Five Predictions for the Cannabis Industry in 2019

Guest post by George Allen, President of Acreage Holdings

When dawn broke on New Year’s Day, cannabis was legal in some form in 33 U.S. states. That green wave will continue to gather momentum in 2019 with New York State, New Jersey or Illinois likely the next big milestone on the list. But more states jumping on the cannabis bandwagon is just the beginning of what we’ll see this year. Here are five longer-shot predictions for the next 12 months.

A Big Bang from the STATES Act

Expect the STATES Act to pass, freeing the industry from its financial shackles. The act may only be two pages long, but it will shore up the legal status of cannabis at the state level and finally grant cannabis businesses access to the banking services they desperately need. The illegality of cannabis at the federal level has put much of the financial industry off-limits to businesses operating legally in two-thirds of the states. But most lawmakers agree that the awkward dual legal status of cannabis has gone on too long, and they will vote in 2019 to pass the act to protect U.S. states that elect to legalize cannabis. The bill will not only allow cannabusinesses to bank, but it will also spark a big bang in terms of investment. We will see a frenzy of activity and attention when the first institutional investors join the fray.

The Withering of the Canadian Rose

The STATES Act may allow the U.S. industry to thrive, but that in turn may take some of the bloom off of the Canadian cannabis market. As soon as the bill is passed, the mere notion of investing through Canada to access the U.S. market will be folly. At best, it will be massively inefficient. At worst, it will be incredibly unintelligent. It makes no sense to pump money into Canada when there is a much larger and healthier market right next door. U.S. companies that had been seeking funding in Canada will pack their bags to return home the moment the STATES Act is signed. The market will forget about niche Canadian stocks once they can invest in several U.S.-based, publicly-listed companies. Remember the U.S. market is ten times larger than Canada. Just four U.S. states — New Jersey, Illinois, Massachusetts and New York — together constitute a bigger market than our northern neighbor. Canadian pot stocks have enjoyed their 15 minutes of fame on our front pages. But they will soon have to get used to the back end of the business section. In time, Canada will be a mere footnote in the global cannabis story.

Marketing with Help Redefine Cannabis

Cannabis may be winning social acceptance, but it is still, figuratively speaking, outside the window looking in. That’s because advertisers, who shape the way we think about products and steer us towards certain brands, haven’t yet cracked the cannabis conundrum. When they do, it will change the game. Today, there’s still a lingering drug stigma around cannabis. There are still strong preconceptions that a typical consumer of cannabis is a college student who lies around smoking bongs and ordering pizza. But brands will begin to recast the consumer as someone who can enjoy cannabis in the same way they enjoy alcohol. Once that happens, then cannabis will make the leap from commodity product to premium product, just like tequila. It completely changes the market for cannabis, and not only because brands can then charge more. Consumers will also feel that their choice of brand says something about who they are as a person. The opportunity for anyone with some branding clout is massive. Users are asking to be told how to feel about cannabis, and I expect to see someone — whether it’s a giant food or beverage company, actor or rap star —answering that call this year.

Cannabis will go Mainstream

References to cannabis in Hollywood used to be either rare, or the basis of entire shows such as Weeds. But that will change. We may soon have 14 U.S. states where cannabis is legal for recreational use. That means that art will start to reflect life. We will watch TV series and movies where characters casually consume cannabis in the same way they might fix themselves a cup of coffee. We will hear real people sharing their experiences of cannabis on radio talk shows. Or we will read best-selling crime novels whose heroes are detectives that relax by chewing cannabis candy. In other words, cannabis will take its place in the cultural psyche as it becomes part of the tapestry of everyday life. References to cannabis won’t just be more socially acceptable, but crucial to depicting reality.

Pay to play

We will see at least one U.S. state auctioning cannabis concessions. There will be several states viewing the tax revenues from cannabis as the silver bullet to their budget issues. A few may see public auctions as their quickest route to those revenues, especially if company valuations continue to soar. I think we’ll see a couple of states asking companies to pay to play. At any rate, going down the public tender route is likely to be less painful than the beauty contest process. That model has given states years of contested litigation.

Overall, I believe that 2019 will be a watershed year for cannabis. We will look back and remember 2019 as the year cannabis truly went mainstream in America.

About the Author:

Mr. Allen, President of Acreage Holdings and a seasoned executive with extensive financing and transaction experience, was previously Chief Investment Officer of Cambridge Information Group (CIG), where he managed a portfolio of private and public direct investments as well as a collection of indirect investments, and founded an internally managed hedge fund focused on global growth equities.

Mr. Allen managed corporate development at Blucora, a CIG Investment, guiding the company as it transformed into a successful public leader in its vertical that now operates independently, securing an extremely profitable investment for CIG on its four-year investment.

Prior to Blucora, Mr. Allen spent nine years at Warburg Pincus, managing investments in the communication, media and technology sectors, and Goldman Sachs in New York and Hong Kong, where he invested capital in distressed securities.

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