As this momentous year winds down, Green Market Report asked various leading cannabis companies what their predictions are for the coming year.
Here is the response from RIV Capital, which is an operating and brand platform that aims to acquire, invest in, and develop U.S. cannabis companies to build the cannabis industry of tomorrow, today. RIV Capital also has a strategic relationship with The Hawthorne Collective, a subsidiary of The Scotts Miracle-Gro Company (NYSE: SMG), to which RIV Capital is the Hawthorne Collective’s preferred vehicle for investments not under the purview of other ScottsMiracle-Go subsidiaries.
- Five more states will legalize cannabis. Heading into 2022, only 14 states are without any kind of framework for medical or adult-use cannabis. We believe that states such as Delaware and Oklahoma will move to legalize adult-use after successful medical rollouts, and several others will launch either adult-use or medical programs.
- Attractive valuations of private single state operators will lead to a boom of M&A activity between those SSOs and public MSOs, and also add new public MSOs through consolidation. Private single state operators have yet to see their value boosted compared to the public counterparts. Heading into 2022 we expect to not only see an acceleration of the acquisition activity we’re already seeing, but also consolidation among SSOs to take public new MSOs ahead of legalization.
- MSO valuations and fundamentals will remain disconnected through the first half of 2022, but institutional capital will start to trickle in, lifting MSO trading valuations to 15x forward EV/EBITDA in H2 2022. MSOs continue to trade at a significant discount to their financials. Revenues continue to soar, but a lack of institutional capital and weak movement on federal legalization has weighed down industry stocks. We don’t see this holding the sector down for long, and see public MSOs getting back to their early 2021 highs around the halfway point of the coming year.
- East coast legalization will act as a catalyst for many emerging companies, but west coast brands will focus on licensing deals that make them the top-sellers into 2023. While limited license east coast states might favour hometown cultivators and operators, we believe that the brands that will dominate shelf space and sales will be those that have built brand loyalty in more mature markets. Licensing deals will enable these brands — like Cookies, for example — to be sold in newly legal, limited license states, and their legacy and reputation in other markets wil carry over, giving them a leg up over emerging east coast brands.
- As the Canadian markets mature, lower cost of capital funds will flow into the US cannabis market in two large deals, as Canadian LPs look to exotic structures to gain US exposure. Canadian LPs continue to position themselves for US entry. We see two more milestone deals happening this year as LPs chase the attractive valuations that could finally deliver the positive results shareholders have been waiting for.
- The SAFE Banking Act, or a similar variation, will pass in 2022, triggering a cannabis IPO rush from small MSOs and SSOs in larger markets. Those bullish on the industry expected to see this happen in 2021, but the year has largely come and gone without much movement on federal cannabis reform. We don’t see that happening again in 2022. Industry pressure and growing bipartisan support for decriminalization will lead to a milestone passage in 2022, triggering a rush of go-public transactions in an attempt to cash in on the wave of institutional capital that will flood the sector.