Cannabis Musings - August 18, 2023

Further thoughts on the cannabis macro cycle.

Friends, about two weeks ago, we talked about the state of the cannabis industry.  In short, it’s krank.  But that doesn’t mean that I’m ready to sit shiva yet.  Otherwise, I wouldn’t still be hyperfocused on this industry and would instead gas up the CBD knish truck. 

I was listening this morning to Bloomberg’s Odd Lots podcast, which we’ve talked about before as being a favorite listen of Cannabis Musings.  In a discussion about GLP-1 weight loss medications, the guest mentioned the “Gartner Hype Cycle,” developed by technology advisory firm, Gartner.  In short, based on my cursory review of the Wikipedia entry about the theory, it’s a way of depicting and understanding a new technology’s life cycle:

Source: Wikipedia

It kind of seems to apply to a lot of new things, the internet being the most obvious, describing a boom->bust->equilibrium cycle.  Kind of a Hegelian/Marxist dialectic at work (with apologies to critical theory majors).  It also seems to me to describe how I’ve always thought about legalized cannabis, and puts our prior discussion into a nice framework.

Consider the “Technology Trigger” being the early states adopting adult-use, particularly California in 2016.  That’s just about when we saw the investor hype cycle begin, and it’s a giant understatement to say that expectations (among those investors, as well as pretty much everyone in the industry) were inflated between 2017-2019 (see, e.g., Canopy Growth’s $17 billion market cap (basically, stock price x shares outstanding) in early 2019).

Well, we’re now for sure in the Trough of Disillusionment.  No need to repeat what we discussed two weeks ago, and prior – it’s bad.  That being said, the whole purpose of what we’re all doing is for cannabis to become legal, regulated, tested, safe, and used responsibly, and correct the ills that have resulted from fear.  That’s why this industry isn’t going away (although it does help that the federal government is still holding off on shutting the whole thing down, which it could, but it’s not). 

To me, federal policy change is the only real catalyst that will allow this industry to climb a Slope of Enlightenment (which, to me, is 99.86% federal policy changes) and eventually stabilize on a Plateau of Productivity.  The frustration is that, as I noted, cannabis isn’t likely going to be able to get out of the slump without some sort of federal action, and that’s quite hard to control or predict.

It's not all dire.  There are companies out there that are not only surviving, but are thriving.  In my view, it’s the operators that have been very conservative (meant as an adjective, not politically) about growth and careful about the balance sheet, and have carved out a true brand identity/aesthetic, none of which is easy for too many reasons.  Right now, companies win by not losing, and by recognizing that this really is a marathon (where too many treated it as a money-fueled sprint). And, of course, Hauser Advisory is available to help navigate all of this.

It will get better.  When?  Freg mir becherim!

Be seeing you!

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Hauser Advisory provides advice and strategy on business lifecycle events and cannabis industry navigation, tapping into a deep, national network and twenty-five years of dealmaking and capital markets experience.

© 2023 Marc Hauser and Hauser Advisory.  None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form.