Prohibition Partners LIVE: Investing Tactics, US Legalization and More

In the age of COVID-19, many cannabis events have migrated to online forums, serving investors at home hoping to listen in on the latest expert insights.

This past Monday and Tuesday (June 22 to 23), the Prohibitions Partners LIVE event offered the latest tidbits on the marijuna industry at large. Overall, it showed cannabis market experts are hopeful about the future of the space as investors become more mature.

Among the guests was Alan Brochstein, marijuana analyst and industry commentator with 420 Investor and New Cannabis Ventures. While recapping the path that has led to the current state of the market, he emphasized an overall theme for modern cannabis investment: There is no more easy money.

Brochstein said he’s been seeing companies, particularly multi-state operators (MSOs) in the US, opt for sale-leaseback deals or debt offerings as a way to keep afloat rather than raising capital. While these tactics offer alternatives for companies, the analyst expressed some concern about the impact of cash flow when it comes to the terms of debt agreements.

As a warning sign for investors, Brochstein pointed to the partial conversion of convertible debt deals done by Canadian cannabis giants Aphria (NASDAQ:APHA,TSX:APHA) and HEXO (NYSE:HEXO,TSX:HEXO).

“It’s an existential problem for those that don’t have great access to capital,” he said.

Changing cannabis investment tactics and landscape

Connected to the lack of easy money is the evolution of the cannabis play for investors. A number of conversations at the event concentrated on the sector’s progression from hype-based interest to what many advocates hope is a more settled, mature market based on fundamentals.

During a conversation surrounding the North American markets, Trulieve (CSE:TRUL,OTCQX:TCNNF) CEO Kim Rivers said she still remembers times when potential investors would drill into why Trulieve wouldn’t move ahead with expansions into other states.

Trulieve has distinguished itself from its fellow MSOs by focusing on its active assets in Florida, despite increasing competition in the state’s legalized medical cannabis market.

According to numbers from the Florida Department of Health’s Office of Medical Marijuana Use, Trulieve has over 10 more stores than its closest publicly traded competitor, which is Curaleaf Holdings (CSE:CURA,OTCQX:CURLF). Throughout 2020, Trulieve has come out on top in the weekly sales reports from the state agency.

Rivers praised the analysts who have made the effort to establish why bigger isn’t always better in the cannabis industry.

In his talk, Brochstein echoed the sentiment of rewarding a more simple and direct cannabis business approach. In fact, he went as far as to say that investors will penalize complexity.

Due to the emerging nature of the industry, Brochstein said companies pride themselves on offering very convoluted and expanding business models, and that has led to some investors getting burned.

Now the majority of retail investors, who are still the largest demographic in the cannabis space, according to Brochstein, are pursuing simpler models, with cash flow being a key indicator of success.

What happened with US marijuana legalization?

The Prohibition Partners LIVE event also served as a public reckoning for the much-anticipated legalization of cannabis in the US. Many hoped it would happen swiftly following Canada’s legalization of recreational cannabis in October 2018, and at the time insiders in the space began evaluating the chances for the US to move ahead as well.

Instead it’s been a slow and complicated process.

The US cannabis market has continued to be affected by the fractured nature of the country’s legalization process. During the Prohibition Partners LIVE event, several experts discussed what could be coming for the American market by way of critical changes needed.

When asked about the potential for more investors to jump aboard the cannabis train, Rivers was quick to point out pieces of reform that could help the market, such as the SAFE Banking Act, which she believes would definitely invite a broader set of investors to come in.

“Look, is the investor pool as deep as we would like? The answer to that is no,” said Rivers. “I think the real catalyst there will come, of course, when we’re able to uplist into a US exchange.”

The key, as has always been with cannabis investments, is compliance.

Brochstein mentioned that he could see small reforms as a way to offer protections for US-based financial institutions seeking to do business with cannabis firms, act as a catalyst for the sector. But most likely a political change will be needed to make these changes a reality.

“Unfortunately, it probably takes the Democrats controlling the Senate, which they don’t have now, and the House. If that happens, no matter who the president is, I think we might see some regulatory reforms,” Brochstein said.

But what would these reforms offer? For starters, they could make it so companies like Trulieve and other MSOs could list in the US markets; additionally, this event could open the door to more institutions to step in and explore more meaningful investments.

Brochstein suggested banks should have protections to take deposits or make loans to cannabis corporations. It would also help if credit card processors could receive protections, the analyst said.

“All that’s going on in the US financial market right now is out of caution and a lack of clarity, it’s not illegal,” Brochstein said. “If we could get the large MSOs onto the NASDAQ and the New York Stock Exchange … that would be a game changer.”

In his own talk, Narbe Alexandrian, CEO of cannabis investment firm Canopy Rivers (TSX:RIV,OTC Pink:CNPOF), said modern cannabis companies and their investors need to adjust to a long-term view of the industry. Alexandrian expects legalization to arrive in the US in the next two to five years.

Similar to the other experts, Alexandrian said full legalization of cannabis in the US would bring larger institutional investors into the space, drive up valuations and increase competition.

Investor takeaway

Cannabis investments have offered a rocky road for those willing to take a go in the industry, but experts are becoming more upbeat about the metrics being used to evaluate participants.

Now industry observers have to wait and see when the desired catalysts will arrive for the marijuana stock market.

Don’t forget to follow us @INN_Cannabis for real-time updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.