Poseidon Asset Management Archives - Green Market Report

As we put 2021 in the rearview mirror, Green Market Report is looking ahead to a bright new year. We asked leaders in the industry for their predictions for the cannabis industry in 2022.

Emily Paxhia, co-founder and managing director of Poseidon Investment Management said, “2022 is going to be the start of the longest bull market this industry will have seen to date. This industry has gone through multiple phases, as an emerging industry. The business case for cannabis is now being proven to be strong growth + EBITDA and there is a lot of upsides to unlock with new markets opening on the east coast.” She also believes 2022 is going to be the year that cannabis tech finally gets the attention it deserves. She thinks the market will see more capital invested into tech platforms. Paxhia added, “Further, we are excited to see more innovation in technology around the cultivation, processing, distribution, and retailing of cannabis, not to mention the technology around human capital, as this industry will continue to be a growing and large employer in the US. The cannabis market is finally getting the TAM (Total Addressable Market) recognition it deserves from outside investors.”

“Institutional capital returns to the US plant-touching space as soon as Biden or the Treasury make positive comments, yet before a banking bill passes. This capital and a renewed analysis of fundamentals will exasperate growth for profitable operators in 2022.,” said Poseidon Managing Director Michael Boniello. Boniello wasn’t all rainbows and unicorns though. He cautioned that Canadian LPs will be desperate to penetrate the U.S. but without a clear pathway to federal legalization, their export business will not support their massive operations. He also believes that Europe will see little to no progression in an Adult Use THC market in 2022.  When it comes to politics, he thinks Republicans will flip the script on President Biden and Senator Schumer as GOP members campaign in the midterms for SAFE Banking and cannabis for Veterans. “They will not be for full legalization and won’t have to be to gain cannabis-friendly voters,” said Boniello. “No federal cannabis reform occurs due to misgovernance and mismanagement by the Democratic party. Federal legalization is impossible, and Schumer will have lost the progressive wing on a standalone banking bill without significant and immediately impactful social justice reform included.”   

2022 Predictions

1. The federal government will become less influential in the future of the cannabis industry and legalization movement every day the industry evolves without it.  And every day that state-by-state experiments expand, the state’s influence on the cannabis industry grows. Every state-derived tax dollar binds and aligns the industry closer to the states. Fortunately, the state-by-state experiments are working, creating a larger and firmer foundation for the industry to grow. No state program is perfect, but all the problems are fixable. Politicians will just need to align with the challenge and opportunity to solve it. And let’s be honest, if the last 5 years have taught us anything it’s that the political climate of D.C. is broken and we can’t rely upon our federal government to chart the cannabis industry’s future. In fact, perhaps we can achieve a quasi-federal market through semi-homogenous state legalization efforts, minus interstate commerce. The question today is “Which state will be next to legalize?” as much as it is “Which state will be last to legalize?” (my bet is on Tennessee).  For every day that passes as is, the federal government’s seat shrinks.
2. The Southeastern region of the United States will develop into a major driver of cannabis growth starting in 2022. Georgia, Alabama, and Mississippi have a combined population of nearly 19 million. Texas is even seeing movement on the cannabis legalization front. We’ve seen this story before, and it almost always ends well for cannabis.  
3. After experiencing denial & isolation, anger, bargaining, and depression in 2021, the #MSOgang moves on to acceptance in 2022. Despite the baked-in market, despite the fundamentals, and despite the tailwinds of legalization, with only 4% institutional, ownership the publicly-traded cannabis stocks move like a boat without a keel – drifting in the wrong direction.   
4. Rare cannabinoids will replace terpenes, which replaced CBD, which replaced THC as the “new” cannabis. There are various cannabinoids, flavonoids, and terpenes in the cannabis Sativa plant that scientists have identified. There are surely more elements of this magic plant that could soothe our emotions, spark our imaginations, and help us achieve other physical feats never imagined possible. Society needs more weed, but it also needs more targeted applications, treatments, and studies of rare cannabinoids.  
   1. Bonus thought – How will we approach legalizing all these cannabinoids? One by one?  Or all in one fell swoop.
5. Dissatisfaction with the Democrats will rage on the left in 2022. After Biden’s backtracks, and Shumer’s/Booker’s SAFE stonewalling, has cannabis overshot the sweet spot for federal legalization?  Has cannabis become too broadly accepted and supported by both parties?  Is it no longer divisive enough to be used by politicians to raise money?  Perhaps policy and politics are less connected than politics and political fundraising. 
6. We will see a quick and joyful return to travel and events. For the vaccinated, Covid becomes the new common cold and a new era of travel, discovery, and experiences will drive 2022 and beyond. While Covid-19 drove the adoption of online ordering, video conferencing, athleisure wear, and cannabis, it also drove the appreciation for human connection outside of the home.  Grab your ID and your carry-on, the world is back on the road.
7. The business environment will become more and more cannabis-friendly. Drafting itself behind the megatrend of cannabis legalization is the lesser discussed but the important trend of business-friendly cannabis rules and regulation changes.  Every quarter we are seeing the regulators and administrators making adjustments to how the business of cannabis operates in response to the realities in the market that legislators and advocates never imagined.  Influencers to watch include cannabis pioneers like Ean Seeb, the “Drug Czar” of Colorado.  Ean works every day on behalf of Governor Polis to keep Colorado on the leading edge of innovation and progression with cannabis law, rules and regulations.

Paxhia concluded with, “I am excited to watch GenZ as a driver of cannabis in 2022. They are a ‘cannabis native’ generation, entering the workforce with cannabis substantially legal across the US. I think they will drive growth in newer product categories such as beverage and sensibly dosed edibles. Further, I believe they will continue to grow the once maligned vape category.”

Poseidon Investment Management, LLC (“PIM”) is a registered investment advisor.

This presentation contains forward-looking statements based on PIM’s experience and expectations about the markets in which it invests and the methods by which PIM expects to invest in those markets. Those statements are sometimes indicated by words such as “expects,” “believes,” “seeks,” “may,” “intends,” “attempts,” “will” and similar expressions. Such forward-looking statements are not guarantees of future performance and are subject to many risks, uncertainties and assumptions that are difficult to predict. PIM does not undertake any obligation to revise or update any forward-looking statement for any reason.