Cannabis Vets From Poseidon, Curaleaf, Aphria And TILT Share Projections For 2021
The past twelve months were pivotal for the cannabis industry, as 2020 welcomed a myriad of triumphs, including:
- Essential business status during the COVID-19 pandemic
- Four U.S. states voting yes to recreational marijuana
- The U.S. House of Representatives' approving Marijuana Opportunity Reinvestment and Expungement (MORE) Act, a bill constructed to remove marijuana from the list of federally controlled substances
- The passing of a bill to reduce barriers and advance scientific research into medical cannabis.
- An increase in cannabis sales and record levels of tax revenue
- A European court ruling against restrictions on CBD commerce
- And an uptick in celebrity backing
So, what will 2021 bring? Benzinga reached out to a number of cannabis industry veterans to learn more.
2020 Was A Proving Ground
"From an industry perspective, we saw necessary culling of the poor operators and the acceleration of sustainable growth for the leading MSOs and ancillary companies in the U.S.," Emily Paxhia, managing director and co-founder of Poseidon Asset Management, said.
Strong sales trends underscored how 2020 was a "proving ground for cannabis" and was marked by "operations and focus on sustainable growth."
Paxhia advised investors to look at the leading MSOs like Curaleaf Holdings (OTCQX:CURLF), TerrAscend (OTCQX:TRSSF), Trulieve (OTCQX: TCNNF), Green Thumb Industries (OTCQX:GTBIF), and Cresco (OTCQX:CRLBF), who worked hard to advance their EBITDA margins in order to ensure long-term success.
"The days of raising capital on dreams, overpromising and underdelivering, should be behind us. Look at the massive wipeouts of iAnthus (OTC:ITHUF), MedMen (OTCQX:MMNF), Acreage (OTCQX:ACRHF), etcetera, who did just that," said Paxhia.
On the other hand, the industry did experience challenges imposed by the COVID-19 crisis. It was basically tested as a recession-proof product.
"Cannabis may be recession-proof, but cannabis companies are not," Paxhia said.
Paxhia expects to see more quality operators to go public in 2021, providing more attractive investment opportunities for investors.
Gary Santo, president of TILT Holdings (OTCQX: TLLTF), noted that a "recession-proof is a strong term," but that "while the pandemic greatly affected the U.S. economy, the cannabis industry demonstrated its importance to the economy."
"2020 marks the year when true operators began to distance themselves from their 'growth-at-any-cost' cousins," Santo says. "Investors focused less on footprint and more on meaningful market penetration and tangible pathways to profitability, rewarding those companies that delivered."
Essential Service Designation
"Receiving essential service designation in March amid COVID-19 was an important recognition of how far the cannabis industry has come," Joe Bayern, president and incoming CEO of Curaleaf, said.
Over the year, Curaleaf continued to expand their presence in the country.
"We're now up to 39 states plus Washington D.C. with some form of legal cannabis and 15 states where cannabis is fully legal," Bayern said. "This is recognition of overwhelming public support for the legalization of cannabis, and a sign of growing momentum for the industry.
Mainstream and bipartisan acceptance of cannabis "is happening throughout the country," he says, since cannabis is now considered a "valuable industry" for "innovation, tax revenues, and job creation."
In addition, Bayern emphasized that "meeting consumer demand" is something they've been struggling with the most, as evidenced by a number of new retail locations the company launched over the past year.
Banking Continues To Be A Major Challenge
One of the biggest challenges the industry is currently facing is banking.
"We believe there is institutional capital still waiting on the sidelines for clarity from the federal government on banking and capital markets. The cost of doing business with restricted banking support is high, and it has impacts across the organizations in terms of cost of accounts, lack of lending for cash flow management [and] limited pools of capital for growth," Paxhia explained.
Santo noted that while the SAFE banking Act will help limit the expenses, premiums paid by the cannabis business remain. "Another significant hurdle is 280E, which prevents cannabis businesses from deducting 'business' expenses, as adult-use cannabis is still deemed federally illegal."
Besides federal legalization of cannabis, which continues to "be a political issue," education and building of a "trust among consumers about cannabis as a safe product for both medical and recreational use" remain the biggest challenges in the cannabis space, according to Irwin Simon, chairman of the board and CEO of Aphria (NASDAQ: APHA).
Tech Companies May Thrive; More Talent In The Space
Paxhia expects a strong year for cannabis tech companies.
"These companies have been working with less of the spotlight over the past few years, but the leading companies have impressive metrics and are benefiting from the growth of the industry and the unlocking of new markets," she said, citing Mexico as having the potential to be the largest federally legal market on a global level.
Paxhia is also pleased about the transformation of the staffing sector and the amount of talent that has joined the industry, including top-level executives from other spaces.
"The compositions of boards and executive teams will no longer be about a token politician with no true value add, but rather with those who have acumen around CPG, manufacturing, retail and hospitality," she said.
Over the past year, the cannabis industry has also seen an influx of beverage experts, while cannabis companies are pawing their way toward establishing their position in the beverage market.
Bayern suggests that the "cannabis industry will ultimately be much like traditional consumer packaged goods, where trusted brands will be differentiating, defensible and value-creating in the long-term, continuing to capture higher margins and consumer wallet share."
Santo says 2021 will see "an expansion and consolidation of relationships within the industry," as operators seek to add depth to their portfolios as opposed to purely breadth.
"That is where we expect to play, as our goal is not to compete with multistate operators and independent retailers but to help them thrive under such conditions — especially in limited license markets," he added.
The legalization trend will also continue this year.
East Coast governors, including New York Gov. Andrew Cuomo, have already announced plans to move cannabis legalization through the legislative process.
"Let's face it," Paxhia says. "The state coffers are suffering from the pandemic, and cannabis taxes are no longer to be ignored as potential strong contributors."
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