Cantor Fitzgerald's Pablo Zuanic says the U.S. cannabis industry has great value but is in a tight and defined investable pool.
But there's hope: “We are confident about the regulatory tailwinds pushing the U.S. marijuana industry forward, taking a long-term view,” said Zuanic, however “in the near term, operators face macro pressures, limited funding opportunities, and runaway licensing in some states.”
SAFE Banking Act’s failure to materialize:
Zuanic said that without the SAFE Banking Act and a divided Congress, he is even more confident "of the durability, scalability, and long-term outlook of the larger and better-capitalized U.S. MSOs."
However smaller operators could be excluded and “in some cases, new licensees may not even be able to raise capital to start operations,” Zuanic said in a recent note. “Still, the question of 'investability' (we do not mean fundamentals) remains a concern, with at best a TSX listing (and increased U.S. custody services?) helping in the next 12 months. Increasingly, we believe a rescheduling scenario by 3Q24 (not before) is becoming more likely, but that may delay/entangle other reform efforts in the interim.”
Top Catalysts For Building Momentum
Zuanic believes that the following catalysts will create headlines over the next one to two years:
- Revisions to the Farm Bill
- Passage of The Hemp and Hemp-Derived CBD Consumer Protection and Market Stabilization Act of 2021 (HR 841).
- U.S. MJ companies listed on the TSX
- U.S. companies acquiring Canadian assets
- Attempts to amend the IRS’s 280E Code
- U.S. exchanges listing U.S. plant-touching companies
- White House re-scheduling cannabis (or de-scheduling)
- Attempts to reintroduce (and pass) SAFE
- Comprehensive reform
How Will The Pie Be Divided?
Noting that the industry made significant progress in 2022, Zuanic named some of the companies that will likely take a piece of the market in the future. “20 years from now, the global legal cannabis industry could be worth $200Bn. How does the pie split? Like the tobacco/liquor/beer industries (consolidated) or the wine industry (fragmented)?
"A company with a 25% global wholesale share could generate $25Bn in sales by then ($200Bn x 0.50 markup x 25% share). If we assume 25% EBITDA margins and a 30x multiple (for a growing industry with high margins), then on an EBITDA valuation, such a company could be worth $190Bn. No company comes close to that," he said. "The two largest market cap MSOs are Curaleaf CURLF ($2.9Bn) and Green Thumb GTBIF ($2Bn); only four other cannabis companies have market caps over $1Bn; among MSOs, Trulieve TCNNF and Verano Holdings VRNO VRNOF; among Canada LPs, Tilray TLRY and Canopy Growth CGC.”
Get your daily dose of cannabis news on Benzinga Cannabis. Don’t miss out on any important developments in the industry.
Image by El Planteo
© 2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
BENZINGA CANNABIS CONFERENCE
Meet the biggest cannabis industry players and make deals that will push the industry forward.
Featuring live company presentations, insider panels, and unmatched access to networking, the Benzinga Cannabis Capital Conference is where cannabis executives and entrepreneurs meet.
Join us April 11-12, 2023 at Fontainebleau Miami Beach in sunny Florida.