re-call Spamberger.

SPEAKER_04 1:16:35

Well, you know, the funny thing is Virginia governors only have one term, and so sometimes they don't care about like pissing off other people. Like she will be termed out in 2020, 2030 or whatever four years from now is, right? So um, yeah.

SPEAKER_01 1:16:50

Let's talk a little bit about Pennsylvania, Hirsch. That's been another one that's been on our radar, and we were talking, you know, you talked about around the Florida vote. We thought that fall was that 25, four, no, twenty-four, right? When Florida was on the ballot, and we thought that fall we might get Florida and PA and potentially Virginia around the same time. Here we are with none of them. Let's focus on Pennsylvania, Hirsch. What what in the heck is the holdup, man?

SPEAKER_04 1:17:13

Yeah, you know, the first thing about Pennsylvania is what continues to surprise me, and I don't have a good reason for this, and I'd love to hear anyone else's reason. Like Pennsylvania's sales continue to increase, even though its patient numbers are going down. So its patient numbers are kind of going down because it borders a bunch of states that have adult use, like Ohio now. And so I guess people don't register as patients. But in the first quarter, it did more than 450 million in sales in Pennsylvania, which was like six or seven percent higher than Q1 of last year. So that's one interesting thing. Pennsylvania sales continue to increase for some reason. I mean, one way to think about it is Pennsylvania is doing like pretty much the same sales as New York, even though Pennsylvania is a much smaller state than New York and it, you know, is medical. So just, you know, it's a little bit smaller, but not that much. Um, is there and so I guess the question is like, is there any hope of a bill passing in 2026? I don't think anyone thinks that, right? And you know, there like one one um one step that has been said that needs to happen before an adult use passes, adult use bill passes, is a cannabis control board bill passing. Like the state seems to want to develop a new regulatory body before they're ready to move to adult use. And even that bill hasn't moved forward. So nothing is happening in 2026. Now, why hasn't it moved forward? Like it, I think the most simple explanation is that the Republican Party has blocked it, right, in Pennsylvania. And that's not really a political comment. The current woman running for governor of Pennsylvania, Stacey Garrety, said explicitly, if the Republicans have power, we will never pass adult use. The Senate Majority Leader of Pennsylvania, Joe Pittman, has said, like, we will not bring this vote to the floor. So the simplest explanation for why it hasn't moved forward, right, is that the Republican Party has blocked it. Now, look, does is Josh Shapiro, despite being supportive, also using this as like a talking point, right? Like, of course, right? There are no pure political intentions on either side, but I think that's the simplest explanation. And going back to Virginia, right? Like, if Virginia had passed the way it we said it would, then I think we could say with more confidence, like, look what happened in Minnesota. You get unified democratic control, you finally pass a bill. Look what happened in Virginia, you have unified democratic control, you finally pass a bill. And you could make that same argument in Pennsylvania. And again, without getting into politics, like Josh Shapiro, the governor of Pennsylvania, in a pretty purple state, in a state that Donald Trump won, has like almost a 65% approval rating. Like it's insane, right? Regardless of your politics, like his he is really, really popular in that state. And he's facing an opponent that he's probably going to crush this November. And if passed his precedent, the incumbent party in the White House often loses seats. So, you know, it is reasonably likely that, you know, the Democrats could take the Senate in in Pennsylvania, you know, in these in these midterm elections. And so I guess if we're trying to be optimist here, the way that Pennsylvania gets unstuck is if Josh Shapiro and the Democratic Party in Pennsylvania have a really good midterm election, like win large majorities, and then he can do everything he wants the following year. The analogy I would make, guys, is like if you remember when Ron DeSantis ran for re-election in 2022, he was like, dude, I really want to win a big re-election in 2022. So going into the presidential campaign, I have this track record of winning big in my re-election. And right, after I win in 2022, I'm going to spend all my time in 2023 passing bills that my base wants. So when I run for president, like I can say all this good stuff that I've done. And so if you remember, that really strict abortion ban that DeSantis passed in Florida happened in 2023 because he won big in the election and then he passed all the priorities of his base. And then I obviously, if you remember, overturning that election ban became a feature of the Amendment 3 debate. That was Amendment 4. And so I use that analogy to say we can be most optimistic about Pennsylvania if the Democrats win complete control, right, um, of the government in Pennsylvania, which we six months from now we will know whether that's happened or not. Um, and uh, you know, one could say, well, like maybe they'll bungle it just like the Virginia like Democrats did. I happen to think that Josh Shapiro is a much more competent political actor than Abigail Spanberger. So maybe the optimistic spin I'll put on this is we've been waiting for a long time, it sucks. But if the Democrats in Pennsylvania win complete control, and if Josh Shapiro in January of 2027 is like, how can I get as much stuff done over the next eight months so then I can go campaign on it going into my presidential campaign? You could very easily see a world uh in in which it happens. So hopefully that happens.

SPEAKER_01 1:21:27

Morgan, remind me if you remember or Hirsch, um if you listen to these episodes and you remember, but I thought it was Jason Wilde or Boris mentioned something around Pennsylvania being much more likely after Schedule three. Does that resonate? And do either of you remember that comment?

SPEAKER_02 1:21:41

J Dubbs.

SPEAKER_01 1:21:43

Okay.

SPEAKER_04 1:21:43

Yeah. I mean, I I think um uh here's what I would say. I think that is definitely true. That that that is definitely true. Um, number one, S3 hasn't resolved itself yet, but like I think that is true. Um, and I think that's that's something a point that we've made generally about different states, that like Schedule Three will help help unlock Republican resistance in a bunch of different states, whether they be medical or adult use. Um I think that's true. I will also say, like, sometimes politicians just like say things and you can't, I mean, to our prior conversation, you can't really take them at their word. So I have no doubt that there are a number of Republican politicians that have said, once this happens, we'll be able to move forward. Um, but it's different, you know, that it's different for them to say that and for it to actually be true. And then maybe a structural point is no matter what every other Republican thinks in Pennsylvania, there is one person, Joe Pittman, the Senate majority leader, who decides whether to bring a bill to the floor or not. Right. So, like we live in a system of government where like one or two people can be a gum in the ointment and can impede this from happening. And so I think those are the dynamics here.

SPEAKER_02 1:22:45

Quick question on Pennsylvania. What do you know what the per capita uh consumption is at this point?

SPEAKER_04 1:22:52

I don't know the per capita consumption, but um, but the per capita sales have to be quite high because again, it's like a $1.8 billion market and 13 million people. But um I I don't I don't know the consumption. I I would imagine it's high because you know, Pennsylvania 50% of people in Pennsylvania live in what's called a border county, bordering another state where there is adult use. So cannabis is is quite available um legally in state or out of state.

SPEAKER_02 1:23:17

So to like to that point of like Virginia, Virginia could 4X just if they had a more normalized medical access program. You know, so like to your point, instead of a 10xing if it went to adult use, they could still close a tremendous amount of that gap while we're sitting around waiting. Is there any talk in Virginia about expanding medical qualifications?

SPEAKER_04 1:23:42

It's a great question. Um, and we have seen in states before sometimes when they fail to pass an adult use law that creates momentum for an expansion of the medical program. Some examples of this are like Hawaii and New Hampshire, which, as you guys know, are small states but have been flirting with adult use for a long time. Adult use fails, and then there's kind of a compromise to expand medical. So that would be a really positive development, Morgan. I think you're totally right to say the medical program in Virginia has a ton of room to grow. Have I seen any real movement there? Not yet. And I guess the question would be like, does it need to happen legislatively, in which case we'd have to wait until next year? Or are there some administrative or or regulatory things that you can do to just like ease the process of obtaining a card, for example, or some state regulators have the power to expand qualifying conditions? And so I think that would be the question is if they're able to do it um administratively.

SPEAKER_02 1:24:32

Yeah, because I mean you look at Florida when they didn't pass, then what happened? Patient counts started increasing, and now Florida looks like California did before Prop 64. You just go to a strip mall doctor and you get your card and you're you're good to go. You know, it's like it's basically, you know, it is a light or heavily regulated adult use, but it's but access is is dramatically expanded. Um and so maybe we'll see that whiplash kind of effect in Virginia, which would still be great for people um to get a much broader access. I don't know how that would work with all the licensing as you were talking about, with it, how they have it all you know segmented out, but um, you know, it could still grow meaningfully in the meantime. Might, you know, one ultimately get that big inflection down the road, but you know, there still is opportunity in those state in that state. I mean, you know, to your point about Pennsylvania, I mean, it's taken years and years and still not there, but it's become a very large medical market. $1.8 billion market is it's a it's a good sized market. Totally.

SPEAKER_04 1:25:35

It's huge for sure.

SPEAKER_01 1:25:37

It's a big market, Morgan. It's a big MSO market too. And because of the you know, investing focus of the show, I think it's important when we look at states to identify like, does this move the needle in the public operators? Yeah, some states like Missouri, which is you know a great state, big success story, but not a big MSO state, but big on the private side. Pennsylvania is the opposite, or Pennsylvania is a huge state where almost every every big MSO has planted flags in major ways. Um, you know, I have true, I could be off on these, um they're a bit dated, but I have True Leave with 19 doors, Cresco, Kierleaf, GTI, and Juicy with 18. So, guys, Juicy coming up in both of these conversations, right? Double-edged sword there, lots of opportunity when these markets open, but sure is painful to wait. And Juci might be the one that's most levered, you know, to both of these states. Terracend just has six doors there, um, but they have 150 square feet of cultivation, which I believe is their second largest growth facility. I think they're a big player in the wholesale market there. And they've skipped over, sorry, Aaron Miles skipped over Veronto with 17 doors. So, man, you pretty much just go down the who's who's of MSOs, and you know, they have big operations in uh in Pennsylvania. So, you know, kind of reflecting, guys, as we you know get towards wrapping the show here, it feels like we're in a bit of a different spot, Hirsch, which I think you highlighted, which is that for a while we were doing well on the growth side. We had this set of dominoes that we expected to fall. And I was thinking about exactly what you brought up, Hirsch. You know, I kept saying it's a state-led growth story with a series of hard-to-time catalysts. That's still the thesis, but at some times you're gonna be feeling one side more than the other. And I feel like for a long time the growth path was a little bit more clear. Now, between new states, Florida, Pennsylvania, Virginia in particular, taking more time and the intoxicating hemp market, eating into it, we're in a spot where we're at flat, flatline growth, specifically for the bigger, more diversified companies. If you're in fewer states, it's going to be quite different. If you're just California or just Florida, you might have a little bit different trajectory. But for these big MSOs that are largely levered to the state led growth story, we're on a bit of a pause here on that side. Maybe the toxicating hemp market brings some of those dollars back in. But then the flip side is we're seeing these new opportunities on the federal side, new opportunities around Schedule three with. Obvious 280E removal. Awesome to see that going forward. Seeing marginal more interest in investors, having better conversations. You know, with Leaf, we've been raising some capital. Man, we've been bringing in much better investors, great family offices. Some of my favorites are people that are uh you know portfolio managers at big funds, but invest their personal capital with you. I think those tend to be great investors. So starting to bring more people over the wall on the rescheduling side, I think there's good progress there. Add in the export and the interstate. I think that side suddenly is pretty exciting. But unfortunately, it's hard to put those two pieces together to marry the state's the state-led growth story with the political catalysts. And I think on the show here, you know, we don't want to be just blindly optimistic and just painting a rosy picture because that's what we think people want to hear. I think it's good to be honest about where we are. And I think there's a lot of positives going on, but I think you have to look at the state-led growth story and feel like we're, I don't think it's necessarily a stumbling block. It's just a pause. And maybe this means down the road, there's got to be a year, maybe it's 28. I don't know what it is, where three or four or five big states suddenly fall, but it looks like it's gonna be dry here for a little bit in the meantime.

SPEAKER_04 1:29:07

I think unfortunately that's correct. Yeah.

SPEAKER_01 1:29:11

Borgett, any closing thoughts before I uh say thanks to Flow Hub and get us out of here?

SPEAKER_02 1:29:16

No, I mean, this is this has been great, Hirsch. Really appreciate this conversation. Um, so this has been a good update for me. Um, just kind of hearing because I I haven't been staying as close to all this um, you know, rescheduling stuff. I've just been trying to patiently wait for the hearings and see how things go. So I appreciate sharing the all your insights with us over the last hour and a half.

SPEAKER_04 1:29:38

Totally. It was awesome, guys. Thank you.

SPEAKER_01 1:29:41

And thank you again to FlowHub for making today's show possible. Whether you are a big MSO with 100 dispensaries or you're a simple guy like me and you just had one store, you need the best software to win. Make your life easier and make your store more profitable. Go to FlowHub.com and book a demo today. So thanks, Kyle, the whole team uh for supporting higher exchanges. They're awesome guys to work with and love that they have a great product product as well. So thank you again to FlowHub. Hirsch, thank you for your time coming back. You know, thank you for all the offline conversations that we have. You're one of the bright lights, bright stars, most articulate, but also just overall a good human being in the space. So lucky to have you and thank you for always coming back on Higher Exchanges.

SPEAKER_04 1:30:23

Thanks, guys.

SPEAKER_01 1:30:24

Morgan, always good to talk to you, my friend. We'll see you guys back here in a couple of weeks. Go over to YouTube. Don't forget to subscribe there. And also on Apple Podcasts if you're a video person, check that out. Hopefully that's working as well. And I'll end it with a read. The views expressed as podcasts are provided for informational purposes only. Nothing we said should be considered research or a recommendation. All investing involves risk, including the loss of principle.