Cannabis Musings - January 4, 2023

Friends – happy new year! It’s that time when we engage in the completely meshuga exercise of predicting what’s going to happen in the cannabis industry in the coming year. But first, a quick word from our sponsor.

As many of you know, after 24 years of being a lawyer, this past summer I left the practice of law and launched Hauser Advisory. I realized that there was a better way to apply the skills I’ve built over two decades in deals and capital markets, as well as the broad and deep national network of relationships and resources I’ve developed in this industry.

Through this platform, I’m advising cannabis companies on macro strategy and major transactions – M&A, investments and loans, restructuring and workout, and the like – as well as helping investors and companies understand and navigate this ever-evolving industry. My goal is to not only guide the process and help the management team make informed decisions, but also to act as a bridge with the outside professionals (lawyers, bankers, accountants), translating what they’re saying and making those relationships more efficient (saving management’s time and money).

In just a few months, I’ve already found that this role allows me to be even more useful to clients and partners, whether as a consultant, board member, or part-time employee. I’m able to give even more direct and practical advice and recommendations, develop connections, and work closely with teams to understand business needs. So, if you could use my help, let’s find a time to talk.

One thing that hasn’t changed is the somewhat regular production of these Cannabis Musings. This year, we’re going to continue to discuss farpotshket goings on in the industry and also consider some of the lessons that I’ve learned along the way.

With that, on to my thoughts about things to watch for in 2023.

• Federal – I for sure don’t know. I mean, what’s the point anymore of even trying to guess what the President, Congress, the DEA, and the FDA are going to do? (Though, unfortunately, I’ve been correct about SAFE for five years going.) Maybe scapulimancy or haruspication will result in better predictions here. That being said, I do expect we’ll see something interesting when the 2018 Farm Bill (which descheduled hemp) comes up for renewal this year. If the draft Hemp Advancement Act filed by Rep. Chellie Pingree (D-ME) last February has any legs, I’m guessing that the hemp-derived THC (e.g., Delta-8) “loophole” (I put that in quotes because I don’t think the law allows for these products (no loophole), but that’s not legal advice and I recognize that many disagree with this take) will be finally be fixed.

• States – I imagine that the industry will continue its slow and steady progress opening up markets in the states. I think one interesting trend to follow will be what states do about unlicensed retail sales of hemp-derived THC products – I’m guessing we’ll see more states ban them, even before Congress does something about it (if at all). Also, I'm guessing that Minnesota will fix whatever the heck happened (or didn’t happen) there last year regarding THC-infused edibles.

• Courts – Related to the states, I think this will finally be the year when the industry gets serious about the question of interstate commerce. Why? Because it won’t have a choice. The various court cases challenging licensing residency requirements have just been the appetizer to the main course that is the recently-filed Oregon case challenging head-on that state’s ban on shipping cannabis products across state lines. I imagine the case will take a long time to make its way through the courts (including appeals), and the State of Oregon will fight hard, but I’ve always been of the mind (not a legal opinion) that these state bans are very likely unconstitutional. I just never expected the challenge to start this soon.

• Capital – Without any sort of real catalyst to change things, the pain that is cannabis capital markets will likely continue unabated in 2023. Debt will remain expensive and equity will remain nearly non-existent for most companies as investors stay away from the space. I also think we’re likely to see more companies converting their debt into equity (ala Flower One and TerrAscend) in order to reduce leverage, as well as expensive public stock issuances at low price levels (ala Glass House and Agrify) in order to raise much-needed cash.

• Exchanges – I’ve noticed recently some chatter about whether the Toronto Stock Exchange (TSE) could allow US cannabis companies to list for trading, stemming presumably from the TSE’s apparent lack of opposition (to date) to Canopy’s announced deal to finally close on its acquisition of Acreage, Wana, and Jetty (which we talked about extensively back in October). The thought is that, if the TSE will allow Canopy to remain listed even though it'll post-closing own US-based plant-touching assets, it will certainly allow other US plant-touching companies to list. I personally think there’s a subtle, yet material, business difference (although somewhat illogical) between not delisting Canopy and affirmatively taking on a new listing. That being said, we should all watch how this plays out this year.

• Mishmash – The FDA will still not issue any regulations or guidance on CBD ingestibles and supplements (keeping my CBD knish truck project on continued hold). Brand collaborations with key prominent celebrities will finally gain real traction as the industry better understands how to market them (after years of many false starts).

Finally, on another personal note, I’m excited to share that I’m now an Adjunct Professor at Northwestern Law (my alma mater) and will be co-teaching a class on cannabis law and policy with some good friends as part of the school’s San Francisco Immersion Program. You won’t be able to take the class unless you’re a law student (a fate I recommend you avoid at all costs), but you can enjoy the Spotify playlist that we’ve created for the syllabus.

Be seeing you!

© 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. Subscribe to Cannabis Musings at hauseradvisory.com.