As the cannabis industry continues to evolve, further consolidation and increased cross-border transactions and listings on the Toronto Stock Exchange are expected within the next 18 months. However, full legalization in the United States is not anticipated in the near future, according to cannabis analyst Pablo Zuanic.
In his first research report since departing from Cantor Fitzgerald earlier this year to establish his own firm, Zuanic emphasized that significant progress at the federal level in the U.S. is unlikely before the third quarter of 2023. Any news stemming from Washington, D.C. during this interim period would likely have minimal impact on U.S. cannabis stocks.
Nevertheless, Zuanic remains optimistic about positive catalysts on the horizon. He highlights the significance of strategic partnerships, such as alliances with consumer packaged goods companies, and the potential for further industry consolidation and listings on the Toronto Stock Exchange.
While it is challenging to anticipate which state will adopt adult-use cannabis sales next after Maryland’s successful launch this summer, Zuanic considers Pennsylvania and Virginia as possibilities. Virginia plans to introduce an adult-use market in 2024.
Among his 10 predictions for the next 18 months, Zuanic boldly asserts a 70% chance of the SAFE Banking legislation passing Congress. This legislation aims to grant cannabis companies access to the U.S. financial system. If it garners Senate approval in spring 2024, significant pressure will be placed on the House of Representatives to follow suit.
Additionally, Zuanic predicts a 65% chance that the Biden administration will reschedule cannabis during the same time frame. However, he warns that any alteration of its current Schedule I status to either Schedule II or Schedule III could complicate matters for cannabis businesses.
Overall, while full U.S. legalization remains a distant goal, Zuanic anticipates notable developments within the cannabis industry in the coming months. The focus will primarily revolve around company initiatives, cross-border transactions, strategic partnerships, industry consolidation, and potential listings on the Toronto Stock Exchange. As the industry continues to evolve, it is crucial for businesses to remain abreast of these developments and adapt accordingly.
The Potential Implications of Rescheduling Cannabis and Moving to the Toronto Stock Exchange
The potential rescheduling of cannabis could have significant consequences for the industry, both in terms of taxation and regulation. While it may remove the burden of 280E requirements for cannabis companies, allowing them to write off basic business expenses and pay fewer taxes, it would also pave the way for the legalization of medical cannabis at the federal level. This, in turn, could bring about the involvement of the Food and Drug Administration (FDA) as a regulator.
One possible outcome of FDA involvement would be the implementation of stricter guidelines on prescribing and the establishment of greater quality-control standards, according to industry expert Zuanic. The question remains whether state medical program rules would be enough to prevent federal interference if marijuana were to be federally rescheduled.
Zuanic also predicts a shift in the listings landscape, with more companies opting for a listing on the Toronto Stock Exchange (TSX) instead of the Canadian Securities Exchange and over-the-counter listings. TerraAscend, for example, recently made the move to the TSX, and other companies like Curaleaf could follow suit in order to raise more capital.
Zuanic commends TerraAscend’s chairman, Jason Wild, for seeking a TSX listing, as it opens up strategic options for the predominantly U.S.-based operator and could result in greater access to capital. According to Zuanic, Curaleaf, a company with global ambitions, cannot afford to overlook the TSX path.
However, Zuanic offers a word of caution to investors. He advises against investing in companies with governance issues and lackluster track records when it comes to acquisitions. Companies that have a history of purchasing “related” assets at inflated prices, excessive executive compensation unrelated to performance, stacked boards, or a record of rule-breaking (excluding unproven allegations) should be avoided.
In summary, the potential rescheduling of cannabis and the move to the TSX could have both positive and negative implications for the industry. While it may alleviate tax burdens and provide greater access to capital, it also raises questions about regulation and the involvement of federal agencies like the FDA. Investors should proceed with caution and carefully evaluate companies before making any investment decisions.
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