Expert Interview: Inside The Cannabis Industry
Welcome to a special edition of Marijuana Investing Daily. I was privileged to obtain an exclusive interview this week with one of the most influential and knowledgeable analysts who cover the marijuana industry: Anthony Coniglio, president and CIO of NewLake Capital Partners (pictured). My questions for Anthony are in bold.
More than two-thirds of U.S. states have legalized cannabis in some capacity. What further legalization can we expect this year? Give us a state-by-state breakdown.
The year 2022 has already proved eventful for the legal cannabis industry. U.S. lawmakers recently passed a bill to decriminalize marijuana and just days later, overwhelmingly approved legislation to ease barriers to cannabis research.
Senators Schumer, Booker and Wyden committed to introducing their cannabis legislation this summer, which will be the first time cannabis legalization is formally introduced in the U.S. Senate.
At the state level, New Mexico, and New Jersey launched their adult-use programs, while Vermont expects to commence adult-use sales later this year. With two-thirds of U.S. states already legalizing cannabis in some capacity, we may see several more states follow suit in the upcoming year. We expect ballot initiatives in Maryland, Missouri and North Dakota.
Furthermore, a bill to legalize medical marijuana in South Carolina passed at the beginning of April, leaving it now pending on the House floor. The state’s vision is to implement “cannabis pharmacies,” rather than conventional medical marijuana dispensaries.
Many other states, including Tennessee, Nebraska, North Carolina, and Georgia, are waiting in the wings as lawmakers have dismissed or stalled bills to legalize cannabis at some capacity.
Could you convey a regulatory survival guide for marijuana entrepreneurs? What are the common mistakes with tax codes, packaging, manufacturing, etc.?
A strict and thorough focus on compliance is critical for long-term success in any cannabis market. A slow and careful approach is the best way to realize that opportunity versus moving fast, taking risks, and having a misstep with state regulators.
Open and frequent communication with regulators is important to building a foundation of trust and developing a good working relationship with your primary regulator.
What are the marijuana licensing ins-and-outs for canna-businesses? How can pot companies navigate different municipalities and business laws?
The cannabis industry is highly regulated. Depending on the state, there can be additional restrictions at the local level. It is important to partner with legal counsel that has a strong understanding of the state and local rules to inform your business plan prior to launch. Evaluate not only the rules today, but what changes may occur in the future.
For instance, in some states a community may opt out of cannabis sales but may opt in later. A retail location may look like it has very limited competition from the surrounding area. However, if the surrounding communities are only opting out until rules are set and plan to opt in later, you may find greater competition that your business plan expected.
In an industry that is growing so rapidly, it’s important to think through how municipal attitudes and rules will change as the sector evolves.
What are the major cannabis banking hurdles? How can distributors, growers, and vendors better manage their cash?
A major banking hurdle in the cannabis space is the industry’s lack of access to capital. Cannabis is a capital-intensive business and those operators with access to capital will be best positioned to thrive over the next few years.
There is a distinct difference between some of the large public players that have strong access to capital and the rest of the industry that still has very limited access to capital. If we can get congressional change to allow greater access to capital for the industry, it would allow it to continue to expand at its rapid pace over the next few years.
The cannabis real estate industry faces the same challenge. Fewer scale organizations have the ability to raise capital. NewLake has certainly raised a lot of capital in its lifetime and continues to raise capital, but others struggle to provide capital for real estate.
Until there’s regulatory change, you’ll see some of the traditional providers continue to stay out of the market. New York and Connecticut recently provided municipalities the option to opt out of having cannabis facilities, creating a challenge from a zoning perspective. Many communities did indeed opt out because they are waiting for the rules to be finalized.
Please review the marijuana real estate pros and cons, in terms of leasing versus owning cannabis real estate.
While many cannabis operators own their real estate and properties, leasing their property rather than owning or acquiring will allow these companies to minimize dilution to shareholders and focus on being an operator, not a real estate owner.
Leasing will also allow companies to create better, longer term capital efficiency that is not currently available via the traditional institutional lending system in this not yet federally legal industry. However, it is important to partner with an owner that understands the industry and can work together to complete the modifications specific to cannabis businesses.
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