VIDEO INTERVIEW: Cannabis Sector Outlook for 2023
To pinpoint the best investment opportunities in marijuana this year, I was fortunate enough to secure an interview with the influential Sundie Seefried, CEO of Safe Harbor Financial.
This video interview originally ran in my premium trading publication, Marijuana Profit Alert. As a courtesy to the readers of Marijuana Investing Daily, I’m re-publishing it here.
Safe Harbor is the leading financial services provider to the cannabis industry, with clients in 40 states and U.S. territories.
Financing is very important for cannabis companies. Many canna-businesses can’t get access to mainstream financing, so financial capital companies such as Safe Harbor play a crucial role in the growing marijuana sector. My questions to Sundie Seefried are in bold.
Several bills are pending in Congress to remove the federal prohibition against marijuana. Do you think that in 2023 the ban will finally get lifted?
I’m not optimistic. For eight years we’ve been providing banking to this business and fighting an uphill battle. How do you go from the SAFE Banking Act failing to get passed seven times in Congress, straight to legalization? It’s just not the way Washington operates. With the divided Congress, we might see a step forward, but not legalization.
You mentioned the SAFE Banking bill, which would make it easier for banks to provide mainstream banking services to canna-businesses. What sort of chance does the bill stand this year?
The SAFE Banking bill has a much better chance. The bill establishes a safe harbor for any depository institution that provides banking services to cannabis-related legitimate businesses. Remember, marijuana is illegal on the federal level, and that makes many banks leery of cannabis companies.
But we’ve already seen a lot of stalling on SAFE, because one of the goals of many lawmakers is to tie this bill to social equity.
I spent a lot of time in D.C. in September actually talking to senators’ offices on this, and they want to right the social wrongs of the War on Drugs. They’re holding banking hostage to social equity. They just don’t all go together. You can’t fix all that social injustice with banking legislation.
Yes, I think some form of SAFE will pass in 2023. I just don’t think it will go far enough for the industry.
What’s the worst risk marijuana investors face in 2023?
While there’s more data available for investors, and more analysts are covering this space, investors still have to understand the business they’re getting into.
Investing in marijuana requires a lot of research and there’s a real risk of insufficient due diligence. That’s especially true when it comes to equity pools. I think investors not understanding the business they’re putting their money into is probably the biggest risk.
Let’s segue to a fascinating ancillary industry to marijuana: psychedelics, such as LSD, psilocybin, ayahuasca, etc. They’re becoming increasingly legal on state and local levels. Medical researchers are delving into the medical and psychological treatment benefits of psychedelics. What are some of the salient investment opportunities that you see in the booming psychedelics industry?
I’m bullish on psychedelics, especially psilocybin. I’ve updated all of our program documents to delve into this area. I think an increasing number of cannabis companies will actually see psychedelics as another line of business.
Psychedelics is very much different from the cannabis industry in terms of how they’re going to pursue legalization. It won’t result in retail products.
It’s still too soon to pinpoint the biggest opportunities in psychedelics, but they will follow along the lines of cannabis, except psychedelics will be different in terms of legalization and commercialization.
It seems that Big Pharma is trying to get into the psychedelics industry in a major way and it’s devoting a lot of dollars into researching LSD, especially psilocybin which is the psychoactive ingredient in “magic mushrooms.” Do you think Big Pharma will make significant forays into co-opting or absorbing the psychedelics industry?
That’s an interesting thought because one has to almost wonder if Big Pharma companies didn’t follow cannabis soon enough or early enough and they’re seeing psilocybin now and they’re thinking: “Maybe it’s a good opportunity to get in earlier, rather than later,” They don’t want to have to fight the big MSOs [multi-state operators] for market share.
I do see much more attention being paid to psilocybin, and I find that very interesting.
So do I. Tell me, do you see further consolidation next year in the marijuana industry? A lot of smaller companies are getting scooped up by bigger players. Do you see intensified merger and acquisition activity next year?
I do, unfortunately. I think this is one of the concerns that even some of the states like California have. These states wanted to protect the small guy, the mom-and-pops, right? And all of a sudden, we’re seeing this pricing compression and intensified competition, and those that weren’t vertically integrated are getting pushed out because they don’t have control over supply chains.
I see a lot more consolidation in terms of going vertically integrated, and the MSOs that are well capitalized are taking advantage of this opportunity because raising capital in this market is very difficult at this point in time, especially for the small guys.
You mentioned MSOs, which are multi-state operators. One thing that I’m seeing is that MSOs are really achieving dominance on the East Coast, with certain major states such as New York legalizing marijuana. Do you see the East Coast as offering a big challenge to the West Coast? So far, the latter has been the largest marijuana market.
Well, I do, but only because I think they’re so much more organized on the East Coast at this point in time. On the West Coast, we’re still having problems getting regulations and business practices implemented.
The one issue they’re going to run into, though, is in New York there’s this existing black market that’s been allowed to stay and operate. So how do you now say to your constituents in the state, “Let’s use real cannabis from real shops that are really licensed and stop using this other supply chain that we’ve allowed to go on for years?”
New York faces a big battle against the black market, but I think they’re now going about it in a much more organized way.
You broached a politically sensitive, interesting topic: the thriving black market despite legalization. We still see booming illicit sales of marijuana, and that’s largely because, as markets become legal, lawmakers see a chance to tax marijuana and they become addicted to the tax revenue from marijuana, which makes legal marijuana more expensive than black-market marijuana.
Do you think that perhaps lawmakers in their eagerness to tax marijuana could be killing the golden goose?
I do think that has to be given consideration. If we go back to the legislation that needs to be considered, it has to look at 280-E, because it’s crushing these businesses.
Section 280E penalizes traffickers of Schedule I or II drugs by disallowing the deduction of “ordinary and necessary” business expenses, such as below-the-line deductions. Cannabis companies aren’t able to take normal deductions, but they continue to get hit with tax demands.
So yes, we are creating an unfair playing ground for legalized cannabis businesses that want to do it the right way and produce a pure product. That’s the only big selling point: Why would you want to buy on the illicit market when you can get something clean, safe and regulated?
I hope that gets consideration in 2023 for the sake of the industry. As long as it’s difficult to get access to the capital markets, it will be difficult for legal marijuana businesses to actually compete on a global level, in my opinion.
In your daily experience, you interact with all kinds of investors, companies, and entrepreneurs in the marijuana industry who are looking for capital. What’s the biggest mistake that you see marijuana investors make?
Again, I’d have to go back to the due diligence aspect. There are two parts to that, though. You want to be really careful with whom you’re investing because illicit dollars want to get into this industry one way or another.
If I’m an illicit character and I can’t be an owner directly, I’m going to get myself in a pool with somebody else and hide so I can get my illicit money into the pool.
If you’re in an equity pool, you have to be really careful with whom you invest and make sure you not only know the companies but also know the other investors.
Thanks for your time.
Editor’s Note: Every portfolio should have exposure to the marijuana industry. That’s why I’ve just launched a new service detailing how you can financially benefit from the consumer mainstreaming of cannabis and psychedelics.
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As 2023 unfolds, an increasing number of U.S. states (and countries around the world) will legalize cannabis and psychedelics, which in turn will create new markets, new sales, and big profits for the investors who act now.
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John Persinos is the editorial director of Investing Daily.