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Report on the Cowen Boston Cannabis Conference - Nov 2019

This past week, I attended the Cowen Boston Cannabis Conference, a well-attended conference focused on institutional investment in the industry. Panelists included executives from domestic and global operators, CBD product companies, clinical researchers, production, and payments. Based on my observations from the panelists and discussions with audience members, here are a few takeaways from the conference:

  • Overall, the mood is still optimistic, even if somewhat tempered by the more recent downturn in equity valuations.
  • MSOs are still primarily focused on building out distribution scale, translating to growth across states, in order create an infrastructure to build brands. Although this is being achieved organically through new permit applications, this likely will also translate into continued M&A activity.
  • Compliance with state and local cannabis laws is still recognized as of utmost importance to building a business in the industry on which the consumer can rely.
  • Operators remain challenged by the patchwork of state laws. For example, it was noted that, Illinois’ adult use rules going into effect in 2020 will only allow one owner no more than 10 locations, making it more difficult to build a brand without good distribution into third party dispensaries. States where there is no wholesale production (meaning all business must be fully vertically integrated) are experiencing supply chain problems where there is more demand than supply.
  • Hemp-based CBD remains an area of focus not just for companies solely making CBD products, but also for companies whose product lines are primarily THC-based. That being said, based on the people I talked with, there is a general concern about the breadth of products available to U.S. consumers, with more coming on line, while at the same time waiting for FDA guidance to bring more structure to the market. Additionally, there is a concern that the testing requirements in the newly-issued USDA guidelines for state hemp cultivation programs (link) could overwhelm the limited number of already-burdened testing labs, creating a strain on the supply chain.
  • European regulations likely will continue to focus on medical cannabis, with most countries lacking the political motivation to legalize adult use. This is creating an opportunity for producers of pharmaceutical grade products, such as those in Israel (where legal cannabis research has been going on for decades) and Canada.

Notably, James Cole, former United States Deputy Attorney General and author of the August 2013 “Cole Memorandum” that set U.S. Department of Justice policy towards the state-legal cannabis industry (link) until its rescission by former United States Attorney General Jeff Sessions in January 2018 (although current United States Attorney General William Barr later informally noted his support for the memo’s approach), which is generally credited with opening the door for the broadly-based state legalization of cannabis, spoke about the legacy of this move. He spoke about the fact that he changed Department of Justice policy in a move towards improving public safety by encouraging state regulation. He recognized, however, that the memo only could do so much, and only full descheduling of cannabis as a controlled substance, accompanied by thoughtful regulation, will really solve the cannabis industry’s problems.



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