This year is shaping up to be a pivotal one for the cannabis industry.
Cannabis stocks have been climbing since the group began to show signs of profitability late last summer, with the onset of a blue wave igniting optimism around the possibility of nationwide legalization.
A statement issued this week by Senate Majority Leader Chuck Schumer and two other Democratic senators furthered the possibility of a subsequent green wave, with the lawmakers proposing a path to federal legalization.
The move “gives investors some sense that more institutional money is quickly going to be coming into the sector,” Tim Seymour, the founder and chief investment officer of Seymour Asset Management, told CNBCs “ETF Edge” this week. “The timeline is pushed forward.”
That’s “great news” for cannabis companies operating in states with some level of legalization, particularly Curaleaf, Green Thumb Industries, TerrAscend and Cresco Labs, said Seymour, who manages the Amplify Seymour Cannabis ETF (CNBS), a 25-stock portfolio that hit a new record high on Wednesday.
It also benefits Canadian cannabis giant Canopy Growth, which has exposure to TerrAscend and a 2019 agreement to buy U.S.-based operator Acreage Holdings contingent upon stateside federal legalization, he said. Canopy is the largest holding in CNBS.
New York could also be a major catalyst, with Gov. Andrew Cuomo pushing to legalize on the back of New Jersey’s move to greenlight recreational use, Seymour said.
“New York is kind of the linchpin to the entire East Coast going adult,” he said.
One of the big catalysts for U.S. investors will be when cannabis companies are allowed to list directly on domestic exchanges rather than over-the-counter markets, which will pave the way for broader-based investment in the space and more public debuts, the money manager said.
“Over the next six months, there’s an expectation of more capital coming into the industry because it will now be investable to institutional players, and institutional bankers will help bring more capital into the industry,” Seymour said.
The next six months will also likely bring more mergers, acquisitions and consolidation in the space as “the big try to get bigger,” he said, noting that the group has already raised over $1.5 billion in equity capital in 2021.
“The deal calendar for cannabis looks very exciting over the next three to six months,” he said.
On Wednesday, Jazz Pharmaceuticals announced a $7.2 billion deal to buy GW Pharmaceuticals for its cannabis-based epilepsy treatment.
It’s likely just one of many strategic deals investors will see in the space this year, according to Seymour.
“Coca-Cola is never going to do anything that’s not fully federally sanctioned and clear and has no potential reputational risk, but there are players that can make commitments and make their first move in cannabis, especially with the expectation that the legislation’s going to change in the next six to 12 months,” he said, pointing to the consumer packaged goods, retail, pharmaceutical and spirits industries.
“The ability to see companies re-rate according to essentially gross capital multiples that exist outside of industry is part of why investors should be excited about cannabis companies,” he said. “They’re not too late. In fact, they’re still early.”
Read all of Seymour’s disclosures here.