‘Biggest problem facing’ cannabis markets, says Weedmaps CEO

Weedmaps CEO Chris Beals joins Yahoo Finance Live to discuss what stands in the way of federal cannabis legalization, legal marijuana markets, and whether inflation is affecting the marijuana industry, too.

video transcript

JULIE HYMAN: Right now, as we speak, the House of Representatives is voting on what’s called the MORE Act. This would remove marijuana from the federal government’s list of controlled substances. It could pave the way for legalizing recreational marijuana sales across the country. However, there are other obstacles facing the industry. And this measure is likely to stall in the Senate, even if it passes the House. Joining me now to discuss the current dynamic is Weedmaps CEO Chris Beals. Chris, thanks for being here. So the consensus seems to be, this will go through the House, then it won’t go through the Senate. Perhaps we may see some movement in other types of marijuana legalization later this year. What are you listening? And what are you looking at right now in terms of legislation at the federal level? CHRIS BEALS: Yeah, I think it’s exactly how you described it. I think that, look, while there is a willingness on the part of the House to continually add forms of cannabis legalization to bills and then pass them, what is happening is that there is resistance on the part of the Senate for a variety of reasons. And those amendments are being discarded at the conference. Look, the simplest way to put it is that we have a president who is currently personally opposed to cannabis. And I think part of the calculation that a lot of people aren’t talking about is that someone is walking down the street and checking with the presidential administration where he stands. I think no one in the Democrat — in the Democratic caucus wants to see some kind of internal war breakout before the midterms. JULIE HYMAN: You know, at the same time, we’ve seen a lot of, at least, publicly traded marijuana stocks really struggle here. But how, in a real way on the ground, as you talk to the various dispensary owners, how much of an obstacle is this, that there is this federal ban that remains in place? CHRIS BEALS: You know, I think it tends to manifest more around the periphery than it seems as much as I think it seems to be. I think, look, the biggest problem facing legalized cannabis markets, of which there are 37 states that have legalized cannabis (the vast majority of the US population lives in a recreational cannabis state right now) is that there simply aren’t enough licenses. And as a result, at a ratio of four to one, consumers in legalized states still choose the illicit market. So a lot of the damage that’s being inflicted isn’t coming from federal lawlessness. It’s from states that don’t issue enough licenses because the biggest correlating factor with these high illicit market rates is going too far, where there isn’t enough strong competition on price or product selection. And while I think the federal is part of it, it will certainly help, the states that issue more licenses for legalized cannabis businesses will help a lot more. BRIAN SOZZI: Speaking of prices, fertilizer prices have skyrocketed, along with many other types of commodities here lately. What kind of havoc is this creating for the industry? CHRIS BEALS: You know, it’s interesting. So one thing to keep in mind, and a lot of people forget this about cannabis, is that it’s kind of a farm market type farm that’s good for raw inputs. And I think part of it is that a lot of the products that are on the shelves because we’ve seen a little bit of oversupply in some markets are, quite frankly, products that were produced last year. And then you haven’t seen the impacts flow. The other thing is that most legal cannabis is either tested in this type of ultra or is subject to these ultra organic testing requirements. So a lot of cannabis can’t actually use most forms of commercial fertilizers or pesticides, which is another factor. However, where we are seeing it having an impact is due to a lack of licences, many wholesale production areas are further away from where the products are sold. And so gas prices are starting to have a big impact. And where it also has an impact is home delivery, a growing form of consumption, or consumers driving longer distances to reach retailers. And I think that is starting to show some impact in these legal cannabis markets. It’s not that people choose not to buy cannabis, it’s just easier to buy from an illicit store nearby. JULIE HYMAN: And it’s also cheaper? I mean, full disclosure here, Chris, the initial impetus for us to get closer is some kind of idle question on Twitter that I posed about whether cannabis prices were going up, along with the price of everything else. What are you watching? CHRIS BEALS: So our data, so keep in mind that we run the largest digital cannabis marketplace out there. So we spent a lot of time analyzing the data. And I think what we’re seeing in general is that in some markets, we’re seeing prices start to creep up. But in other markets, we’re seeing prices drop because we’re dealing with — and this is happening to some extent in California, to some extent in Oregon. There was a little bit of overproduction last October on the supply side, so we’re actually seeing, in some areas, cannabis prices decline. And I think… and I think that doesn’t mean that inflation isn’t affecting the cannabis industry. It definitely is. It’s the fact that it’s being countered by this kind of oversupply trend that pushes down the supply side of your supply and demand curve. JULIE HYMAN: And I have to go back to what you talked about on the license issue. Why don’t states issue more licenses? CHRIS BEALS: You know, the only… the benefits of the license are myriad– lower crime rates, increased jobs, increased tax base. And that’s a great question. That is the operational question. And so the main reason is local NIMBYism. Most states that have legalized have left it up to local governments, which tend to be slower and predominantly more conservative. And so, even though California legalized in 2016, less than 25% of cities and counties have allowed legal cannabis businesses to open there. I think what’s interesting is that New York and New Jersey, to some extent, are learning from this. In New York, about 50% of cities and counties opt in, or cities have opted in, to allow cannabis sales. And people are lamenting about that, saying, well, you know, it’s going to be an anemic market launch, that kind of thing. And I think people are forgetting that California is only about 22%, 23%. Similarly, in New Jersey, about 50% of cities opted in. The newer markets are going to stem the tide. In the case of Illinois, that kind of license shortage is attributed to the fact that social equity licensing litigation is blocking the issuance of hundreds of new licenses. But if you were to really narrow it down, it’s NIMBYism on the local side that we’re seeing erode. The number of licenses continues to the right as a factor of time, albeit painfully slow in some jurisdictions. JULIE HYMAN: Yeah, maybe they’ll get more stability on the pricing thing as well. Chris, thanks for being here. Really interesting and useful to shed some light on all these topics. Chris Beals is the CEO of Weedmaps.

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