“Governors are now desperate for revenues.”
Jason Wilson of SALT-partner ETFMG, home of MJ which is the world’s largest cannabis ETF, hosted a virtual roundtable on the future of cannabis and its investing opportunities. Joined by Wilson is three leaders in the cannabis space: David Culver of Canopy Growth, Patrick Martin of Cozen O’Connor and Eric Huey of Platinum Advisors.
The guests offer their perspectives as governmental cannabis regulation experts to discuss all the ways the rapidly growing cannabis industry will affect jobs, tax revenue and elections among many other impacted areas. Cannabis retail stores’ designation as essential business all over the country has highlighted the increased acceptance and product demand. With impending state budget shortfalls, cannabis legalization is likely to only quicken, especially in states like New York and Pennsylvania. “Governors are now desperate for revenues,”
Similar to prohibition in the United States during the 1920s and 30s before its repeal in the face of an economy in desperate need of a jumpstart, cannabis will be seen as major source of economic stimulus and tax revenue in states around the country.
LISTEN AND SUBSCRIBE
SPEAKERS
Patrick Martin
Principal & Director
Cozen O’Connor
Eric Huey
President
Platinum Advisors
David Culver
Vice President
Canopy Growth Corporation
EPISODE TRANSCRIPT
Anthony Scaramucci: (00:10)
Hello everybody, welcome to SALT Talks. This is unfortunately in lieu of the SALT Conference. We're trying to have a few times a week, some very interesting discussions about what's going on in the world, and some real meaty topical investment topics as well. I am in lieu of John Darcy today. You can see there's no duck here, and the rumor is that John Darcy's mother-in-law threw that duck in the garbage. So you won't be seeing that duck any time soon.
Anthony Scaramucci: (00:38)
But this is Anthony Scaramucci and today's SALT Talk is about cannabis, and so the title is Essential Cannabis. It is a panel brought to you by one of our SALT Partners, ETFMG. The stock symbol is MJ. And we've been a big supporter of the cannabis space over the years. Given our libertarian philosophy, we feel like, particularly for medical uses and obviously recreational, but medical uses, this is going to be an explosively growing industry.
Anthony Scaramucci: (01:13)
I'm going to turn it over to these guys in a second. But ETFMG is the leading Thematic ETF issuer. It's known for innovative investment products like MJ, the world's largest cannabis ETF, and most recently, GERM or GERM, the first way to invest directly in vaccines, treatments, and testing in biotech. So hosting today's panel is ETFMG MJ's research and banking expert, Jason Wilson.
Anthony Scaramucci: (01:49)
Jason is a Toronto native. He's a Canadian Forces Veteran with over 15 years of asset management experience in finance, structured products, and he has a great track record in bringing hard-to-access asset classes to the market. He's been working in connection with the legal cannabis industry for the past decade and is a great host for what I think will be a phenomenal panel. So with that, I'm going to turn it over to Jason. Good luck to you guys and we're fascinated by the upcoming discussion.
Jason Wilson: (02:24)
Great, Anthony, thanks very much for the intro. Thanks for the opportunity to be part of SALT Talks. To our audience today, welcome to cannabis analysis, a discussion we're going to have on cannabis, which is, right now, the world's largest [inaudible 00:02:38]. We have three great guest speakers joining us today to discuss the growth of cannabis industry and the effect it will have on US jobs, tax revenue, the upcoming election.
Jason Wilson: (02:51)
Top of the lineup is David Culver. He currently serves as vice president of government stakeholder relations in cannabis growth. Dave has about 20 years of federal experience and currently manages all database, state, federal, agent [inaudible 00:03:03]. Very busy job on his part. Patrick Martin [inaudible 00:03:08] will also be joining us today. Patrick's a principal at [inaudible 00:03:13], where he directs the firm's government relations and public advocacy efforts in the Midwest.
Jason Wilson: (03:18)
He's also a key member the firm's government relations to Washington, D.C. Last, but definitely not least, we have Eric Huey. Eric is president of Platinum Advisors. He has over 25 years of experience as senior government relations and public affairs executive. He's repeatedly been on The Hill's list of top lobbyists in Washington, D.C. Thank you, speakers, for joining us. I think it's going to be a great conversation [inaudible 00:03:43].
Jason Wilson: (03:44)
So, I guess, to kick things off and get right into it, let's talk about cannabis and COVID. Now, when we look at what happened back in March, obviously numerous states started issuing stay at home orders and impaired cannabis-related businesses, along with most other consumer facing businesses were being forced to shut down. And we had a 180. Maybe it didn't take long where most of the states that legalized cannabis decided that they were essential businesses and allowed them to be open. Patrick, can you tell us a little bit... I know you work with a bunch of multi-state operators. Can you tell us what was happening behind the scenes that saw that reversal?
Patrick Martin: (04:24)
Sure, absolutely. And, Jason, thank you so much for having us. COVID really brought the cannabis industry front and center in terms of how states were both responding to the crisis, and also how states were making determinations about what businesses were essential and what businesses were not essential. And what we saw is, overwhelmingly, across the country, in almost 30 states, the cannabis programs both medical and adult use were deemed essential.
Patrick Martin: (04:54)
I'm speaking to you all from Illinois. We have a young but very successful adult use program here that was passed in historic fashion by our state legislature last year. And what we saw was the governor and his team and folks in our state legislature saying that we need this program to go forward, and that it needs to be treated just like grocery stores and liquor stores, and other forms of retail, that in the midst of an economic crisis are going to provide a real benefit to these communities.
Patrick Martin: (05:30)
Just in the month of May, the Illinois Department of Financial and Professional Regulation has told us that there was 77 million dollars in sales here in Illinois, combined for our medical program and our adult use program as well. So extraordinary economic benefits of the state. So you saw a lot of governors say very clearly to their states that this needs to be deemed essential. And I think it really showed progress for the industry and for how cannabis is being viewed across the country as an essential part of our economy.
Jason Wilson: (06:04)
Awesome. The majority of the US population [inaudible 00:06:14] states has not only legalized cannabis, but it says essential. And yet we have a handful of states that aren't quite there yet. Let's not even talk about the federal level yet. So what's going to happen later this year? I mean, do you see a number of states moving forward to legalize, maybe later this year, maybe early 2021? Patrick, Eric, you can both chip in on this.
Patrick Martin: (06:37)
Yeah, I think you're going to see states that don't have an adult use program but maybe have a medical program take a look and assess the political environment. And I think likewise, states that have neither are going to take a look at doing something maybe in the medical space for the first time. The other thing, in response to COVID that I didn't mention earlier, is the disconnect between the action that the states took in deeming cannabis an essential industry and the federal government providing no relief in any of the packages that were signed into law, particularly the Cares Act.
Patrick Martin: (07:14)
Cannabis businesses aren't able to benefit from any of those small business programs because of the federal illegality. And so once again, as we've seen through many issues over the course of our history, states are leading and the federal government just isn't quite there yet, but we think the momentum is certainly in our direction.
Eric Huey: (07:36)
Jason, first of all, thank you. Thanks to SALT Talk and ETFMG, and Anthony Scaramucci, and to you, Jason, for having us. There's this weird dichotomy where these are essential facilities but yet they're not legal in so many states. You've got 34 states where it's legal for medical. You have 11 states, plus the Washington D.C. where it's legal for recreational. It's going to be on the ballot in states like New Jersey and South Dakota. It could very well be on the ballot and four or five more all over the West and Upper Midwest.
Eric Huey: (08:12)
And governors are now desperate for revenues. And due to the COVID crisis, you're looking at the state of California has a 64 million dollar deficit. New York's going to have a 13 billion dollar deficit. It's going to need 61 billion in federal funds to make up for it, so you can see the pressure that's mounting on, say, Governor Cuomo in New York where legislatures have penned a letter saying, "We've got to do this. We've got to legalize."
Eric Huey: (08:38)
The governor of New Mexico, Lujan Grisham, said her biggest regret since she became governor is that she did not legalize prior to COVID, because they would have brought in 100 million in revenue, and that's critically needed at this time. So I think by the end of the year... Pennsylvania, of course, is looking at this. I think it could very well move in Pennsylvania because there's both Republican and Democratic agreement that this has to move for moral reasons, due to social justice, it has to move for budgetary and fiscal reasons, and has to move because that's where the will of the people are.
Eric Huey: (09:16)
66% of Americans believe that cannabis should be legal, and that's a majority of Republicans from Baby-Boomers on down to Millennials. And the Democrats are way off the charts, so the public is there. This is inevitable. It just sometimes takes a while for some state leaders, and for federal leaders to get there. But something has to be done and we're going to see movement on this. The momentum is just too great.
Jason Wilson: (09:48)
So David, switching over to you for a second because you actually are working at cannabis growth down in the US. And obviously it's [inaudible 00:09:57] for the industry. Looking at the numbers in the US, 250,000 jobs created in the legal cannabis industry. We've seen 15% and year over year growth in jobs. We're just talking about state revenues, obviously. Colorado alone has generated over a billion dollars in tax revenue since legalizing in 2014. And Eric was touching on it, but David, I'd love to hear your view too. What are municipalities going to do? Is this going to be the big drive really for legalizing? Is to fill all the holes the pandemic has created?
David Culver: (10:37)
Yeah, I think it's going to, and I think Patrick and Eric alluded quite nicely to this. Let me also, just speaking for the first time, express my thanks to you Jason and also to SALT Talks. I very much wish we were sitting in Las Vegas doing this like the rest of us, but hopefully we will be able to do that soon.
David Culver: (10:55)
So I think Patrick and Eric hit on a lot of the main points associated with your question. But what I want just mention that I think is also of importance, is the fact that we are going to start a recovery nationwide once we get this virus under control. And we are going to get it under control and the economy is going to recover. I think cannabis is going be an enormous shot in the arm as we begin that process.
David Culver: (11:24)
The last estimates that I saw really put the job numbers at about 1.5 million, if we were to legalize in the US. And I can't help but think about the end of prohibition, having spent so much time in the alcohol industry. Because the parallels that we are in now related to unemployment and also related to the need to jumpstart the economy at some point soon, or staggering.
David Culver: (11:49)
So opening the market is going to be really critical, I feel. I know that we are investing in that regard as a company, but it's also worth mentioning that we're going to have great products here in the United States. And if we legalize, it's going to really help other countries around the world to do so as well. We're going to be a leading force there and we can really add on to the export potential that we've got through cannabis I believe strongly in that.
David Culver: (12:16)
And then the third prong of it is innovation. I know lots of companies have exciting products coming to market. We have our Martha Stewart Line that we've talked about quite a bit that's coming out in the Fall. And we also have our drinks that will be coming into the US through the acreage channels later this year. And these are exciting innovative products. They have no impact on the liver, they have no calories and they have no hangover.
David Culver: (12:46)
And I think a lot of the country is interested in trying cannabis but they're not going to go the smoking route, and so innovative products like beverages can really drive that economic recovery in this space. So I'm excited about the future and I think that we can be a really important part of the recovery when the nation starts that process.
Jason Wilson: (13:09)
I completely agree. It's going to be fantastic to see how this all plays out. Obviously, it explains a lot of the investment in spaces happening right now. We've heard a lot about COVID and how it's effected the cannabis industry, and obviously the whole economy. We'll see how all that plays out. Hopefully, we get back to normal sooner rather than later.
Jason Wilson: (13:31)
But the other big issue that we've been grappling with, obviously it's been not addressed properly for generations and continues to, particularly during this pandemic, rear it's ugly head. And that's the amount of racism that's out there, the social injustice, the police brutality. And a lot of this ties in with the cannabis industry.
Jason Wilson: (13:54)
Patrick, you represent and work with a number of the cannabis owners in the US. What's your take on this? How are the multi-state operators, cannabis businesses in the US, how are they addressing the social justice issue [inaudible 00:14:09]?
Patrick Martin: (14:10)
Jason, it's a terrific question, and it's of the utmost importance to all of us here. I think what's happened in the last several weeks has caused all of us to really take a step back. And there's been conversations around social and reparative justice in the cannabis industry that have been taking place for a long time. But if you really think about everything that's happened in the last few weeks, Jason, Eric, David, and myself, none of us know what it's like to be arrested or pulled over or targeted because of the color of our skin, and to be arrested for possession of cannabis as a way to be unfairly targeted.
Patrick Martin: (14:59)
None of us know what that's like. And the protests that have taken place over the last several weeks I think have caused all of us to do a lot more listening about what the world is like for so many out there. And cannabis has a unique role to play in not only how do we right the wrongs of the past when we're talking about things like expunging records, when we're talking about things like making sure that cannabis is decriminalized.
Patrick Martin: (15:27)
But what are we doing in terms of looking forward? How are we giving people that have been unfairly targeted and unfairly arrested and prosecuted, how are we giving them opportunities in this new cannabis economy? I think that's what the companies that I work with spend a lot of time talking about. And you've seen states take a leadership role in this as well. I think you'll see large states that look to do adult use programs through their state legislatures look at the model that was set up here in Illinois, which was really the first state to address social equity and social justice in their cannabis law in a really direct way.
Patrick Martin: (16:06)
And it's things like giving people opportunity who are from areas of high unemployment and high poverty and areas that have high arrests and conviction rates on cannabis. In Illinois, we set up a social equity fund, which is financed by current license holders and will be financed by future license holders, and it's through things like loan repayments and license transfers.
Patrick Martin: (16:28)
And then it's companies looking at who they employ and who sits on their boards. And you're already seeing cannabis companies take a second look at who are we employing, and who do we have in the c-suite and in the board room, and does that reflect the diversity of this country? So I think it's a conversation that is going to continue to take place. I know that David and Eric and I talk about it all the time. But this moment in time, we've all been experiencing and living through, I think has really put a fine point on how important this issue is.
Jason Wilson: (17:04)
Yeah, no, absolutely, I think it is an incredibly important issue there. And it's great to hear that measures are being taken to address this. David, if I can, I'd like to put you in the hot seat a little bit. This is not just a US issue. I know obviously, the bulk of the protests have been happening in the United States, but up here in Canada, in Toronto we've seen it, in London, across the globe. Canopy is unique. They are a global entity. It operates in over a dozen different countries globally. How are you guys looking at this from a global perspective?
David Culver: (17:38)
It's a really important issue for our company, Jason, and I appreciate the question, and I also appreciate all the remarks that Patrick made. Because we do, as a small GR team, think about this all day, every day. I'll get to that a bit more in a minute. But specifically with Canopy, we put out a number of statements related to our position and standing with those demanding justice.
David Culver: (18:03)
So we are there, but we have decided that we need to take more time as a company to review what we're going to do. Because this isn't about press releases, it's about acting. And Patrick mentioned the boardroom and the c-suite, so we're taking a closer look internally with our leaders at our own diversity inclusion program, which we began working on last year when Hillary Black stepped into the role as head of our corporate social responsibility.
David Culver: (18:36)
This is something that we have a number of ongoing conversations over the next few weeks, and we're excited to be showing the results and that path forward at some point in the near future. So hopefully next time when we chat, we'll be able to provide some more specifics about what we're doing internally.
David Culver: (18:53)
But externally, it's going to be really important for us as a company and others in the Canopy space, to continue to partner with social justice organizations and programs across the US. Canopy's biggest... Well, around the world, Jason, Canopy's biggest thrust has been with National Expungement Week which we partnered last year there, and we will do so again this year.
David Culver: (19:17)
We're excited about that partnership. Also in Illinois, and also New York, we have a partnership there that we've just established with the Last Prisoner Project to help cannabis prisoners for nonviolent offenses get out of jail. So this is just tip of the iceberg of what we're doing, and again, I think when we chat in a month or two, we'll have a lot more discussion about what Canopy's up to, and we're excited about the project and to be a part of the movement.
Jason Wilson: (19:46)
That's great news, and incredibly interesting. I guess it really begs the question... This is an open question, all of you may want to hear from Eric a little bit, but is this something that really should be addressed through federal legalization? Instead of just going the decriminalization route, is this what we really need legislation for?
Eric Huey: (20:09)
Absolutely. We have to come to grips with the fact that our cannabis laws, our drug laws generally, particularly as it relates to cannabis, have a long history of racial bias and racial prejudice, going back to Harry Anslinger in the 1930s. The first Federal Bureau of Narcotics chief who was an unrepentant blatant racist. And the very use of the term marijuana with an H, they used that term rather than cannabis or other terminology so that they could make it sound more Mexican.
Eric Huey: (20:44)
The entire history of the laws set up to enforce marijuana were designed, in large part, to put black and brown man into cages. When you look at how they've been enforced over the past, through Nixon and Schedule One, all the way through recent attorneys general, black men are arrested at four times the rate than white men for cannabis despite the fact that they're only 12% of the population, African Americans.
Eric Huey: (21:10)
So that is not an accident. That is systemic and it's systematic, and if we're going to look at this whole notion, the probable cause is the color of your skin, well what is the pretext for an arrest? The statistics are staggering on this. We spend three and a half billion dollars a year on cannabis enforcement alone. We do 600,000 arrests a year for cannabis. In 2016, we did 600,000. That is more than all violent crime arrests in America combined for all violent crime. Our priorities are out of whack and you have to wonder, is this really about cannabis, right? Or is this about something deeper?
Eric Huey: (21:57)
Somebody's arrested every 37 seconds, and 88% of arrests are for possession. So we have to grapple with that. We have to grapple with it as part of a larger package. We absolutely... Decriminalization and legalization, the passage of the ability to access banking is a component, but the social justice component is going to be critical. For so many African-American men, their interaction with police happens because of a suspicion of cannabis use.
Eric Huey: (22:28)
You can smell it in the air. If they're nearby, they're going to arrest or at least question, the nearest African-American male. Until we grapple with that... The mayor of Kansas City was just saying this week, "We have got to decriminalize this for possession or else we're never really going to get at this." This is step one and it has to be part of a larger federal package.
Jason Wilson: (22:50)
It's absolutely mind-boggling, the numbers, the waste of time and resources, the effect on people's lives, you pointed out for generations. I mean, this is 100 year old plus problem, let alone all the other injustices you might have. That said, if you look globally at what is happneing with respect to cannabis, there's been a lot of progress. You have over 20 countries around the world that have legalized marijuana for medical use. Mexico's soon slated to join Canada in legalizing for adult use.
Jason Wilson: (23:25)
We have the WHO that's recommended that cannabis be rescheduled, and I believe the UN's voting on that shortly. And you should always follow the WHO's recommendations. Interesting to see what happens with that, because I know it will affect international treaties, which is a huge part of the problem.
Jason Wilson: (23:39)
In the US, even, we've had, at the federal level, some progress, obviously. And we've had [inaudible 00:23:46], we improved it. Have a plant-based cannabinoid pharmaceutical used to treat childhood epilepsy. That was a big step in 2019. Going forward, after the FDA rescheduled CBD, it went down to schedule 5. We're seeing progress. David, you guys, obviously, have a global company headquartered in Canada breaking into the US market. You obviously have a lot riding on what happens here at the federal level. What's your take? What's happening? What's the next steps in federal law from your perspective there?
David Culver: (24:25)
Good question, and a very good summary globally, Jason. I think, first of all, the WHO recommendations to the UN are critically important. They punted on the vote there are a couple times now, but it is rescheduled for this coming December. So we're engaged with our US government here. I know other companies are as well. The US position is going to be really important on this. It's going to help drive a lot of the other nation states. So that's something we're watching closely and trying to make sure that our position as a country is a good one.
David Culver: (25:01)
On Capitol Hill, I think that the efforts there, similarly, will also drive efforts around the world. And there's just a couple important notes. Eric and Patrick alluded earlier to COVID relief, and the primary point to make there is that we as an industry had not received any relief from COVID thus far. So if you think about the three prongs that I pressed for early on, the industry pressed for, it was the Safe Banking Act, it was access to small business loans, and it was standard business deductibility.
David Culver: (25:36)
So to date, we don't have any of that. Now, big thanks and hat tip to Speaker Pelosi and the Democrats for putting the Safe Banking Act into the Heroes package, which is now sitting in the Senate. We don't know the fate of it. We very much encourage Chairman Crapo and leader McConnell to adopt the Safe Banking Act, because this is, of course, about access to banks, but it's a public health issue now.
David Culver: (26:02)
We've got to stop dealing in cash. Especially that our sentries are deemed essential as we started with in this conversation. We've got to make sure that we're able to have access to the banks so we don't have to deal with cash day in and day out, because that's a problem.
David Culver: (26:17)
The second thing I'll say is that the COVID crisis, oddly enough, because we were all deemed essential, it's really created a great deal of momentum. And coupled with what Eric just said previously about criminal justice reform, we believe that cannabis legalization is going to be a part of that as well. So the momentum is strong at the moment, and I think the most talked-about piece of legislation is the MORE Act, which Chairman Nadler from New York has introduced.
David Culver: (26:46)
And the most important piece of that legislation in parallel to rescheduling, is the fact that it weaves the social justice that we were talking about earlier through the entire bill. No portion of that bill exists without social justice. If I'm doing my day job correctly, both in Washington, D.C. and also in state capitals, I'm making sure that, that component is weaved into any package that we're addressing. So there's been a lot of discussion about moving the MORE Act this year, and also preparing for what things will look like next year.
Jason Wilson: (27:23)
Can you talk a little bit more about the tax piece and the regulatory components of the MORE Act and how it should come into play?
David Culver: (27:32)
Yeah, sure. So I think there's a couple things that the industry has been thinking about since the MORE Act was introduced last year. And first is the tax piece, which they set a flat federal excise tax rate, which is fine because we're going to need to generate federal excise tax from the sale of this product just like they do with beverage alcohol. But we need to make sure that we are doing it in a way that allows for the illegal market to transition into the legal market without an unusual tax burden.
David Culver: (28:02)
So there's been a lot of ideas that have floated around out there but one of them is to start lower on the federal excise tax and then ramp it up to something that's comparable to alcohol once you get to the point where the elicit market has had the opportunity to transition.
Jason Wilson: (28:20)
Just quickly, what's happening at the industry level? Are we seeing collaboration? I know every company's focused on market share regionally, state wise, what have you, but I would have to think there needs to be a [inaudible 00:28:33] for everyone to get together and work as a united front. Have we started to see that in the cannabis industry?
David Culver: (28:39)
Yeah, we're getting a lot better. I'm a big fan of the Trade Association World, obviously spending a lot of time at one. I think they're very effective. If you looked at the beginning of COVID, you had the most sophisticated of the trade associations coming out right away with requests to Capitol Hill, to lawmakers, and also leaking them to the media for what exactly their industry needed to stay afloat both short term and long term, and they were very successful.
David Culver: (29:05)
So we don't have that one voice yet in the industry. But at a minimum, I think that we need to begin discussions to make sure that we're prepared for 2021. Because in my mind, this is no longer a three to five year discussion about legalizing cannabis. It's a one to three year, and we need to make sure we're prepared in a unified way to present a unified message to Capitol Hill and in state capitols. Because if we don't do so, we're not going to be successful.
David Culver: (29:33)
I've been at this way too long, I've seen way too many industries coming at this from different directions and not being able to get done what they ultimately wanted to. So that's really a big challenge for us as a group, is to unify.
Eric Huey: (29:47)
I'd like to build on that a little bit by saying what's going on in the industry, despite the stories about COVID driving a spike in demand, is there is a capital crisis. All of the exuberant money that came in early through the angel rounds and friends and family is out there. There cannot be an injection of institutional investment in a more meaningful way without access to banking.
Eric Huey: (30:12)
So until that happens, you've got a 56 billion dollar industry that is realizing 1/10 of it's US addressable market. What does 10X look like and how do we get there? You mentioned, Jason, the industry employs 250,000 people already. That's four times as many people as the coal industry. So this is an industry that is poised to explode, but they can't because they can't get access to the capital markets in a real meaningful way. They cannot hockey stick, and until we do...
Eric Huey: (30:44)
And this is not an industry that's looking for a handout. With just cause the airline industry got 50 billion out of the Cares Act, the restaurant industry, people are looking for industry specific changes. We're looking for the removal of obstacles. There are four or five obstacles that David just enumerated. The minute those are removed, all that capital comes in, and this industry explodes, not just in big cities, not just in the coasts, but in states and communities throughout the US rural, small towns. And that's going to be the exciting moment. But until we get there and absent of a comprehensive federal plan, we are going to be stuck at starting line.
Jason Wilson: (31:25)
Yeah, I agree. So, election coming up, obviously. Everyone's mind... Obviously, it's going to be interesting. We really have two 70 year old, baby boomer, white guys, neither of which seem to be horribly supportive of cannabis, I guess I'll put it that way. Patrick, is it going to matter who gets elected? What's your view on that?
Patrick Martin: (31:58)
Yeah, it's a great question. We often make the point that we work well with... We want to work well with both parties, and we think this issue's a winner for whoever takes the mantle and and wants to run with it. A political winner and a true public policy winner with the public. But the way you framed the question, I think is exactly right. You have two candidates for personal, political, and I'm sure a whole host of other reasons that are not quite there on the issue.
Patrick Martin: (32:32)
And I think you see that a lot with politicians of a certain generation. What I would say in terms of how the election results will impact the cannabis movement in the United States is that I think it will impact it to some degree on timing depending on who wins the election. But regardless of who wins the election, it will not slow down the forward progress and I'll provide an example of what I'm talking about.
Patrick Martin: (33:01)
The gay marriage movement saw in this country a lot of peaks and valleys, and then a tremendous steam ahead in a really period of time. And if president Trump is reelected, I could see something akin to the election of 2004 when president Bush was reelected. We had all these state ballot measures on defining marriages between a man and a woman. And after president Bush was reelected, I think there was real heartache within the LGBTQ community about what the prospects were for gay marriage going forward.
Patrick Martin: (33:33)
But it turned out that in the course of time, it was only in the next term of the next president that we ended up you know getting the historic Supreme Court ruling. So it didn't end up taking, I think, nearly as long as some people would have thought the day after the 2004 election. If vice president Biden's elected, I think the prospects for seeing a legalization at the federal level, it's going to be much faster.
Patrick Martin: (34:00)
I think there's still going to be an education and a phase-in period for sure, and I think there's going to need to be some patience at the very beginning. But I think you'll see it happen within a first term of a Biden presidency. And just to take the gay marriage analogy even further, what I think all of us would love to see is whoever vice president Biden picks as his running mate, I think that they should get right out in front of this issue the same way that vice president Biden did on gay marriage with president Obama.
Patrick Martin: (34:30)
And everyone remembers he famously came out and said he was for it, and then that forced the White House to have to respond, the president to have to respond,. And they were already moving that way anyway, but I would hope that whichever woman vice president Biden picks does the same thing. And this would be his running mate just by definition of who is considering, will be a woman who is more progressive on cannabis than he is, because every single woman he's considering supports legalization.
Patrick Martin: (34:58)
And if it's a woman of color, they'll have dealt first hand both in their personal and professional lives with issues of racial injustice. And so I think we're hoping as an industry that person can be a real supportive voice within a Biden administration if he wins.
Patrick Martin: (35:15)
The one area I would say that that example doesn't work, and it's a really important example, is that gay marriage was decided by a historic Supreme Court ruling. And all of us in the industry are not waiting for the US Supreme Court to decide the fate of legalization of cannabis in America. We want lawmakers to act. We want Congress and our president to work together to create an equitable law that sets up a fair system for how cannabis is regulated in the United States, and that addresses the social injustices that have taken place and provides opportunities for people within this industry.
Jason Wilson: (35:59)
It's going to be interesting to see...
Eric Huey: (36:00)
I would build on that as well. Patrick put it well. He said, "Let's talk about the impact of the election on the legalization of cannabis movement." But I think the reverse is also true. Let's look at the impact of the legalization of cannabis movement on the election and the impact that it could have. Because when you look at the key demographics like veterans, like Millennials, like boomers, who nobody remembers is the Woodstock generation.
Eric Huey: (36:24)
When you go right up and down Republicans and Democrats, these are folks who can impact and there are single issue voters out there. This is something that can move somebody's opinion of a candidate. And I think it's going to be incumbent upon the folks who are active in this movement, personally and at a corporate level to get involved with the campaigns. It's a perfect opportunity from either or both campaigns to pivot forward. And the one who does it first, David, I think is gonna be the one who gets the advantage.
Jason Wilson: (36:56)
Why don't we wrap it up with that last thought from David, and then probably move on because I think Joe is waiting. David, do you see this becoming an issue that moves the needle to a different voting box?
David Culver: (37:12)
Oh, yeah, for sure. I think Eric alluded to it already, but we're talking about progressives, we're talking about single issue cannabis voters, we're talking about minority voters. All three of those categories are really important to the vice president and to the president. They're watching each very closely. And I think that the electability argument that our industry is going to make to both campaigns is really going to set up jump ball that Patrick alluded to earlier. So you're going to have two almost [inaudible 00:37:44] trying to swat the cannabis ball. And whoever ends up with it, I think, is going to have a massive advantage in this election.
Jason Wilson: (37:55)
It's fantastic. I mean, the industry has been growing for a while, country by country, state by state. It's going to be really interesting. I know we have to deal with the pandemic. I know we have to deal arguably more importantly with the social justice issues, reform issues, but cannabis can be a large part of that. But I have to believe that as we go through the remainder of this year, we get to the election, we hear from the UN on whether they've rescheduled or not.
Jason Wilson: (38:23)
As we continue to see legalization across the globe, there's a lot of tailwind behind the cannabis movement. Every step of the way it just makes it bigger, bigger and bigger. There's a recreational component, there's a medical component. We're not even getting into the whole industrial aspect of it that could help deal with issues like global warming, what have you. It's going to be really fascinating to see how this industry grows, the job growth it brings, hopefully some of the reform it brings, and where we'll be a few years from now. It's pretty exciting to see. Joe, maybe we should turn it over to you to see if there's any Q&A that we can help out with?
John Darsie: (39:09)
Jason, thanks a lot, this is John Darsie, here, the managing director of SALT. Jumping in to handle the audience Q&A, which we've got a lot of engagement from the audience. We'll thank all the panelists for such an engaging discussion. So the first question is which specific states do you think are next to legalize or decriminalize cannabis, and what do you think the timeline is for that?
Jason Wilson: (39:32)
Patrick, you want to take a crack at that?
Patrick Martin: (39:35)
Yeah, absolutely. I think two states that we've been following extremely closely are Pennsylvania and New York State. And what I think we've seen across the country as states consider adult use programs is, there's some regional competition that takes place. And if one state sees a bordering state making a move, it is of the utmost importance that they act. I can speak to the situation in the Midwest.
Patrick Martin: (40:04)
There was tremendous pressure on the State of Illinois to act through the legislative process because we knew it was on the ballot in Michigan, and we knew that there was a strong likelihood that it was going to pass in Michigan. And you want to make sure that you are the regional leader. We've seen what that's done for the cannabis industry in a state like Massachusetts, what it's done in California.
Patrick Martin: (40:29)
And so I would look to Pennsylvania and New York. I think Pennsylvania is, David and Eric, and all of our partners talked about this all the time, that it is just really ripe for something to happen there. And then New York has gotten so close so many times that I think that the combination of COVID and the economic issues that states and localities are already facing, and the fact that you may have another regional player moving is going to create the strong likelihood that the New York State will do something.
Patrick Martin: (41:03)
I also think, to answer the question another way. I think states that have not had anything before are going to be looking at entering and doing a medical program, and I would look to a state like North Carolina and others to potentially look at addressing something like that as well, which is all positive movement for us and for our industry.
John Darsie: (41:24)
As a North Carolina native, that's good to hear. How do you think the black market, gray market issue in a place like California, for example, will be solved with federal legalization?
Jason Wilson: (41:37)
I'll talk to that a little bit to start, being up here in Canada. We have a federally legalized nation. And the problem... It's not a cure-all, necessarily. It has to be done in a thoughtful way. And, David, you can talk a lot more about this. Obviously, being at Canopy, you've seen what's happened up here. But, I mean, pricing has to be regulated, you have get broad based distribution, you can't have the red tape, you can't have hurdles.
Jason Wilson: (42:07)
Here in Ontario, the largest province in Canada, people have been talking generally in the market that we haven't seen the sales that we thought we would. About 15 million people, and there's only 22 to 23 dispensaries available in the first year of legalization. I mean, that's ridiculous. There was no access to it. We were able to go to an Ontario cannabis store and order online. The legalization happened in the middle of federal postal strike, so you could order it but you couldn't get it.
Jason Wilson: (42:39)
The laws have to be there, but the whole supply chain has to build out around it. And everyone has to really get behind it to make sure that there is a proper and effective role. David, do you want to touch on that a little bit?
David Culver: (42:54)
I actually think that you've hit all the high points. I was just jotting this down, transitioning the illegal market into the legal market. it's setting the tax rate correctly, both short and long term, and it's about the outlets. We hear about the outlets all the time. It's a huge problem.
David Culver: (43:11)
I'd also just want to add into the question previously about the timing on some of these states. 2021 could be a massive year for the state-by-state legalization effort. And let's also not forget that if a state that is a red state legalizes in any way shape or form, that state then has direct influence on their senators and makes it even more difficult for them to oppose the efforts on Capitol Hill. That's been the playbook all along, and I think an important point to add as we talk about the timing on states.
John Darsie: (43:44)
Great. Just to dive in more into presidential politics and the effect of the election potentially on marijuana legislation, cannabis legislation and regulation. We have a couple questions on that, that I'll group into... You touched on, if vice president Biden wins, the increasing likelihood that we might see reform early in his presidency. But what do you think would happen in the event that a Republican administration wins, that would be a second term with Donald Trump? And if Republicans remain in power, do you think there's a movement within the Republican Party even to start legalizing and decriminalizing cannabis? What do you think would happen in that scenario?
Eric Huey: (44:26)
I used to have a joke that Libertarians were just Republicans who smoke pot. I think that's changed and morphed a little bit. I think it's inevitable either way. However, I think it's going to happen more quickly if vice president Biden becomes president. My worry about a second Trump administration on this issue, is that you look at his choices for Attorneys General, first Jeff Sessions, who undid the Coal Memo, and then Bill Barr who has been vehemently opposed to legalization. If he were to continue as Attorney General, I just think with those folks whispering in the president's ear, and no then electoral upside to do anything about it. It might take a little more time.
Patrick Martin: (45:11)
Yeah, I agree completely with what Eric said. And I would add, I do not think it will slow the progress we see at the state level. And in fact, I think it could speed it up. I think if president Trump's re-elected and his administration decides they just don't want to do anything federally on cannabis legalization, I think you'll see states continue to act and probably speed up their action.
Patrick Martin: (45:35)
Because the public's there, and we've all talked about it for a variety of reasons. But the most important reason, and I think you see this with all social and economic change over the course of time. People who experience it in their day-to-day lives understand the benefits, and there's been a real education for a lot of people on what cannabis is and what it can provide to communities.
John Darsie: (46:01)
So speaking, you touched briefly earlier on the vice presidential pick and what effect that could have on cannabis regulation, and you mentioned some of the African-American women who are under consideration for that VP slot. Is there one candidate in particular that has a record and is on the record regarding cannabis regulation and legislation that you think would be the most favorable for early action in a Biden administration?
David Culver: (46:29)
I think that senator Kamala Harris is still top of my list in terms of the president's VP shortlist. She has a very strong position on legalization. She was an author of the MORE Act companion, so she's already there. She understands the social justice pieces that I referenced earlier. And I really think that she could lead on this issue if the president chooses not to. And again, we're gonna make the electability case to former vice president Biden's campaign. I don't know whether they will side with it or not, but I do think it's something that senator Harris could lead on if she was the pick. We've done an analysis of everybody that's on that short list and they almost all, without exception, have positions that they've already taken that are pro-legalization.
John Darsie: (47:26)
Anybody want to add to that?
Patrick Martin: (47:28)
No, I think David hit it right on the head. And I would just say, if all of the candidates on the short list support legalization, which they do, the question then becomes about who is going to want to lead on the issue? And who is going to take that position that will in some ways to run a little bit contrary to the position that vice president Biden has laid out? And who is going to be willing to build political support within the White House, in Congress, and using the personal relationship that they're going to have with the president, to move him on that issue?
Patrick Martin: (48:03)
That's really what I'm looking for. I think David said it just right with senator Harris. She's already shown in her presidential campaign that she's willing to come out and show separation between her and the vice president on an issue that was important to her. And I think she's shown just this week in this debate on criminal justice reform, that she's willing to make a strong assertive case on something that she's passionate and believes in. I'm sure all the women on the short list would.
Patrick Martin: (48:33)
But I think we've had a chance to, all of us, work with her in her time in the senate and in California, and I think she'd be a tremendous advocate. But we would really view this for any of the women who are under consideration, if they're chosen, as a huge opportunity to lead on an issue. When you're vice president, that job doesn't have a huge job description. The people who really become successful as vice president, like vice president Biden was, take on certain issues and lead on them. And this would be I think a really important one for whichever woman has chosen to do.
Eric Huey: (49:09)
Imagine two scenarios, a conversation about legalization with vice president Kamala Harris or a conversation about legalization with vice president Mike Pence, and how divergent those might be. You can never underestimate the power of the cabinet. People like Eric Garcetti, people like... All the people who ran for president, a number of those are going to be in the Biden administration as cabinet secretaries, and they're going to have a role to play, and a voice on this. And there's going to be a chorus of yes voices for legalization.
John Darsie: (49:38)
Great points. Going back to Attorney General Barr, we have a question about whether you think his alleged targeting of cannabis companies for antitrust review has affected M&A in the industry? There was a whistleblower that said today that 10 deals were targeted just because Barr doesn't like cannabis and doesn't like the industry. And has that put a damper on deals and deal making at a time when the person who's asking the question believes that consolidation in the industry is needed, and what effect has that had on stock prices in the space?
Jason Wilson: (50:11)
You're always going to have an issue with stock prices in the space until we get a full proper federal regime, and even a global regime. The US is a catalyst. Just think of the international tax treaties, drug treaties, every aspect of how to do global commerce. Until we get the world's largest economy on board, it's going to be really hard to scale this entire industry.
Jason Wilson: (50:38)
Right now, it's really fragmented and broken up. Even with everything being perfect, it's going to take time. With all the supply chains, obviously, to from [inaudible 00:50:51] to pure execution, there's no question about that. But when you have the world's largest economy sitting there, really taking a fragmented approach to it, not knowing what's right.
Jason Wilson: (51:00)
We can look at hemp. CBD dried hemp. Technically, federally legal. But we don't even have FDA guidance on how we can sell it, right? If you look at what's happening in Kentucky right now, and they clearly wanted legalization to support their economy. They have businesses going bankrupt all the time because we can't get a coherent framework that allows anyone to succeed. So I feel that we're going to continue to see a lot of volatility in the market until we start to see movement at a global scale, particularly in the US, but also on a global scale.
Jason Wilson: (51:35)
I'm hoping that the UN votes to reschedule, post-election, we start to see state-by-state [inaudible 00:51:44] a lot of states going on. But most importantly, federal legalization begins. It's going to fill a lot of holes. I think we've heard that consistently, but [inaudible 00:51:52]. Once that starts to happen, I think we'll see this involvement as a profitable industry. Until then, it's going to be [inaudible 00:52:01], it's going be volatile.
John Darsie: (52:03)
So we have two more questions, then we'll wrap up. Thanks for all the audience engagement, to all the viewers. Do you think a single buyer, one buyer system is the way to go to make sure that retailers can't compete with illicit dealers?
David Culver: (52:17)
I don't know. I'd have to ponder that question. It's actually not something that we've been really thinking about in terms of the federal regulatory structure that I referenced earlier, but certainly something that I'd happily take back to the drawing board with my other industry partners and those on the hill. Patrick, Eric, any thoughts from the two of you?
Eric Huey: (52:43)
I think that government-mandated market control is never a good idea. I think the free market, with budget for enforcement, and with a logical tax scheme, which lowers the price of legitimate cannabis to the point or lower than that in the black and gray market, that's how you get there. If the goal is, right, driving down or driving out black market competition, I think you could do that through other measures without these overarching market controls. I start to worry when you have a single entity controlling any distribution point.
John Darsie: (53:22)
All right. So last question is, how long do you think it'll be, and what do you think the impetus will be, for pension fund trustees and institutional investors in general, to regard investment in the cannabis industry as a normal course of business?
Jason Wilson: (53:39)
My opinion on that, and I'll pass it onto the rest. When we're out speaking with, originally, raising capital a couple years ago when we started in the states, all the big pension funds, insurance companies, larger asset managers, your typical go-to institutions for raising capital just didn't want to get involved in the space. Because they didn't... Yes, there is a fear of the illegality.
Jason Wilson: (54:05)
I think they all fear to move beyond that, but the catalyst they were really waiting for is that proper regulatory framework so that they could properly evaluate the companies' investments, and actually know that they could execute them. I mean, right now, it's really hard to put together a business plan when you don't know how to roll out, when you don't know what the tax consequences are going to be, when you have employee safety issues, what have you. If you can't get, for example, COVID relief. [inaudible 00:54:42] I haven't in certain examples.
Jason Wilson: (54:44)
So I think until we see a proper framework, or at least a lot of positive movement towards that, where you know it's going to happen, I think that's when you're going to start seeing large institutional investments come in, where they can properly evaluate a business plan, look at the competitive landscape and understand how it's all coming together. Until then, it's a little bit too ad hoc to make a proper investment analysis for them.
John Darsie: (55:09)
Thank you all. Thank you Eric, thank you Patrick, thank you Jason, thank you David, for joining us today. This is a fascinating discussion on an industry that's very fast growing, and I think only has the potential to accelerate further once we get a little bit more clarity, maybe starting in November, about regulation in the space. This episode is going to be posted on Demand afterwards.
John Darsie: (55:32)
So if you tuned in live and you want to go back and listen to some of the clips, we'll post it on the SALT YouTube channel. And pass it around to your friends who might be interested in the space because I think increasing awareness about what's going on in the cannabis space is very important for a variety of reasons, including social reasons. We're seeing a lot of, obviously, activism today, and I think addressing some of these issues related to cannabis regulation will help solve some of those issues, especially as it relates to criminal justice reform.