Could US Cannabis Reform Help the Canadian Market?

Banking changes wouldn't have immediate effect, banker says

During an earlier panel at the Lift Expo, Allen Benjamin, managing director and national team lead of cannabis and emerging industries at the Bank of Montreal (TSX:BMO), was asked if the enactment of a policy like the SAFE Banking Act would change his perspective on cannabis investments.

Benjamin isn’t against the market at the moment, but said his firm does not evaluate deals with US operations.

The Canadian bank analyst commented that even if the bill were to become law, the market would not see an immediate shift in approach from bigger banks.

“It's not a quick switch where it passes and all of a sudden lenders can start (doing deals in the US). From a capital markets perspective, it makes things easier,” he said. “There'll be a lot more access to capital from that perspective.” More mature deals, such as senior debt from bigger banks, would still take some time.

US policy remains tricky to predict

Following US President Joe Biden’s win of the White House in 2020, cannabis observers expected reform to be addressed at some point — maybe not right away, but certainly at some point during his tenure.

However, as the midterms loom in 2022, some have grown frustrated with the lack of progress from Democrats.

“Democrats had high hopes that, particularly during the first years of the Biden administration, there would be greater support from the administration to get this done,” John Kagia, chief knowledge officer at cannabis research firm New Frontier Data, previously told INN.

The outlook is gloomy for meaningful policies to address the banking and financial needs of cannabis players, or to allow Canadian players to leverage their expertise into entering the vast US marketplace.

Dan Ahrens, managing director and chief operating officer at AdvisorShares Investments, previously told INN he expects to see a piecemeal approach to cannabis reform in the US.

“There’s a lot more support for some type of federal reform for cannabis really coming from both sides of the aisle, more than at any point in the past,” said Ahrens, who also manages two cannabis exchange-traded funds.

US reform could allow bigger player entry

It is widely expected that significant cannabis reform in the US could open the possibility of bigger investments and partnerships from consumer packaged goods (CPG) players.

While a few cannabis players have made deals with diversification-hungry alcohol and tobacco companies, several experts have pointed out that the wait-and-see status of US legalization or policy reform is impacting major entries from large CPG players.

“They also want to enter on their own terms,” Shane MacGuill, global lead of nicotine and cannabis with Euromonitor International, told INN.

Investor takeaway

Politics continue to play a key role in the development of the cannabis market, a fact investors have been well aware of for years now. Particularly in the US, the investment community continues to wait for changes to affirm the opportunity surrounding state market operators and companies pining for US exposure.

The long-running possibility of US reform bringing stability into Canada may offer some relief to the market losses seen in recent years by players across the board.