After the proposal failed to make it into the National Defense Authorization Act (NDAA) earlier in December, the hope was that appropriations would protect banks that work with state-legal cannabis companies.

In their latest note published on Wednesday, Wedbush Securities' analysts Gerald Pascarelli and Antoine Legault shared the main takeaways from a three-day conference.

Challenges That Continue Into 2023: Federal Status, Banking & Pricing

"Conversations around SAFE Banking and/or potential rescheduling or de-scheduling of cannabis will likely ebb and flow over the course of 2023," the analysts said, adding it "will likely prove to be much more of a "show me" story relative to the optimism that was seen from October through early December last year."

They noted that the lack of SAFE Banking would affect smaller businesses and operators in one state more than "tier 1 operators."

In addition to its Schedule 1 status and lack of access to banking services, the cannabis industry also faced declining marijuana prices in 2022.

"As has been the case for over a year, supply/demand dynamics and resulting price compression has been the key focus point from a fundamental perspective, which will continue into 2023." 

Normalization of supply/demand imbalance and pricing can be expected as MSOs attempt to protect their balance sheet and cash positions by reducing Capex spending. Moreover, without cannabis banking reform, smaller operators will continue to lack access to capital, potentially leading to more consolidation.

CT Rec Sales Launch & Upcoming FL Market

Connecticut's legal recreational cannabis market officially rolled out on Tuesday, Sept. 10. Pascarelli and Legault expect the new market will generate $800 million in the next two years.

The analysts said that the Supreme Court would not decide on recreational cannabis before the year's end, at the earliest. However, the Sunshine State's medical market is among the best performers nationwide.

Legalization of recreational marijuana would be a significant "catalyst for the industry," with Trulieve seeing the "biggest tailwind," followed by Curaleaf," said  Wedbush Securities' analysts Pascarelli and Legault.

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