Advertisement
Canada markets closed
  • S&P/TSX

    22,167.03
    +59.95 (+0.27%)
     
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • DOW

    39,807.37
    +47.29 (+0.12%)
     
  • CAD/USD

    0.7383
    -0.0004 (-0.05%)
     
  • CRUDE OIL

    83.11
    -0.06 (-0.07%)
     
  • Bitcoin CAD

    95,028.04
    -407.02 (-0.43%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • GOLD FUTURES

    2,254.80
    +16.40 (+0.73%)
     
  • RUSSELL 2000

    2,124.55
    +10.20 (+0.48%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • NASDAQ

    16,379.46
    -20.06 (-0.12%)
     
  • VOLATILITY

    13.01
    0.00 (0.00%)
     
  • FTSE

    7,952.62
    +20.64 (+0.26%)
     
  • NIKKEI 225

    40,369.44
    +201.37 (+0.50%)
     
  • CAD/EUR

    0.6840
    -0.0003 (-0.04%)
     

Lack of regulatory reform 'took the air out of the balloon' from cannabis stocks: Expert

ETFMG Cannabis Research and Banking Expert Jason Wilson joins the Live Show to discuss the outlook for cannabis brands amid potential legislative reforms and federal legalization by state.

Video Transcript

[AUDIO LOGO]

DAVE BRIGGS: Cannabis celebrations planned across the country Thursday to mark 420, what's become a national holiday for the cannabis community. Investors in the industry, however, not so much in a celebratory mood. The three largest US cannabis companies down between 50% and 60% over the last 12 months, with, really, no relief in sight.

Let's bring in James Wilson to talk more about this, ETFMG Cannabis Research and Banking expert as part of our ETF Report brought to you by Invesco QQQ. Good to see you, sir. So what could be the catalyst? What does the next year have in-- to hold for the cannabis industry and investors?

ADVERTISEMENT

JASON WILSON: Well, like you mentioned, 2022 was a rough year for investors. There was a lot of volatility over super-high expectations that at the end of last year, we'd see some form of regulatory reform. And obviously, it didn't happen. And it just really took the air out of the balloon. And we've seen a result of it with the price performance.

So 2023 is-- we'll very likely see top line revenue growth. We're going to definitely see a realignment of expectations at the corporate level, where they're going to be less focused on absolute growth and more focus on, really, operational efficiencies, checking, looking-- reevaluating various capital expenditures, and really also focusing on their core CPG business, that's build their brand, new product forms to help expand the addressable market, things of that nature.

So that realignment will help a lot. But more than anything, to really move the needle for the industry, we need to see regulatory reform.

SEANA SMITH: Well, Jason, what are the odds that we actually will see regulatory reform? Because Democrats, Republicans are so far apart on this issue. And at least when you look at where the talks ended and where-- pretty much where they stand today, there hasn't really been, it seems like, much progress made inside DC.

JASON WILSON: Yeah, Democrats and Republicans aren't actually that far apart on it at all. What they're apart on is the extent of reform. And we saw that last year. What we saw was a cosponsored Safe Banking Act bill that was-- the votes were there in the Senate to get the 60 votes that were needed. Where the friction came in, ironically, was within-- from what I understand, within the Democrat party itself where they were looking for more extensive reform.

And that's really where we keep seeing the friction is, I think there's this feeling that if we only have safe banking, it isn't going to benefit the right groups of people that need the benefit. It's not going to benefit the small business as much. It's not going to benefit the minorities. It's really going to create-- it's not going to give the help where it's needed as much.

So that's what-- we're the friction really lies to some extent is how far to go with reform. What's it look like? So there is bipartisan support. There is support on both sides of the aisle. That's not where the friction is. It's really getting alignment on what the right issue is.

And we are-- it's not a dead issue. Obviously, we just saw the small business tax equity act that came out. Whether it's going to be read, actually, we'll hear it in the Republican-controlled House is a good question. But there is-- it's co-sponsored by both sides of the aisle.

DAVE BRIGGS: So bottom line, when do you think we could legitimately-- let's forget about legalization, at best probably '28. When do you think we could see safe banking passed in the Senate? Is there any potential for this 280E reform that Congressman Earl Blumenauer is discussing? And that's really key for these businesses who cannot write off business expenses and pay an effective tax rate two or three times an ordinary business.

JASON WILSON: Yeah, I mean, getting rid of the 280E drag would be huge, especially for the larger MSOs. As you mentioned, their effective tax rate is egregious. And they are state-legal businesses. And some of the states have already taken measures to correct that. But obviously at the federal level, it's still a problem.

It's a good first step, for sure. Whether or not we actually hear it makes progress, we'll see. There is-- it's co-sponsored by both parties. So there is a chance. It is very incremental reform. I suspect that if it actually does get passed in the House, the bigger question will be, again, whether we have the same problem we had at the end of last year, whereas we want to see the Senate come out with more expansive, more extensive reform. And that's where we could get friction again.

So if we can get it through the House, if we can get it in front of the Senate, I mean, that could be a good first step and open back that that communication gets a chance of getting safe banking or even safe banking plus back in again sooner than we might expect. But--

DAVE BRIGGS: And Jason--

JASON WILSON: --we're running out of time, for sure.

DAVE BRIGGS: Yeah, and even the states that have legalized, which we're currently I think 21 plus DC, the two biggest markets in the country, California and New York, which is still very young, but are plagued by the same problem and look like disasters instead of being role models for what other states should follow.

We asked George Archos, the CEO of Verano Holdings, about their problems. Here's what he told us.

GEORGE ARCHOS: The whole point of putting legal operations into place is to make sure that our consumers have a safe, consistent product. And that's not happening.

In California, there's so much gray market, black market, the government is not shutting them down. And it's very unsafe. And that's when you have difficult situations. And unfortunately, some of that falls on us, even though we're doing everything right. And now New York is doing the same thing.

DAVE BRIGGS: How do we get it right? How do investors jump into the space when the two biggest markets have been an absolute failure to date?

JASON WILSON: Yeah, and again, it's that regulatory reform. And to your point, it's-- even without the legalization, you need some level of reform to allow these businesses, where the states have said it's legal and we want it, is to allow at least proper banking, right, to get rid of the mostly cash-transacted business, to get more support behind the enforcement.

I mean, it's one thing to legalize. But you have to enforce the illicit market. We've seen it in Canada. It's a serious problem where almost half the sales are still in the illicit market. Without enforcement, legalization isn't as effective as it can be.

Everyone keeps dodging the issue. It's good that we're looking at reclassifying at the federal level. That's underway. That could take a while. We still may need Congress to help move that forward. But at the end of the day, it's got to be the whole package.

It has to be creating a level playing field so we get enforcement, getting the banking right. That's what's going to get investors back. And that's what's going to help the industry participants actually have long-term viable businesses.

DAVE BRIGGS: Indeed. Nonetheless, US sales estimated north of $30 billion this year, pretty solid number. Jason Wilson, good to see you. Thanks so much.