A new report from cannabis analyst Pablo Zuanic founder of Zuanic & Associates outlined 10 predictions for the industry over the next 18 months. Zuanic said he is not giving investment ratings at this time to stocks but did note the factors that will be influencing his decisions on companies.
Ultimately, Zuanic said he is playing the long game and not being swayed by the noise of the short-term players.
Here then are Zuanic’s 10 predictions:
- SAFE banking will drag on until the fall of 2024. He believes the Senate won’t move legislation until it can confirm 60 votes to avoid a filibuster. Once the Senate moves, he thinks the House will fall in line. While it’s notoriously difficult to predict what politicians will do, the analyst believes the Senate will push something forward in Spring 2024.
- President Biden will reschedule cannabis before the 2024 election. Zuanic wrote, “In our view, de-scheduling cannabis (tantamount to federal legalization of recreational cannabis) would require an accompanying regulatory framework, and we are doubtful this 118th Congress would play along. On the other hand, we see President Biden delivering on his promise to reschedule cannabis.” However, he cautions that rescheduling may not fix the industry’s problems and introduces a whole new host of issues to deal with like stiffer controls from the FDA.
- A Cole Memo Part Two will not happen. A new Cole Memo could quickly address some banking issues for cannabis but with all the attention on the SAFE Banking Act, Zuanic sees less pressure on the Dept. of Justice to act.
- Maryland’s full legalization was a tipping point – who’s next? The report highlights the significance of Maryland’s turn to full legalization. The small state is geographically located next to several other states and draws customers from them. A pattern has emerged where non-legal neighboring states tend to go legal after watching residents cross the border to make purchases leaving desirable sales taxes behind. He suggested Pennsylvania could follow Maryland’s leader, which could in turn trigger Ohio’s move. He also believes the pressure will mount on Virginia to get its program up and running by 2024.
- More TSX uplistings for MSOs. The analyst praised the recent move by TerrAscend (OTC: TSNDF) (TSX: TSND) to uplist to the Toronto Stock Exchange. He wrote, “At the least, it opens strategic options for this(mostly) US operator and could/should result in greater capital access (starting with custody being offered by brokers/banks, a key requirement to tap into institutional capital).” Having said that, the TSX is not a panacea for all stocks as he pointed out that Charlotte’s Web trades on the TSX, and it hasn’t helped the stock valuation. Still, he suggested Curaleaf and Glass House Brands as companies that should consider such a move.
- The legal industry will grow and expand ancillary services. Zuanic stated that more stores inevitably lead to more need for ancillary services. He particularly likes finance companies within the space. Even though consolidation may be happening, he thinks that will lead to stronger businesses overall, which also creates demand for services.
- Canada will rise again. Canadian stocks enjoyed a bull ride in 2017-2018, but have struggled over the last couple of years. The report suggests that uplistings to the TSX will drive more demand for Canadian assets. Plus, the ability to sell products to Germany helps cannabis companies. The analyst also thinks the country will make changes within the legal framework that will boost business for cannabis companies.
- Germany is seen as a catalyst. The report wrote, “We are encouraged by the prospects of growth in the “wellness market” in Germany. Phase one rules will make it easier for Drs. to prescribe, which will further boost the cash market (non-reimbursed).” Zuanic believes the rise of online pharmacies will help grow the cannabis industry in the country.
- CBD rules from the FDA are unlikely. There will be a new 2023 Farm Bill, but the analyst doesn’t believe this will prompt the FDA to act on rules for CBD. He also doesn’t expect a crackdown on Delta-8 variations or synthetic cannabis products.
- More involvement from CPG companies and pharmaceuticals. While he cited several less-than-successful attempts from mainstream companies to jump into cannabis, Zuanic still thinks there is the potential for more moves. Tobacco seems to have been the most successful of these forays into cannabis. British American Tobacco took a stake in Organigram and Altria jumped in with Cronos Group. While pharmaceutical partnering is harder to call, the analyst thinks that consumer packaged goods brands will likely not want to be left on the sidelines.
Zuanic says he will be issuing ratings on stocks as he reviews them for several factors. Most center around cash flow trends, success with M&A, and franchise ability. Visionary management and strong financial metrics will also be key to getting a good rating from the analyst.