AdvisorShares CEO on his outlook for cannabis stocks

Noah Hamman, AdvisorShares CEO, joined Yahoo Finance Live to discuss his outlook for cannabis stocks ahead of 4/20.

Video Transcript

ADAM SHAPIRO: So tomorrow is April 20, or 4/20. And for people who consume cannabis products, there may be some irony or perhaps some hope and maybe even a Schumer surprise. To explain what we're talking about here is someone who understands this market very well, from the Advisorshares and their ETF MSOS, which actually trades US-based cannabis companies-- it includes, rather. Noah Hamman is joining us. And forgive me for rambling here, but tomorrow and the potential Schumer surprise, which is it?

NOAH HAMMAN: Well, actually, there's something going on today, too. The House is set to vote on the Safe Banking Act. This is some legislation that went through the Finance Committee last year, late last year. So we actually will get some interesting news we hope today when the House approves Safe Banking. So it's just focused in on the cash management component, the cash needs of cannabis companies that are operating legally in the states in the US.

But Schumer has been dropping a lot of hints on social media that legislation is coming that he plans on introducing in the Senate, which will be really interesting to see the reaction. And he's also been pretty clear that it's not to legalize cannabis, but it would be to focus on around decriminalization or descheduling, which really opens up the opportunity for these US-focused companies, but really closes the border for external companies to try to make their way in.

SEANA SMITH: You know, I want to follow up on that point. So is that-- that means that this could potentially be bad news for some of those Canadian cannabis companies that are potentially looking to expand then here in the US.

NOAH HAMMAN: Right, definitely bad news for their plans in that area, probably not so great news relative to some of the valuations those companies have seen and the multiples they've seen when they've really had a hard time achieving profitability just in their own local jurisdiction. So, absolutely. And so what you have, though, is a situation with US multistate operators. And these are companies like [INAUDIBLE] and Green Thumb and Cresco Labs, that they list in Canada because they can't list in the United States just yet. They trade here OTC, so they don't have really that financial advisor or institutional support you get around securities that normally list.

But as these things start to open up and still keeping the borders closed a little bit, letting states decide how they want to approach it, it really creates an amazing opportunity for those companies for them just to grow themselves. Or we could see our own M&A activity go on in the United States as well.

ADAM SHAPIRO: Well, what would the catalyst be for that M&A activity? Would it be the Schumer surprise, or would it just be the Safe Banking Act? And who would the players be?

NOAH HAMMAN: It's a good question. It's hard to know exactly what will be the catalyst, but both help, right? So with Safe Banking, getting-- you know, there's over 300,000 employees in the cannabis industry in the United States. People are pretty shocked by that number. And all of those businesses have to operate on a cash basis. So it's incredibly unsafe for those people who have to work in that industry.

So Safe Banking fixes that significant problem, but also then just opens up regular banking, regular custody for these companies. So that alone could start to introduce that institutional M&A opportunity. But certainly with cannabis being deschedulized, decriminalized, that really, I believe, will open up the floodgates. And who might it be? It might be some of the same companies you've seen make some acquisitions in Canada, right? So, probably a Constellation Brands in the alcohol industry. You certainly could see some tobacco companies who have also made some strategic investments in Canada turn their focus, instead of coming through Canada, but buying just in the US.

So, you know, depending on how you want to play it, you mentioned the MSOS ETF. It's the only one that's US-focused that has those MSO companies in it. So that's a little bit more volatile. But you can look at something like the Vice ETF that has those alcohol, tobacco companies that we think will be some of the leaders in being very aggressive at looking at some of these US companies, as this decriminalization process continues.

SEANA SMITH: Now let's take a step back just a little bit and look at what's been going on in the market today. We're seeing losses across the board, of course. So we're coming off of four straight weeks of gains. When you take a look at the dynamics that are at play, we're in the midst of earnings season right now. We had the big banks kick it off last week. Is this going-- do you think earnings will be enough to fuel this momentum that we've seen in the market over the last couple of weeks?

NOAH HAMMAN: I hope so, right? It's all about sort of the reopening trade, right? And things opening back up. We're actually getting ready to launch. And I'm probably getting ahead of the announcement. We're launching on Wednesday Eats and Bets, the restaurant ETF and a hotel ETF, that we think as, you know, things do open up and they're hiring more people and people are spending money and it's probably more leisure and personal travel right now, I think businesses are still going to be slower to really kind of get, you know, employees out there.

But yeah, we think, you know, just, you know, the activity that people are going to be spending and doing and getting out of their house, I think, can really help prop up the economy, prop up the businesses, prop up the fundamentals, get people back to work. So we're counting on some of that happening. We know it won't be a straight, smooth line, but definitely counting on that happening to the rest of the year.

ADAM SHAPIRO: Noah Hamman is the CEO from AdvisorShares. Thank you for joining us.