Alan Brochstein On Cannabis Investing In 2022 (Transcript)
Editors’ Note: This is the transcript version of the podcast we posted on Wednesday. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast, embedded below, if you need any clarification. We hope you enjoy!
Rena Sherbill: Hello again, everybody, and welcome back to the show, after a long hiatus. Thank you all for listening to us, again, listening to our Cannabis Investing Podcast in this New Year that feels a lot like the old one. I know I’m not alone in feeling many things, as we transition into a different numbered year, as we transition into a new phase of growth in the industry.
Personally, I know everybody’s struggling with a whole bunch of different things, COVID-related, non-COVID-related, human-related. So many things are COVID-related without them being directly COVID-related. So all that is to say that I stand with you in your conflicted, confusing myriad feelings, as we tackle, challenge, get challenged by and get excited by a New Year.
And I also wanted to say in that vein, that’s part of the reason why there’s been a break, just kind of dealing with so many different things. One of them that I’m very excited about is becoming Director of Video Content for Seeking Alpha, which means a lot of really exciting video content coming your way on Seeking Alpha. Look for some big changes.
A lot of great cannabis content, because most of you listening to this want your cannabis content, and we have a ton of it, and CEO Interviews. That’s the video show that has Jesse Redmond, Josh Kincaid, Jason Robinson, and sometimes some others, Josh Fineman, some really fantastic, expertly knowledgeable folks, interviewing CEOs, and we have a whole host of cannabis companies that are in the can that are already available on Seeking Alpha under CEO Interviews, and also a bunch coming up, including Schwazze (OTCQX:SHWZ).
We had Glass House (OTC:GLASF) on this week, we had a little California cannabis company called GABY (OTCPK:GABLF) on this week. Lots more to come. Lots of really great conversations happening over there. We have Wall Street Breakfast, which is a daily news source, like a summary of the news events. We have a Friday Show called The Weekend Bite.
Anyways, today really excited to bring you, Alan Brochstein as our first guest of 2022. Anyone listening to this already knows Alan, I’m sure from 420 Investor from New Cannabis Ventures, from Seeking Alpha back in the day. He doesn’t write for us actively anymore, but you can get his insights on this podcast.
Really appreciate whenever Alan comes on because his erudite knowledge of the sector is famous for a reason. And we get into, I guess pretty much everything on this topic, and audios a lot better for folks that suffered through the last one.
Again, that last episode is available in transcript version on Seeking Alpha. But getting to today’s topic, we talk about the stocks, what to look for New Jersey, New York, catalyst for 2022. What we should be thinking about as cannabis investors, what we shouldn’t be thinking about as cannabis investors and investors in the stock market, a lot of great stuff to get into. I’ll leave it there for you. Really happy to have you listening.
One more thing I forgot to mention is that all Cannabis Investing Podcasts, going forward, we’re going to be doing video episodes, including this one. Videos will be released on the Thursday after the episode drops on a Wednesday. So audio on Wednesday, video on Thursday, Seeking Alpha’s YouTube channel or on Seeking Alpha. Really excited to have you listening with us. Hope you enjoy this one.
Alan, welcome back to the Cannabis Investing Podcast. Welcome back to Seeking Alpha. It’s great to have you back.
Alan Brochstein: Thank you. Great way to kick off the year.
RS: Exactly. It’s a great way to kick off the year, a great way to kick off the first episode of 2022. We were talking about how last time we talked in August, there was a bunch of negative sentiment. What would you say as we cross this rubicon from one year to the next or as we’ve already crossed it, but as we’re still in this kind of like outlook phase. How do you think about the last year? And then how do you kind of contextualize that, as you’re thinking about 2022, in the industry?
AB: Yeah, I think last year was — we all got kind of caught up. Everybody loves when what they like is being liked by others. And I think probably — and I think we talked about this last time. The whole idea that a lot of investors come into the space betting on something that most of the people in the industry aren’t expecting or betting on, which to put in plain English, a lot of people showed up last year after the Democrats took the Senate, thinking legalization was around the corner.
And you and I have talked about this a lot. That’s a long drawn out process. And it’s embedded with a lot of risk, potential risk for current operators. So I guess as the year played out, a couple things, kind of bothered me. Number one, we saw these delays. And still we don’t have a date for New Jersey. And I think that’s — A, it’s a big catalyst for the industry, because there’s a lot of MSOs in New Jersey.
And B, that also, I think that may have put some competition, competitive forces into certain markets where these publicly traded companies want to meet expected revenue. They were hoping to get some from New Jersey. It’s not coming. So maybe they cut prices in Florida or Pennsylvania and like that.
And then, I think the other — so that was one kind of disappointing factor. I think another disappointing factor was on this legalization front. Most of us don’t expect legalization, but we hope for certain changes in the regulations that would maybe permit uplisting, for example. And we made no progress in that. And I thought it was exciting to see Nancy Mace’s legislation introduced. And amazing, actually, if you think about it, but unfortunately, it’s not going anywhere. And so far zero Democrats have signed on, and there’s been no Senate discussion. So that part, that’s the second piece.
And then the third piece, that’s been disappointing a little bit, and we may have talked about this last time. It was really hard to tell how much of the spike in cannabis demand was transitory versus long term. And the part of it that was long term was a structural change. We saw curbside pickup and delivery enabled, and certain e-commerce through payment processing that hadn’t existed in the past. And that helps the legal market compete with the illicit market. But at the same time, the data was pretty bad. There’s year-over-year comparisons, and it’s almost impossible to know, was the spike due mainly to people having time, money and anxiety? Or was it also, there’s other more longer term drivers?
So I think the good news right now is it sure looks like those slowdowns that we saw in certain Western markets, even in Canada, where the data is on a delay, but I believe that November was the first month ever, that the year-over-year growth didn’t slow in Canada.
So that’s official data from the State. We saw some data for December for Illinois and Michigan. It makes it look like some of these year-over-year comparisons are going to get better. So those three things, I think, really continued. And I’ll add a fourth thing, I think a lot of people, including myself, were hopeful that the calendar year flip would bring back some people. And going into the year, end of the year, you couldn’t expect it. There’s the tax loss, actual tax loss realization or the fear of it. So that was going on.
And you also had potentially window dressing by institutions that didn’t want to show positions in cannabis names at yearend. And then also I would add, there are hedge funds that play in the space and maybe they took the risk levels down. And so I think there was some optimism that maybe in 2022 the abatement of some of these factors would lead to an upswing. And unfortunately, there’s a lot going on right now besides cannabis and I think the weakness that in the beginning of the year is related more to things that are making Bitcoin, Tesla (NASDAQ:TSLA). Peloton (NASDAQ:PTON), Netflix (NASDAQ:NFLX), all this. I don’t think it’s just us but it’s pretty somber mood right now.
RS: Yeah, I would say so. I said I would say in the world in general in the investing world there’s a kind of — definitely that type of sentiment in the air. New Jersey I wanted to touch on, because this is something you also talked about in one of your emails that I hope everybody listening or watching this subscribe to your Sunday emails. And you talked about the importance of kind of the catalysts that is New Jersey legislation.
How are you thinking about that kind of — do feel like it’s something that — well, actually before we get started with that, sorry, I kind of just wanted to touch really quickly on Representative Mace’s Bill, because I was talking about that a bunch on the podcast and feeling like if something’s going to pass it could be this, because it was just realistic and it covered a lot of bases. Were you surprised that nothing before the end of the year in terms of safe banking came to pass and does that dissuade…
RS: So it doesn’t kind of knock you off what you had hoped?
AB: No, I wasn’t expecting anything. And I think I may have even told you this before, I’m not going to name names, but there’s certain people out there that whip up the crowd, and they’re always — maybe they have access to lobbyists. But these people are all in a bubble, and they all feed off each other and they’re always bullish. And I don’t understand. This is not the way I operate. I mean, I tried to find positive and negative factors and everything’s — it’s a glacial pace. So I was expecting nothing at yearend.
But on Mace, so and I have to confess, I didn’t even know who she was before she introduced that Bill really, and I listened to her. And a couple things. Number one, what she said and how she said it was just awesome. And by that, I mean, the idea of not having a heavy handed FDA involved, which is one of the big risks to our industry, I think. And then having lower taxation. That’s what she said. Those were very different.
And we can be for or against the idea of social equity. But we can also have different opinions about how it’s going to be implemented. There’s a heavy handed approach there, where the federal government takes a hammer and just hammers everybody to do things a certain way. And that’s not going to necessarily be the right way to do it. That’s kind of the camp I fall into. So personally, I want to see more inclusivity and opportunities for others. And I sometimes think our industry bends over a little bit too much on this issue, unfortunately, because there’s a trade off, and that’s a whole another story.
But so that was what she said, but then the how she said it was amazing to actually listen to her and to hear her feel the cause and to learn her backstory. She’s a great spokesperson. And before it was Matt Gaetz, do we really want him to represent the Republican view of how things should be? I’d much rather listen to her present it.
So I was optimistic, or I remain optimistic that she can hopefully get some bipartisan support for her ideas and frame this issue. But I’m not looking for legislation in the short term. I’m not even sure we’re going to get — everybody talks about this enhanced safe banking or even the traditional safe banking.
Now Congress is broken. I don’t — I can’t trust any things going to happen. But I’ve been watching this for many years. And it always was a dead end in the House, number one, and still is. And — but there was thoughtful discussion in the Committees of the house. I was kind of blown away. And it really seemed like almost all the Republicans on these Committees are fully embracing medical. And they even kind of support adult use, but they’re a little bit wary.
And so when you have people like Nancy Mace, kind of taking charge and introducing legislation, my hope is that it engenders further thoughtful dialogue, so that we can get down the road. That’s all I could find.
RS: Yeah, I totally agree. And I also agree that she’s a great spokesperson for the industry and for legalization. What did you mean, when you said that we bend over backwards too much in the industry in terms of the social equity component?
AB: Yeah. So I think, publicly traded companies have an obligation to their shareholders. And I think, as well, we all have certain things that we want to see society do. And I think a lot of people in the industry want to solve all the world’s problems by having the cannabis industry done a certain way. And while I’d like to see that done voluntarily, and I think your mandated legislation can be a problem.
And I think we’ve talked about this a little bit before. I’m not an expert. I read people that are a lot smarter than me. And I know the MCBA, which I support, and they’re in big favor of it, is coming out with a piece, I believe next week, talking about ways to do this better. And I think that this is the big problem. There’s — we’ve seen these failures, and where there’s a lot of tokenism, and I think rightfully a lot of the MSOs they give lip service to this. And that’s kind of what I mean by bending over backwards when you say something, to please certain people to look a certain way, and you don’t actually necessarily believe it.
So it doesn’t matter who does that. But I just think it’s unfortunate that this — and I’ve been worried about this for a while when I watched AOC kind of take over the House Banking Committee, that was supposed to be talking about safe banking, and then she starts in on social equity. And then we also learned that perhaps the reason why Cory Booker isn’t supporting safe banking is because it’s not tied into social equity. And I just think it’s a very complex issue, and I wish that we would all as a society, not only in the cannabis industry, but on a lot of these issues to make our society a better society, and to right these wrongs in a lot of ways, not just through the cannabis industry. That’s all a mistake.
RS: Yeah, yeah. Speaking of lip service that might be a great segue to talk about New Jersey and New York and the path to legalization there. What’s your sense of things and how they’re developing and your kind of sense of — your level of optimism there?
AB: Well, so I think New Jersey is going to happen. And I don’t really know all the players and all the exact reasons for the delay. I know, they just awarded some additional licenses. Very frustrating. And to your question earlier, and I’ll come back to the New York partner moment. So why I think New Jersey is so important, so first of all, there’s a large MSO representation there. They basically now own almost that entire market of the current medical cannabis providers. And so it’s direct. And a lot of times we’ve seen legalization over the years, where like, everybody got excited about Colorado, but there were literally zero companies that could benefit from it.
And then everybody got excited about California, very few companies that were publicly traded, were actually in a position to benefit at all in the short term, certainly in the long term. And so New Jersey is a very different animal in that regards. And one of the things I learned a long time ago, is that there’s a lot of people in the northeast. I used to live there and I learned that from an investment standpoint, now, when a State like New Jersey goes legal, in the New York metropolitan areas driving over the bridge, and it makes the news in New York City and all that. This is going to be a lot more impactful than Arizona legalizing, in terms of kind of the media impact.
And so I think there’s a couple different reasons why New Jersey actually physically going legal, will be important. So I don’t want to say that that’s the only thing we have going but that’s low hanging fruit this year. You referenced what I wrote about. I think the most difficult thing to bank on is being able to uplist. That would be huge. But is that going to happen? I doubt it. Something else I’ve talked about is the — we’ve seen a lot of creative structures that allow companies to invest in the industry without directly investing.
These have tended to go through Canadian LPs, which is really illogical. But that’s the way it’s been. And I think something that might excite people would be if we were to see a traditional company, do one of these contingent investments or some sort of strategic partnership, whatever it is, that is within legal, within its legal ability into a leading us cannabis company. I think that would excite people probably more likely to happen than uplisting. And then the least impactful, but most likely is this New Jersey.
But I want to get to this New York thing. And I lived in New York for eight years. And I think — I don’t think I ever realized this but New York alcohol industry, you’re only allowed to own one store there. I don’t think I ever realized that. I had my store I would go to but I never thought about they didn’t have any other stores. And so when New York talked about their new legislation, which I thought was really favorable, by the way, for the existing operators. I don’t think people appreciate that very much.
RS: The existing operators did, I think.
AB: Yeah, no, but the investors didn’t. And they still don’t. But so it’s really interesting to me when you think about what New York’s landscapes going to look like, which is okay. So if you’re in Florida, right now, you do everything, everything you sell, you have to create it. So Florida is an extreme. It’s like the Canadian Medical market, I guess still is but the way it used to be certainly, as well. Totally vertically integrated, which is kind of insane, but it’s the way it is.
And then in other markets like say Pennsylvania, it’s a decent sized market, yeah, you can be vertically integrated or you can be a retailer or you can be just a processor or you can be just a cultivator. And some companies have been in all those and some in one. And then now New York, they’re telling you pick a side, you’re going to be in production, or in retail, and there’s no crossing that line unless you’re an existing operator.
This is really interesting to me. It means first of all those 10 existing licenses are working a lot because they cannot only be on both sides have three stores instead of one store, plus the five medical stores, which I don’t know what that’s worth. But so that’s one part. But it really means a lot for the producers have a lot of — will have a lot of power there. Because when you’re dealing with one retailer and the retailer has no buying power, any sort of bargaining power, it’s really good for the producer.
So branded products are going to be really strong, I think in in New York. So bodes very well for those that are able to be on the production site, I think. We’ll see. They haven’t set the caps, though. So if they go too progressive, all of the sudden the markets going to be way too fragmented. So I do have an answer for that, by the way. And I can’t believe how cheap the stock appears to be.
But it’s WM Technology (NASDAQ:MAPS). I think this is going to be a Weedmaps work, where you have all these little onesies out there on the retail side, and probably lots of little brands, especially if they put these production council. So anyway that’s…
RS: Talk to us a little bit about that stock. That’s a stock I don’t know. And I bet a lot of viewers don’t know either.
AB: Yeah, I never really cared for that company. Honestly, they pissed me off, and I can hold grudges to a great extent. But I did finally decide to bite the bullet and, and I wish I hadn’t, but because it’s gone down,…