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| 3 minutes read

Looking forward to the coming year in the cannabis industry

We’ve talked here in the past about how utterly pointless it is to try to predict the future of just about anything in the cannabis industry. With that in mind, I’m pleased to present you with my particular perspective on what the coming year might just look like for the cannabis industry.

  • Federal Legalization – I don’t think there will be any sort of federal legalization in 2022, regardless of the competing bills introduced in Congress, and despite the hopes and dreams of just about the entire industry. I simply don’t think there’s the political will or capital to do so. Nor will cannabis be simply descheduled (the Congressional Research Service recently explained why it can’t be unilaterally done by the President) or rescheduled (what’s the point?).
  • SAFE Banking – Ah, the vaunted consolation prize. Sure, once the push federal legalization finally comes to an end this year, maybe Congress throws the industry a bone and passage finally happens after so many years (it was first introduced in May 2017)? Zolstu azoy leben! (You should live so!) I’m still skeptical that happens. Even if it does, it will only really be interesting if its scope is expanded, however. As we’ve talked about before in these Cannabis Musings, in its current form, the SAFE Banking Act doesn’t really do very much. There’s chatter about expanding the scope to include capital markets, non-bank financial institutions, and 280E coverage, but most of that seems to be coming from the industry, not Congress.
  • Federal Policy – I see no reason for the current state of things to otherwise change, namely that the federal government is allowing the state-compliant cannabis industry to continue operate and grow simply as a matter of grace. 2022 will look a lot like 2021 from a federal perspective.
  • State Policy – Access to cannabis will continue to expand throughout the nation. (I recognize this isn’t a very edgy prediction)
  • M&A – I think that consolidation on the part of the larger companies has a good chance of actually slowing down in 2022, for a few reasons. First and foremost, in my mind, a lot of the 2021 consolidation was driven by positioning ahead of possible legalization (at least, from the viewpoint of early 2021), and the pop in public stock valuations that resulted from that possibility. With legalization looking much less likely and lower valuations relative to 2021 (making it less attractive for a buyer to use stock to acquire), there isn’t the same level of urgency to consolidate so quickly. Plus, there’s been a lot of consolidation that’s occurred since the industry has emerged from its bottom in 2019 – I think that companies will take this time to focus on integration, cash preservation as revenues slow down, and organic growth.
  • Capital Markets – I think that debt will remain the primary vehicle for capital expansion in 2022, with equity generally remaining out of favor, particularly as more lenders have gone public recently to access permanent bases of capital. However, I think that we may start to see lenders get more conservative with terms out of concern about leverage (generally, how much debt is borrowed relative to the enterprise value) and ability to pay interest (debt may not be dilutive to stock, but the interest payments are “dilutive” to cash, which remains elusive in cannabis). I also think real estate lending and sale/leasebacks will continue to be a key source for capital to the industry. I’m surely not going to try to predict stock prices.
  • Ancillary Services – Here, I just don’t know. On the one hand, I continue to see more service providers, lenders, and investors finding ways to get into the cannabis space. At the same time, I’ve recently seen some of those who have been doing business with cannabis for a number of years, providing critical services to the industry, now decide to step away, for no apparent reason. These trends probably just continue.
  • Hemp Regulation/FDA – I think the recently-introduced (and bipartisan!) CBD Product Safety and Standardization Act has a fair chance of passage. That’s not based on anything other than a hunch that it requires much less political capital than anything having to do with non-hemp cannabis. I think we’ll still remain uncertain as to whether delta-8 THC derived from hemp really was allowed by the 2018 Farm Bill.
  • Interstate Commerce – I think that Maine will lose its case in the U.S. Court of Appeals trying to defend its cannabis license residency requirements.
  • Gallimaufry – Cannabis NFTs will be a thing (although it raises an interesting question of whether cannabis is a commodity). A US-based tobacco or alcohol beverages company will use an option/convertible debt structure to place a major stake into a leading US-based cannabis company. I’ll finally somehow achieve my goal of getting featured in High Times magazine.

As usual, this isn’t advice of any sort – legal, investment, good, etc. I look forward to looking back on these predictions with you in about 11.9 months.

Tags

cannabis, cannabis predictions, cannabis legislation

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