The Takeaway from Cannabis in Davos
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The cannabis industry, both in the U.S. and globally, is in a bit of a transition right now. The unprecedented momentum of 2018 has investors more bullish than ever on the future of the industry, thanks in part to new legislation and major investments from established industries.
Despite the enthusiasm, the industry is still heavily regulated in both the private and public markets. Legalization remains an ongoing issue, and while the recently passed Farm Bill undoubtedly was a boom to hemp, continued legislative reform like the STATES Act remains a question mark.
For now at least, the industry finds itself caught between the massive growth of recent years and the regulations still holding it back in the U.S. In an attempt to continue bridging that divide, OTC Markets and the Canadian Securities Exchange co-hosted the Canada Cannabis House, a three-day gathering during January’s World Economic Forum in Davos.
Why throw a cannabis conference at, of all places, Davos? The annual gathering of world leaders wouldn’t seem like a natural fit for an industry with fluid legality. The primary purpose, according to OTC Markets Group Executive Vice President of Corporate Services Jason Paltrowitz, was to use the WEF as a way to highlight the cannabis industry, and more specifically, the role that public equity plays in this sector.
“People show up to Davos to talk about how to make the world a better place and discuss the problems of the world,” he said. “Many of these companies share the same mission and are really trying to make the world a better place through the medicinal cannabis industry. There are actually real-world benefits, and so we thought Davos was the right place to do this given the mandate of the forum.”
Acreage Holdings (OTCQX: ACRGF) Chairman and CEO Kevin Murphy said that, while it was gratifying to see the industry received with such curiosity by world leaders, it was simultaneously humbling “to see just how far the U.S. still needs to go to catch first-movers such as Canada in terms of national legalization and Israel in terms of research.”
With the industry on the global stage, Benzinga caught up with Paltrowitz to get his thoughts on what Davos had to say about cannabis.
What were the biggest takeaways as far as sentiment?
Paltrowitz: From a capital markets perspective, growing the plant is not where the excitement is going to be. Another takeaway is that this is still a startup industry. Five years ago, the total market cap of publicly-traded cannabis companies was zero. If you look at it now, it’s probably more in the $80-100 billion range, and so it is growing rapidly.
What was the sentiment towards the U.S. markets specifically?
Paltrowitz: Everyone thinks the ship has sailed, and that there’s no going back. It’s either going to be two and a half years or six and a half years depending on the next election cycle, but ultimately [legalization] is not going to be the same issue as it has been for the U.S.
Still, there are a couple of things that make the U.S. a little difficult. The Farm Bill passed, and so that legalized growing hemp. It’s still hard though, as there are a lot of rules and regulations. Now we’re looking at the STATES Act in which the federal government cedes legal jurisdiction to the states. Ultimately if that happens, that will be good, but you’re still going to have federal banking regulations and other things that make it difficult. The thought is, over time, that will go away as well.
What about how the U.S. relates to the global markets? Was there particular bullishness about specific markets?
Paltrowitz: There was a lot of conversation around “Canada’s great, but it’s 36 million people. The U.S. is really great, it’s 325 million people.” But if you look at the EU as a country and the opportunity there, that’s also incredibly exciting. China was a big topic of conversation, and what would happen if the Chinese biotech and medical industry started to take off. They seem to be a lot more liberal in how they think about this from a medical perspective.
If we get to a place where cannabis is accepted everywhere, the market cap of publicly-listed companies is going to become astronomical.
What inning is the cannabis industry in?
Paltrowitz: It’s still basically impossible to raise money in the U.S. if you’re a cannabis company just because of the rules of the road. If you want to be listed on a U.S. exchange, it’s really hard. You can’t touch the plant, you can’t do a lot of things. So, if you think about the traditional capital markets, I would say we’re in the first inning.
But if you think about it in terms of other markets, markets that are flexible and agile and can evolve, then we’re kind of in the 7th inning. The amount of money that’s being raised, the capital that’s flowing through the cannabis industry, the cross-trading between Canada and the US...from that perspective, I think the capital markets have found a way.
There are about 150 cannabis companies that trade on the OTCQX and OTCQB markets. Are there sub-sectors that you’re seeing an increase in traction?
Paltrowitz: I wish I could say yes, but it really spans everything. I’m speaking to a Swiss company that uses CBD for a cream to help with pain. I’m speaking to another company that’s making beverages from hemp. We’re speaking to an Israeli biotech. We have a company we’re speaking to that’s created an at-home do-it-yourself plant grower. It’s coming from everywhere. The sexiness isn’t the farming, it’s all the stuff that’s going on around it.
What do you tell cannabis companies who don’t know much about public markets?
Paltrowitz: The cool thing about all of this, is that these companies, even though they’re focused on cannabis, are actually just like any other company. We tell them what we would tell any early stage company. Being public is not easy, and there are a lot of things you have to think about, not the least of which is your corporate governance, how you structure your board and your obligations to investors. If you’re not ready to do all of that, then you’re probably not ready to be a public company.