CANNABIS INVESTMENTS/OPAL

Most cannabis investing began in Canada where companies are publicly listed.  Everyone thinks that the United States will be a huge market in the near term with particular emphasis on places like Michigan, Massachusetts and California (with California hurt by a large black market, allegedly).

Some experts thought that investments in Canada were “played.”  The Canadian contingent sharply disagreed, claiming particularly that Canada was very well situated by way of geography and regulatory controls to be a source for growing and henceforth also a location for processing. 

Europe is perceived to be “a few years behind, although medical use is growing” and it is thought that the rollout in Europe will be country by country.  Expectation that Germany and Italy will be substantial markets. 

Some valuations for investments in cannabis related companies too pricey.  Counterargument is that as a multiple of future revenues, with future revenues growing quickly, these investments are not particularly overpriced.  There was noted a recent fallback in the price of Canadian public shares.

There has been difficulty in obtaining banking for cannabis, by way of both loans and deposits.  Recent newspaper articles indicate that some credit sources are opening up.  Everyone seems to expect that banks will “fall in line” within the next year or so, although there was no express definition of what “in line” might mean.

What about the prospects of a federal statute leaving the issue of legality to each State.  The consensus is that this will not happen, if at all, until after the next election but that thereafter, it is likely that “any new President” would be willing to undertake this unbundling.  Counterpoint: “Trump won’t sign anything from Liz Warren’s desk.”

People involved in playing the market in cannabis noted that the current confusion in terms of legality is not a problem for them; they believe in the long-term prospects, and the confusion reduces market prices today and creates a better opportunity for arbitrage.

In the long run, companies in the “sin” business (beer, alcohol, tobacco) are likely to be large acquirers, particularly since it is possible that their other businesses will fall off.  Pharma is reported as generally opposed to legalization.

General warning that there are “sketchy operators” in the marketplace and that one should invest in “professional best in class operations.”  This suggests the necessity for sophisticated investment advice.

What about the State by State legalization issue?  This is expected to be slow, sort of like States permitting gambling casinos.  Mention that the process overall could take years.

Finally, mention of an investment opportunity in “third party labs” necessary to do testing inherent in government-authorized marketing of cannabis products.  One has to look closely at the regulatory context of local labs.  Speculation that these labs would ultimately be the subject of rollups.


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