Cannabis Law Prof Blog

Canopy Growth CEO predicts legal banking for cannabis companies by Christmas

Weed businesses may soon be able to bank legally in the United States, according to the prediction of the CEO of Canopy Growth, Bruce Linton.

This would mean cannabis business owners would no longer have to rely on cash-only business models or cryptocurrencies like Bitcoin, and would be able to get loans far more conveniently. 

The prediction apparently came from a conference for cannabis businesses, according to the Forbes article by contributor Sara Brittany Somerset.

Somerset explained in the article that Linton's prediction was due to a sequence of events indicating that established structures may support legal cannabis banking. 

Linton expressed confidence that since his cannabis company infiltrated the New York Stock Exchange –although they were not allowed to ring or even touch the opening bell– that banking will naturally follow suit.

Linton elucidates that being listed on the exchange validates the company's adherence to anti-money laundering rules, which in turn meant that about a month ago, Bank of America could lend Constellation Brands Inc. -the company behind Corona beer -about CAD five million to give to him. Canopy Growth's game-changing deal with the producers of Corona has more than doubled the pot producer's stock price. Linton, however, attributes Canopy's sky-high valuation to the global medical marijuana market. 

Either way, Linton is confident that this sequence of events provides enough "momentum and weight to cause the banking conundrum to be resolved soon."

The CEO also used the conference to talk about a "port-a-potty theory" involving the impacts of locally sourced resources, according to Somerset's article. 

Linton admits he is "nuts about" his port-a-potty theory, and views it as the cornerstone of local economic stimulation. He insists it creates a snowball effect. "We have almost two thousand employees and they all know what the rules are about renting port-a-potties locally," he insists.

His theory is if he wants to hire Ph.D.s in a local town, he has to purchase port-a-potties for his construction sites locally, so that the port-a-potty vendor will take his new-found extra income and go out for dinner more often, which will, in turn, create better restaurants, then the local car dealerships will improve. Next, the houses will transition, so that when his Ph.D. hires begin to work there, they won't say, “God, what an awful town."

The article's writer seemed unimpressed with other aspects of Linton's speech, such as a "white-washed, non-diversified video commercial for Canopy Growth" and the reaction to his "gentrification ideals" being "stunned, stony silence from the audience and incredulous side-eye from the few Jamaicans in attendance." 

As for Linton's prediction of legal banking by Christmas, only time will tell whether it proves accurate. 

-- Alex Bennett

Investment firm Merida invests $50 million in cannabis related companies

A Manhattan based investment firm, Merida, has invested $50 million in 17 companies related to cannabis in less than two years. According to a Forbes article by contributor Julie Weed, the firm's owner Mitch Baruchowitz says his company invests in the "boring" parts of the cannabis industry. 

That includes any technology or equipment related to cannabis that gets widely used like laboratory testing services, compliance and data collection software, production equipment, and packaging. “There is a lot of traction in lab testing,” Baruchowitz said for example, “because it’s part of the supply chain, so everyone needs it and you can’t get around it.”

Weed writes that Baruchowitz's methods for choosing companies to invest in include analysis of company management and potential for growth. 

The first question is always: how big can sales get? “We look for products that have large potential markets,” Baruchowitz said. “We don’t want a small brand or niche product that might not grow at the rate the market grows.” The national market is expanding “so we want something that will grow along with overall industry increases.”

The article also mentions that family wealth offices are starting to invest in cannabis as a higher growth, higher risk investment. 

The stock prices of some of the companies have risen after Baruchowitz's investment, such as KushCo Holdings and GrowGeneration. 

Stock prices of the publicly traded KushCo Holdings and GrowGeneration are both up from their launch. KushCo launch January 2016 at $2 per share and has recently been trading at over $5 per hare. GrowGeneration launched in November 2016 and ended its first day of trading at $2.30. It recently traded at $5.30. Most of the investment and return information is not shared because the company is privately held.

This article seems to demonstrate that the growth of the cannabis industry is not limited to just distributors and dispensaries.

Companies in charge of packaging, research, and compliance validation are also part of this, and may continue to grow along with the rest of the market.

-- Alex Bennett

Cannabis stocks rally ahead of Canadian rollout

From Market Watch:  Cannabis stocks rally anew as analysts cheer latest tie-ups in growing sector:

U.S.-listed shares of Canadian cannabis companies rallied anew Wednesday, as analysts cheered the latest link-ups in the sector and remained bullish on a market expected to grow quickly once Canada fully legalizes the substance on Oct. 17.

Cronos Group Inc. CRON, -7.02% led the charge, climbing another 15% to put its one-month gain at 119%. The Toronto-based company climbed about 13% on Tuesday, after it announced what it called a “landmark partnership” with Boston biotech Ginkgo Bioworks Inc. that will seek to produce specific cannabinoids at scale.

Cannabinoids are specific molecules in marijuana that can produce effects in the human body, with the most commonly known subclasses being Tetrahydrocannabinol, or THC, and cannabidiol, or CBD. Cronois has pledged to fund about $22 million in research and development and issue up to 14.7 million shares to Ginkgo if the partnership meets certain milestones.

Some people are going to make a lot of money in cannabis-related stocks.  Others, not so much.  Do your homework.

--Frank Snyder

 

Alcohol Giant Betting on Weed

A major American alcoholic beverage company has announced a big entry into the marijuana business.  Constellation Brands, a Fortune 500 company whose products include Corona beer, Robert Mondavi wines, and Black Velvet whiskey, is betting big on the coming of adult-use marijuana in the Great White North:  

Constellation Brands Inc. is positioned to grow a global cannabis empire with Canopy Growth Corp. and rocket the Canadian pot grower to a leading position on the world’s weed stage, according to analysts.

The brewer of Corona beer is spending C$5 billion ($3.8 billion) to increase its stake in the Canadian cannabis grower to 38 percent, with the company touting the move as the biggest investment in the burgeoning marijuana industry yet. “We believe this sizable investment clearly confirms Constellation’s commitment to growing out a global cannabis platform with Canopy,” Canaccord analyst Neil Maruoka wrote in a note Wednesday.

 

“With a potential controlling stake in the works, Constellation is committed to providing a substantial amount of capital to increase Canopy’s already leading position in Canada, and now potentially the world stage,” Maruoka wrote. The deal provides Smiths Falls, Ontario-based Canopy with capital that is “second to none in the industry” that could propel the company into as many as 30 countries worldwide, he added, from 11 now.

 

Odds are good that as adult-use spreads, big alcohol and tobacco companies are going to be moving aggressively.

 

--Frank Snyder

Microsoft To Launch Marijuana Business Program

Love it or hate it, you've got to agree that nobody's better at chasing a buck than Microsoft.  The tech giant announced today that it is partnering with KIND Financial -- already a leading player in the cannabis business -- to develop a full seed-to-sale system for tracking marijuana plants:  

Three days after investing in LinkedIn Corp. LNKD, -0.14% in a record-setting $26 billion deal, the company announced its first venture into the world of marijuana, striking a partnership with KIND Financial to provide seed-to-sale software to state and local governments for the management of cannabis commerce and distribution.

 

The deal makes Microsoft one of the first major technology companies—and one of the first major publicly traded companies -- to acknowledge the rapid legalization of marijuana, with recreational use already legalized in Alaska, Colorado, Oregon, Washington and Washington D.C., and up for vote soon in five other major states, including California.

 

Major brands have been mute on the controversial topic, but more have started to show their support as acceptance has spread. Last month, Walgreens Boots Alliance posted a blog touting research showing the benefits of medical marijuana, which is now legal in 24 states.

 

The legal marijuana industry is expected to balloon in coming years. Sales of legalized marijuana are projected to hit $6.7 billion this year, compared with $5.4 billion a year ago, according to industry tracker ArcView Market Research.

 

KIND Financial is using Microsoft’s cloud platform to build out its services for government agencies. According to Marijuana.com., a team at Microsoft will help clients navigate regulations and laws, while tracking legal cannabis commerce and helping to stop product from reaching the black market.

 

In a statement, a Microsoft spokesperson said the company “supports government missions to regulate and monitor controlled substances and items, from the Justice Department regulating tobacco and firearms to a state regulating legal cannabis.”

 

OTC Company Buys California Dispensary

MarketWatch:  Marijuana moves from the black market to the stock market:

Terra Tech [ticker TRTC],  a cannabis-focused agriculture company, announced its acquisition of the California-based Blum Oakland dispensary on Tuesday.

The dispensary — which brought in slightly less than $15 million in revenue in 2015 — has about 48,000 registered patients and sees nearly 1,000 patients a day, according to Terra Tech chief executive Derek Peterson. The acquisition of the storefront includes a "seed-to-sale" fully integrated facility where cannabis is cultivated, processed and sold to patients.

 

Investigative Shocker: Big Tobacco Looking at Marijuana Biz

Well, it's not exactly man-bites-dog, I suppose.  But an "investigation" by the Daily Caller suggests that tobacco companies -- who already sell paper tubes of dried plant material that provide a drug to users -- are indeed looking to capitalize when cannabis goes legal nationally.  The piece does have some interesting background.  Some highlights:

    Big tobacco, despite its conservative image since the 1970s, has been closely eyeing the marijuana market which venture capitalists regard to be worth $50 billion in annual revenues.

    Tobacco companies are now on a buying spree of e-cigarette companies which produce vaporizers, a smoking device marijuana users prefer because it can offer a higher high.

    . . .

    "We are in the business of relaxing people who are tense and providing a pick up for people who are bored or depressed," [said a 1970 Philip Morris memo]. . . . "The human needs that our product fills will not go away. Thus, the only real threat to our business is that society will find other means of satisfying these needs."

    . . .

    [Keith Humphreys, a professor of psychiatry and behavioral sciences at Stanford School of Medicine,] said big tobacco has a distinct advantage in marijuana production. "On marijuana, who knows better how to grow a plant that you dry up, wrap up in paper and smoke," he told TheDCNF. "They’re the masters of that worldwide and have wide brand recognition."

    Jonathan Caulkins, a professor at Carnegie Mellon University’s Heinz Center and co-director of RAND’s Drug Policy Center, told TheDCNF he believes the tobacco industry is privately looking at the legalization movement.

    "If you’re specifically in the tobacco industry, of course you should be paying great attention," Caulkins said. "It would be unfair to your shareholders if you didn’t at least watch with interest and probably should have several analysts working full time trying to think of different scenarios of how this could play out."

    Dr. Stanton Glantz of the UCSF School of Medicine and the American Legacy Foundation Distinguished Professor of Tobacco Control told TheDCNF, "They certainly would deny it if you asked them, but the reality is that tobacco firms are very well positioned."

    "They know how to make the product very well and very efficiently," Glantz said. "More important, they know how to engineer the product to maximize the addictive potential, which is something that the current marijuana enterprises probably aren’t as good at."

    . . .

    "Since at least 1970, despite fervent denials, three multinational tobacco companies, Phillip Morris (PM), British American Tobacco (BAT, including its US subsidiary Brown & Williamson [B&W]), and RJ Reynolds (RJR), all have considered manufacturing cigarettes containing cannabis," the UCSF researchers concluded.

    Glantz asserted tobacco companies "have the financial resources, product design technology to optimize puff-by-puff delivery of a psychoactive drug (nicotine), marketing muscle, and political clout to transform the marijuana market."

    As noted previously, big tobacco is buying up American e-cigarette companies with fervor.

. . .

    "For e-cigarettes, there is a huge crossover in e-cigarette use between marijuana and tobacco," Glantz told TheDCNF.

I suspect that a lot of non-tobacco businesses are also interested.  Do we think that Frito-Lay and Kraft, for example, haven't at least thought about the potential of cannabis-infused edibles"? 

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Time to Invest in Marijuana Stocks?

INVESTORS IN NEW INDUSTRIES always face a lot of risk.  The risk increases where the new industry is illegal.  In addition to the normal risks of business -- not selling enough stuff, for example -- you have to factor in going to jail, having your bank accounts seized, not being able to use the bankruptcy courts . . . .

That doesn't mean the potential rewards to be found in marijuana stocks aren't worth the risks.  Over at Money, a writer for the Motley Fool investment-advice site isn't impressed.  Ordinarily, Motley Fool pieces tend to be written by people who don't know what they're talking about, with the primary purpose of getting people to pay money for stock tips.  But even a blind squirrel finds an acorn occasionally, and this seems like a reasonable take on investment at this point.

Some snippets (more details in the full piece):

    If you're waiting for the right time to invest in some "green gold," keep waiting.

    Because the recreational marijuana market alone could potentially quintuple in value by 2019, “marijuana stocks” saw their market caps explode northward earlier this year. Now that the inevitable problems associated with any new industry have reared their ugly head–such as banks refusing to provide loans, we have seen most of these same stocks fall, almost as rapidly as they went up. That being said, the industry appears to have momentum on its side as more states consider decriminalizing marijuana. So the question, then, is simple: Is now the perfect time to buy marijuana stocks?

    Options for investors looking to get in on some “green gold” appear, to me, extremely limited by the dearth of reputable companies, and the huge roadblocks that remain.

    Although the marijuana industry appears primed for jaw-dropping growth over the next decade, the limited financing options for start-ups, the lack of reputable companies, and the massive overpricing of the few decent ones, makes this industry too risky at this stage in its development, in my opinion.

Of course, this advice is only ikely to last until the Motley Fool finds the Three Can't-Miss Marijuana Stocks that Will Absolutely Blow the Roof Off in 2015!!! which you can get by subscribing to their tip service at the special introductory rate of . . . .

Daily News Roundup: Friday, October 10, 2014

Prosecutors Seek to Revoke Adrian Peterson Bail for Marijuana Use:  "Presumably, someone close to Adrian Peterson told the embattled Minnesota Vikings running back to lay low while his felony child abuse case was ongoing and his NFL future was up in the air.  The opposite of laying low would be to smoke some marijuana before a court appearance, then tell a court employee during a urine test that you "smoked a little weed," as Peterson allegedly did on Wednesday according to Fox 26 in Houston."

DEA Taking Close Look at  Marijuana Industry Investors: "U.S. investors in Canada's medical marijuana industry are betting they will not fall under the scrutiny of U.S. law enforcement officers -- but it is a risky bet.  The U.S. Drug Enforcement Administration has already been tracking investments made in state-sanctioned marijuana business in the United States. When asked by Reuters about the DEA's view of U.S. investments in Canadian marijuana, DEA spokesman Rusty Payne said the agency is 'most interested in those types of activities.'  After the Reuters report, shares in Canadian medical marijuana companies fell sharply . . . ."

Marijuana Sales Up in Colorado: Marijuana sales in Colorado saw a 10 percent bump in August — and industry leaders don't expect that growth to slow anytime soon.  The sales of recreational and medical marijuana in Colorado each jumped more than 10 percent from July to August 2014, according to numbers released Thursday by the Colorado Department of Revenue."

Roof Explodes in Florida Grow House Fire:  "A suspected marijuana grow house caught fire in Orange County on Thursday morning . . . .  About $3.2 million worth of marijuana was removed from the home after the fire, according to deputies.  The residents of the home are nowhere to be found.  Neighbors said they've lived in the home for a month or two, and were secretive.  Investigators said the sloppy grow house rigging likely contributed to an electrical fire upstairs."

Analyst:  Marijuana Use Increases Beer Sales:  "Beer has no need to fear weed.  The legalization of medical marijuana has helped beer sales, contrary to previous research that pointed to a decline, according to a note from Sanford C. Bernstein analyst Trevor Stirling."