Ready To Do Your Homework? Industry Leaders Talk About Investing in the Cannabis Market After 2020 Elections

Ready To Do Your Homework? Industry Leaders Talk About Investing in the Cannabis Market After 2020 Elections

Following the recent 2020 election results, cannabis stocks are growing exponentially. On election night, the United States saw a “Green Wave” when four states – Arizona, New Jersey, Montana and South Dakota – voted to legalize adult-use cannabis, and a fifth, Mississippi, approved medical marijuana.

 

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AUTHOR: Heather Allman

PUBLISHER: CANNABIS LAW REPORT

 

 

Following the recent 2020 election results, cannabis stocks are growing exponentially. On election night, the United States saw a “Green Wave” when four states – Arizona, New Jersey, Montana and South Dakota – voted to legalize adult-use cannabis, and a fifth, Mississippi, approved medical marijuana.

 

Since the election on November 2, 2020, I’ve had the opportunity to speak with various cannabis industry insiders to gain valuable post-election insight on the expansion of cannabis legislation into five new U.S. states, and more specifically, investing in the current post-election cannabis climate. 

 

David Metzler, CEO of CBD Capitol Group

 

David Metzler is currently the CEO of CBD Capital Group, an investment and operating company, helping small companies grow by providing them with capital. Metzler specializes in entrepreneurism and has closed over $30 million over the last eight years in both investment capital and business development deals.

 

Dr. Stephen Titus, Ph.D., Chief Executive Officer & President of Medical Marijuana, Inc.

 

Dr. Stuart Titus, Ph.D., is an industry innovator who has been involved in the growth of many companies in the cannabis industry, and started his relationship with Medical Marijuana Inc. by becoming its seventh investor. Titus’ is also a Wall Street veteran, where he was a bond trader for 11 years. Dr. Titus earned his undergraduate degree at Rollins College, and his Ph.D. from the Open International University.

 

Avis Bulbulyan, CEO of SIVA Enterprises

Avis Bulbulyan is the CEO of SIVA Enterprises, a leading full-service cannabis consulting firm. Avis has over 12 years of experience in the cannabis industry and is recognized as an industry expert. His commitment to providing outstanding client services has propelled SIVA into the forefront of the industry. Under his direction, SIVA was voted Top 10 Legal and Consulting firm in the nation by Entrepreneur Magazine in 2018. Expertise.com, a company that independently vets service providers, voted SIVA as one of the Top 18 Consulting Companies in Los Angeles in 2017.

 

Derek Porter, Chief of Staff of Gateway Proven Strategies

A serial entrepreneur, cannabis business expert and Chief of Staff at cannabis consulting firm Gateway Proven Strategies. Derek Porter is an advocate for “Safety, Security and Veteran Causes,” and is considered by The National Cannabis Industry Association (NCIA), and the leading Cannabis Consulting Firms to be a subject matter expert on cannabis security. Derek sits on the Regulatory & Compliance Committee for the NCIA and has consulted for hundreds of cannabis licensees internationally.

 

Brady Cobb, CEO of Bluma Wellness and One Plant Florida

 

 

A medical marijuana pioneer who uses his legal background to address marijuana policy reform as both an attorney and lobbyist, Brady Cobb cultivated his passion for the industry to found One Plant Florida. Bluma Wellness Inc. owns and operates a vertically-integrated, licensed medical cannabis company in the State of Florida doing business as “One Plant Florida.”

 

In our various individual conversations, we talked about what the 2020 election results mean for cannabis investing, and the future of the industry. 

 

 

TOPIC

What do investors need to know when entering the cannabis stock market?

 

David Metzler: Investors need to understand that the cannabis stock market is nascent and very early, which is personified in that most companies are still trading on revenue versus profit. 

That means investors are still putting a premium value on the “land grab” of revenue, versus the “sustainability” of profit.

Given that, it’s going to be a roller-coaster ride, especially because most of these sticks are still penny stocks and/or trading on the Canadian exchanges which have liquidity issues.

 

CLR:  I mean, the MORE Act is going to remove a lot of the barriers to entry in the market that had been there, ust the taxes alone. I mean, there’s a lot of people who are just scared away. 

 

So moving forward, if the MORE Act goes through, and we have this new set up:

  1. We have some research in place.
  2. We have some banking in place.
  3. We have some tax cuts.
  4. We have improved regulatory frameworks in place. 

What do you see moving forward, if all goes to plan? For example, what states do you see moving a little more quickly, the ones that have more established markets?

 

Derek Porter:

We will see that the United States as a whole is still very much a growth market.

But we will see some mild plateaus, not unlike what we saw in some areas like Washington and Oregon, around the years of 2016 and 2017.

Then, when things kicked off in 2014 —which I think 2020 is very comparable— I should say 2021 is going to be very comparable to 2014, with the five new states and as the MORE act moves through Congress. 

With that being said, in states like Oregon or Washington, there was massive demand and very little supply… then that completely flip-flopped.

In a very short period, we’re talking states with no license caps. And you had owner operators penetrating and growing cannabis like crazy.

So that completely flipped over and supply drastically increased above and beyond demand.

And then the price has dropped. And then you saw less inundation of owner operators coming into the space, less investors coming in and space in those respective states.

So you see, it’s not to say that it’ll fizzle out and go away, but there will be a mild flash in the pan and then like to say, at a mild plateau with some of the more mature states, California, I think we’ll see that in a couple more years. 

There’s no other way to go with that. Because with 40 million people comes a lot of users per capita.  And then, similar to Colorado, we’re already starting to see a mild plateau. I think that people have started to wise up.

And we’ve even advised individuals that unless you’re extremely diversified, do not consider penetrating Colorado as a new owner operator.

If you’re an existing MSO that’s looking to take over and purchase some existing license things, that’s another story.

But we will see some plateau. But that opens the door for other areas and new ways to innovate. Then, let’s hope, relaxed banking.

A lot of people in cannabis blame the banks, but really, it’s the banks just trying to do right by the government and their existing clientele. The fact is that they can be so timid to appropriately bank in this space, and relaxed banking at a federal level will be such such a breath of fresh air.

It will allow people to relax so much more. Again, one step at a time, in regard to the continuation of the maturity of the market as a whole. And then, even from a micro perspective, we’ll see changes market to market and state by state.

 

Brady Cobb: I think, for the investors that are already in the space, it’s going to be quite a moment when the legislation passes and we begin to step towards acceptance in the US. I think the stocks are going to shoot up in Q2 next year.

I think you’re gonna see a stock fight happening federally. I mean look at some of these states… we just had Mississippi go for medical use, which now we [One Plant] are in Mississippi.

We’re in two states that are still covered by the Voting Rights Act — in the Deep South. With Mississippi going medical, I think you’ll see Alabama coming along soon and there’s obvious momentum in Texas. 

 

It is going to be that the federal drips into the state, and the state drips into the federal. I think the easiest way to say it is that it’s similar to a ‘nice seesaw.’

One bleeds down into the other, and it’s just kind of a rising tide, and that’s the whole point: to keep moving forward, keep getting face to face.

 

You know, the ultimate reality for an investor, if I’m an investor or CEO, we do nothing but invest in the cannabis sector

Here’s an example: We bet on a company called Parana Holdings. We made an $88 million investment in October of 2018, before Illinois was adult use.

Their MSO, one of the top three private MSOs at the time, were a smaller company, but we saw the writing on the wall of what was going to happen in Illinois , and that there were also in a few other states that were potentially going to go adult use. 

We made the bed, and then we got grinded to pieces for the downturn from January of 2019, all the way up through like the last couple of months, because every one of those companies was getting crushed.

Thankfully, they were private so they weren’t getting sold on the exchange every day, but it was a tough thing to defend. Until today, when they announced the results.

Either they’re acquiring that move in both Arizona and in Florida, and the consensus is they’re going to go public at a pretty ridiculous rate. So, that was a typical example, and I think that they come up with a lot of innovative products.

 

Dr. Stuart Titus: When entering the cannabis stock market, investors need to be aware of the extreme volatility that many of the cannabis stocks have displayed over the years. 

Investor returns and profits can potentially be greater than the market averages when the cannabis stock markets rally, but also many cannabis stocks have well-underperformed market averages when these stocks fall out of favor. 

Right now, many things are looking positive. We are looking at a potential US House of Representatives positive vote on the MORE Act this week and potential United Nations re or de-scheduling of cannabis off of international narcotics treaties by end of the year. 

Long term prospects do seem favorable, especially for US multi-state operators as with de-scheduling of cannabis, the onerous E-280 federal tax regulations will change in favor of these US cannabis operators. 

This should greatly increase their bottom-line profitability outlook, which would be an excellent development for investors. 

Avis Bulbulyan: Investors should understand that it’s not a changed market and much of what’s been trending will continue to trend.

Biden hasn’t indicated anything that would suggest a drastic change for the industry.  If anything, it’s been left out of his transition plan which suggests much of the same for the next year or two.

 

 

TOPIC

What are your thoughts about the future of the cannabis space and the corresponding cannabis stock market?

 

Dr. Stuart Titus: US cannabis operators are far more efficient than their Canadian counterparts, so I remain quite positive on the overall US Cannabis outlook.

Given more favorable tax treatment and given banking privileges, the US cannabis stock market will have the potential to achieve great upside for investors.

Should our neighbor to the South, Mexico, decide to legalize, this should provide additional opportunities for cross-border cannabis and allow possible entry to Mexico markets by some of the US players.

Certainly, the end of alcohol prohibition in the 1930s led to many great opportunities and created many fortunes in that day and time.

Hopefully, we can see a repeat performance and create some of America’s finest future companies with federal reversal of 83 years of Cannabis Prohibition. 

 

David Metzler: This next year is going to be fascinating to watch, where political influences in the US are going to be a major factor.

If the US legalizes cannabis (THC), then it’s going to be a big boom in the US stock market similar to what happened in Canada.

We don’t see a full legalization as very likely (i.e Recreational use), but we see a potential for medical use being federally legalized. 

That would be a game-changer and the industry would explode with a lot of dumb capital coming into the space (similar to what happened when Canada legalized). We also see the FDA making its guidance official for CBD, which would also be a growth catalyst and likely be the signal all the alcohol, tobacco, CPG and pharma companies have been looking to start acquiring.

 

Derek Porter: First, we have to crawl out of 2020, we still have a handful of things going on. We have the wake of the election, right, we still have things that are being challenged. So we need to come to a conclusion with that.

Excluding Christmas, in my universe and in the finance side of things —with regards to cannabis and many other industries, December is almost like a shut down month for finance. 

We just don’t see influx or any sort of innovation with new investments, especially in any sort of startup capacity in the month of December. So in a manner of speaking, I would say December is a wash.

However, I would say with these new laws that have passed now with the five new states or changing states, in addition to this looming MORE Act.

 

Now is the time to do homework.

 

And this is actually what we’re advising individuals who are looking to invest in the space.

Now’s the time to start getting your ducks in a row to where if you’re looking to penetrate or even pivots in this new frontier market, now’s the time to start doing research.

It’s time to advise and counsel with, ‘Are you the passive investor? Are you the active investor?’ and so forth.

And consider what are you looking to aim at? Do you want to look at something plant touching, because we’ve got five new markets that are about to come online with the five new states, in addition to some potential new interest with interstate commerce.

So, it’s the time to start studying, outsmarting, advising potential investors, and trying to figure out where you want to be in the space.

You know, these are individuals who have already hit home runs in multiple ways and in multiple areas. And now we’ve got the potential for expansion with these five new states. 

My professional opinion is move through and transition out of 2020, the new year is is always a fresh start a way to invest in new ways. We will have the laws, various different laws, that will kick over literally starting January 1.

And that will be the time to make your move strategically based on whatever homework you’ve done. 

Avis Bulbulyan: The future for the space is looking really great.  I strongly believe that by the next election cycle, federal reform will be front and center.

Much of what will be happening in the markets and the industry as a whole over the next four years will be a build up to that in anticipation of federal reform.

We’re already seeing that and for all the projects out there that have a 3-5 year hold on investments, the timing lines up with relatively actual expectations.

TOPIC

What are your thoughts about specific areas of the cannabis space and the corresponding cannabis stock market that are about to see

 

  • GROWTH
  • INNOVATION, and
  • DEVELOPMENT?

 

Dr. Stuart Titus: In terms of specific areas within the cannabis space, innovation and creativity will be paramount for success. 

Recent trends in the past few years of the cannabis industry have favored vape and edible products dramatically.

Smokable hemp is a new emerging sector, as are upcoming non-psychoactive cannabinoids, such as CBN, CBG and CBC. 

These represent opportunities for cannabis companies to expand product lines, as well as pharmaceutical companies to potentially develop new drugs.

In the pharma space, early investors in GW Pharmaceuticals have seen an excellent ride with shares coming to US markets in 2014 at $10. GW went through an accelerated clinical development process for their CBD based Epidiolex formulation with received FDA approval in June of 2018. 

With annual sales in the $500 million range, GW Pharma’s stock closed today(12/2/2020) at $140 per share, offering early investors once-in-a-lifetime returns with this biotech investment. 

 

David Metzler: We are closely watching the medial use application of cannabis and the FDA, and are submitting more research to the FDA now.

We foresee a rescheduling of cannabis under a Biden administration, which means it will be easier to research medical applications and prove how cannabis is efficacious. 

When that happens, the industry will be legitimized, and we believe pharma and healthcare companies will enter into the space looking for OTC applications for diseases.

Avis Bulbulyan: Over the next couple of years, we’ll see a lot of SPACs formed. The manufacturing space is going to get a good boost.

Cultivation will taper off a bit and come back in line with demand.

The retail space should see a really nice shot in the arm.  With COVID and cannabis businesses being deemed essential, of all the sectors, retail really benefited from that more so than the other sectors.

Along with retail and again tying back to the COVID shutdowns, delivery is going to be a hot subsector within retail.

 

 

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