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| 3 minutes read

Looking back on a year of contradictions in the cannabis industry

Looking back, to me, 2021 was the year that many of the conflicting forces in cannabis came to the fore. Certainly, we had the ever-present contradiction between federal and state approaches towards law and policy continued, but we also faced battling political positions towards potential federal regulation within Congress (link), as well as among stakeholders (link); disparate access to cheaper capital (link); debates over how to organize a post-legalization cannabis marketplace (link) and the law versus the market on Delta-8 THC products (link); and so on.

Call it “dialectical cannabisism”, if you will (with apologies to Karl Marx and anyone who studied theory in college), because all of these opposing forces still seem to be pushing the industry in a single direction of resolution.

With that in mind, let’s take a moment to see how my predictions from January 2021 panned out:

  • “Stakeholders (not just cannabis companies) will quickly begin the lobbying push for full legalization.”
    • I was right about this one – we saw interest from large, non-cannabis companies develop. (link; link)
  • “Legalization will gel around something akin to the STATES Act, akin to how alcohol is regulated both federally and by each state, with federal regulation being governed primarily by the Bureau of Alcohol, Tobacco, Firearms and Explosives. With the likelihood of legalization actually passing, other regulatory agencies with an interest in the outcome will also weigh in (FDA, IRS, DEA). I’ll guess that it gets enacted in Q4 2021, but that’s likely optimistic.”
    • I was kind of right about how proposed legalization might look. Indeed, the various bills floating around Congress in 2021 all kind of took a similar macro approach with a focus on state regulation. My “likely optimistic” comment was, well, itself highly optimistic.
  • “In the interim, I think the new Attorney General makes an informal statement that essentially reaffirms the Department of Justice’s approach to cannabis in line with the Cole Memorandum’s guidance, but won’t bother with reinstating the Cole Memo.”
    • Bupkes from the DOJ. 
  • “The FDA still won’t issue regulations on hemp-based CBD in food/beverage/dietary supplements, but Congress will revise hemp regulations to raise minimum THC limits and solve the hot hemp extract problem.”
    • My guess about the FDA not taking action was too easy, so I feel shame taking credit for that. I was wrong about Congress doing something about it – I suppose I was overly-optimistic that constituents promoting the industrial applications of hemp would persuade Congress to act.
  • “The prospect of the inevitability of federal legalization will persuade institutional investors and lenders, as well as major financial institutions, to reconsider the potential risks of playing in cannabis (as usual, that’s not legal advice). This will result in more capital coming in from funds and non-bank lenders (but still not likely federally-chartered banks) that are new to the space, sourced by investment banks and broker-dealers who also recalculate their risk.”
    • Right and wrong! (my own, personal dialectic) On the one hand, we saw many institutional investors drive demand for debt offerings, and the NASDAQ listing cannabis mortgage REITs. On the other hand, we saw broker-dealers (brokers) further limit trading in cannabis stocks.
  • “I still think debt will continue to reign supreme as balance sheets grow to sustain leverage (translation – more assets mean more ability to borrow).”
    • I got this one right, in spades. (link)
  • “MSOs will continue to tap public equity markets as valuations remain firm (they certainly enjoyed a bump when the Georgia results became clear), as public investors warm to the space, and SPACs formation will increase, but I don’t think that we’ll see substantial equity flooding into private companies, at least in the shorter-term, because there will be more opportunities in liquid stocks.”
  • Mergers & Acquisitions – still back, baby! (link) Particularly with the prospect of federal legalization, MSOs will need to accelerate their gameplans to bolster footprint and depth, making smaller MSOs (public and private) attractive targets, inevitably boosting valuations.”
    • Ibid.
  • “No one will challenge interstate commerce laws in court, because it won’t be worth the expense of the legal fight if federal legalization is nigh – the unconstitutionality of interstate (discussed link) will be even easier to address when cannabis is legal.”
    • Yeah, this was also an easy one.
  • I’m even more convinced a major US beverage or beverage distribution company, or a multinational consumer products company, will take the risk of making a direct investment in a plant-touching business, based on the same risk-reward calculation discussed above.”
    • I was close – we saw plenty of forays into cannabis by non-cannabis companies, none of which are truly direct. (link; link; link)
  • “I’ll still try to expand my references in these Musings beyond knishes and theoretical physics.”
    • A bisel Yiddish? Nishto farvos.

The next Cannabis Musings will once again recklessly make predictions about the coming year. In the meantime, happy new year to you I very much appreciate your allowing me into your inbox every week or so, and look forward to continuing the dialogue for yet another year.


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