Benzinga - by Jelena Martinovic, Benzinga Editor.
Cannabis reform has moved one step closer to reality at the federal level on Wednesday, with the Senate Banking Committee approving the Secure and Fair Enforcement Regulation (SAFER) Banking Act.
"It's all about applying pressure to get things done." That's according to Emily Paxhia, co-founder and managing partner at Poseidon Investment Management, who joined the Benzinga Cannabis Capital Conference Wednesday in Chicago, Illinois, to talk about what institutions are looking for and how investors are looking at new opportunities in cannabis.
The regulatory milestone that would enable legal cannabis businesses access to banks and financial institutions has been in the works for almost a decade. It's one of the main cannabis market catalysts, alongside the rescheduling of marijuana, that would prompt investors to pour their capital into private businesses that are waiting on the sidelines, according to the four experts who joined a panel discussion moderated by Pablo Zuanic, the managing partner at Zuanic & Associates.
AdvisorShares CEO Dan Ahrens also joined Paxhia on the stage at Chicago Marriott Downtown Magnificent Mile. AdvisorShares is portfolio manager of the Pure US Cannabis ETF (NYSEARCA: MSOS) — the first ETF to offer U.S.-exclusive cannabis exposure — the Pure Cannabis ETF (NYSEARCA: YOLO), the Psychedelics ETF (NYSEARCA: PSIL), and the Vice ETF (NYSEARCA: VICE).
Other panelists included Matt Hawkins, co-founder and managing partner of Entourage Effect Capital (EEC); and Ricky Sandler, CFA, CEO, CIO and founder of Eminence Capital.
Domino Effect The Department of Health and Human Services' (HHS) letter to the Drug Enforcement Administration (DEA), which recommended that cannabis should be reclassified as a Schedule III controlled substance under federal law, is a result of political jockeying and coordination that is taking place behind closed doors, Ahrens explained. The forthcoming Garland Memo is another cannabis market catalyst.
Ahrens equated them to "a series of dominos." With the letter, HHS made the Senate Banking Committee's job on Wednesday easier.
"Dominoes are going to fall," Ahrens said, "as they are finally, after three years, all in motion."
Sandler said the result of regulatory changes will be healthier business prospects.
Cannabis businesses could expect healthier pricing and profitability following years of price compression and market oversupply that created a negative trajectory, he continued.
"I think we are on the other side of that capital cycle," Sandler said.
The resilience of the large operators amid "a very dark winter" is a testament to that, he added.
Hawkins agreed, adding that it's essential to separate public businesses from private companies. Why? "Publics, especially in the ETFs, are typically the larger ones that even in the dark winters can still access capital," he explained. "That may not be cheap, but they're accessing, in some way, to help further grow their business."
On the contrary, prospects are not so bright for private operators. That's why Hawkins is calling on investors to find ways to support early-stage companies.
"There's still a lot of fresh ideas out there that need to get financed," he said.
What's Next: Ahrens expects more consolidation in the space, with cannabis businesses being acquired by big consumer packaged goods (CPGs) companies, like alcohol and tobacco operators.
The cannabis industry will be a "different looking business," he said.
Poseidon's Paxia added that, with Gen Z entering the workforce, a new cohort of people will come up with new ways of integrating cannabis into their daily lives.
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