VP nominee Kamala Harris has supported pro-pot legislation in the Senate. (Photo by JEFF KOWALSKY/AFP via Getty Images)
A Biden victory or a Democratic win in the Senate could be a boon for cannabis reform
For cannabis companies to uplist and access institutional capital, Congress would need to pass legislation that allows cannabis companies to access banking and the broader capital markets like any other legal business.
Democratic nominee Joe Biden supports decriminalizing cannabis but has stopped short of calling for legalization. His VP pick, Kamala Harris, has supported legalization legislation in the Senate. And the House is set to vote on the MORE Act, a bill that would decriminalize cannabis and expunge the records of those convicted under cannabis laws, in September.
That gets to the heart of an issue that Jushi Holdings President Erich Mauff called a “paradox.” If the federal government decriminalizes cannabis but doesn’t allow the legal cultivation and sale of a product — then who are consumers supposed to buy product from? Who would oversee whether the products were actually safe to use?
“I don’t understand how you decriminalize a product that you have to purchase from a criminal,” Mauff said in an interview. “No one, not even most Republicans, wants to stand in the way of decriminalization. But you need a legitimate market to purchase, the ability to track supply, as well as proper safety controls”
Jushi Holdings is a cannabis and hemp company that owns both medical and recreational dispensaries in 7 states.
Still, Mauff and many other cannabis CEOs say a Biden win — along with the Senate flipping toward the Democrats, — would be “jet fuel” for the industry.
Curaleaf’s Lusardi says the continued conflict between state and federal law is “almost ridiculous,” now that 11 states have legalized marijuana for adults, and Arizona and New Jersey are voting on legalization in November. Pennsylvania’s governor, Tom Wolf, has called on the state’s legislature to legalize cannabis.
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Lusardi highlights abolishing Section 280E in particular, a provision of the IRS code that prevents cannabis operators from deducting regular business expenses from their taxes, as something that cannabis companies will advocate for.
Curaleaf is the largest US cannabis company, with operations in 23 states and a market value well over $4 billion.
And it’s not just access to nuts-and-bolts banking like opening checking accounts that cannabis companies say will help. It’s about a “much broader concept of banking,” Bachtell, of Cresco Labs, said, including the ability to use debt to leverage deals, tap into large investment banks’ networks to raise capital, and solicit investment from large institutions by listing on US exchanges.
“I think you’ll get banks to get there without it being explicitly laid out in the language,” of the legislation, Bachtell said. “Every bank is figuring out where their comfort level lies.”
As it stands, institutions and most major banks are only able to work with Canadian cannabis companies as firms based in Canada are able to list on US exchanges.
Return of cannabis M&A
As investors return to the US cannabis industry, some execs say there will be a boom in mergers and acquisitions in the industry over the next few months and into next year.
Already, two of the top-performing cannabis companies, Trulieve and Green Thumb Industries, are rumored to have engaged in merger talks, Barron’s reported.
Ben Kovler, the CEO of Chicago-based Green Thumb, said his focus will be on buying “accretive” businesses that expand the company’s presence in different states.
“We don’t want to buy broken business to fix them,” Kovler said in an interview. While Kovler didn’t specify which assets he’d go after, he noted that New Jersey — a populous state near the urban centers of New York and Philadelphia — is likely to legalize cannabis on the ballot in November.
Mauff, of Jushi Holdings, said he expects 2021 will be the “year of consolidation.”
“I think we’ll see a range of things, from business-to-business M&A, bolt-on deals, or even a situation where investors pick off assets of a larger company,” Mauff said.
Those companies, like MedMen for example, may decide to part with dispensaries and cultivation facilities in some states in order to refocus their operations, Mauff said.
For his part, TerrAscend chairman and CEO of cannabis investment fund JW Asset Management Jason Wild said he doesn’t want full-scale legalization to happen yet. TerrAscend, backed by JW and Canopy Growth, is a CBD and cannabis company with over 500 employees. It has dispensaries in California, Pennsylvania, and New Jersey, and cultivation facilities in Canada.
Federal legalization in the US could end up creating an opportunity for cannabis companies to sell themselves, as Wild predicts companies from more established industries will look to acquire cannabis companies with attractive scale and revenue.
“That’ll drive valuations way up, and huge consumer companies will come in,” Wild said. “I won’t be having too much fun anymore.”
This story has been updated to reflect Jason Wild’s correct title. He is the chairman of TerrAscend, not the CEO.