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Cannabis Market Forecast: 5 Top Trends That Will Affect Cannabis in 2023

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Cannabis Market Forecast 5 Top Trends That Will Affect Cannabis in 2023

(CTN News) – As investors frantically wait for banking reform in the US to open the doors to a less complicated financial route, tensions are increasing in the cannabis investing market. In 2023, will they see it?

Outside of the US, ambiguity is anticipated to continue to be a major factor for cannabis, with numerous companies perhaps facing closure; market expansions elsewhere might also hurt the industry.

As 2023 draws near, the Investing News Network (INN) consulted industry experts about the next year and identified five themes that would probably influence the cannabis business from now on.

1a. US political uncertainty set to continue

Investors are used to keeping tabs on events in Congress since politics significantly influences the evolution of the US cannabis business.

Expectations for the introduction of significant banking reform in 2022 were high since it might help current businesses realize their full potential and enable a more stable financial climate for everyone.

Stakeholders, however, are now again in an uncertain situation. Politicians are currently debating whether the Secure and Fair Enforcement (SAFE) Banking Act can be included in legislation before Republicans take over the House of Representatives in 2023 with less than a month remaining in 2022.

According to Charles Taerk, president and CEO of Faircourt Asset Management, “if (Democrats) genuinely wanted to establish common ground, I believe there was time over the previous two years when they could have done that.”

1b. Select MSOs to see higher cashflow

Choosing stocks might be challenging due to the US cannabis market’s fragmentation. Companies and investors alike must be aware of the regulations and criteria for various state marketplaces since the medicine is still illegal on the federal level.

You need to consider businesses that are doing well, according to Taerk.

The Ninepoint Alternative Health Fund’s fund manager mentioned companies like Green Thumb Industries (CSE:GTII,OTCQX:GTBIF) and Trulieve (CSE:TRUL,OTCQX:TCNNF) as being well-positioned at the time.

Strong balance sheets and effective operations put them in a fantastic position to produce larger margins, Taerk told INN. Because of this, we often concentrate on a select few names.

Taerk specifically referred to a change in the multi-state operators (MSOs) he covers’ financial situation. It is anticipated that capital spending plans will conclude, leading to “substantial cashflow gains from these enterprises.”

He said that if you merely consider their prior revenues and cash flow, a significant amount went into capital expenditures. The operational cash flow these enterprises will produce will be significant.

2. All eyes on New York adult-use sales

In 2023, many more state marketplaces are expected to open, according to experts. New York, which will begin regulating adult-use sales, will undoubtedly make a lot of headlines.

The opening of New York has the potential to upend the existing quo in the cannabis industry, according to Mark Sims, CEO of RIV Capital (CSE:RIV,OTC Pink:CNPOF), an American business with a significant interest in this area.

Operators in the current medical market in New York are anticipated to include recreational choices as well, according to Sims.

For the first 36 temporary licenses, the state regulator prioritizes charitable organizations and business owners.

Despite the euphoria, several industry professionals are already highlighting red flags for investors who believe New York would be a sizable market for MSOs.

Higher taxes are truly a competitive disadvantage for those operators in those states since some states have greater regulatory concerns as a result of the state-by-state nature of the market, according to Taerk.

According to Sims, a booming black market is putting pressure on the New York cannabis sector. This problem and a few strange regulatory choices may prevent New York from becoming precisely what investors want it to be.

For those who have placed all their eggs in one basket, it will be difficult. The problem is that if any of (the MSOs in New York) anticipated that New York would be a growth story in 2023, I believe it will be delayed, Taerk added.

When asked about other states to pay particular attention to, Taerk said that given their more benevolent regulatory frameworks, investors shouldn’t discount tiny states.

Compared to businesses operating east of the Mississippi, Taerk noted, “those with strong exposure to the west coast are experiencing more challenging operational challenges.”

He referred to states with “restricted licenses, less competitive rates, and the capacity of the firms to earn money,” such as Illinois and New Jersey and medical states like Pennsylvania and Ohio.

3. Impact of inflation coming home to roost

Almost every economy sector is impacted by inflation, which also influences cannabis pricing and spending habits.

“We are aware that consumer budgets have shrunk. We know that consumer spending on the cannabis market has decreased, at least among discretionary consumers, Nawan Butt, portfolio manager at Purpose Investments, told INN.

The financial expert claims that adjustments to the foundations of the cannabis investment thesis are being made due to changes in spending habits.

Butt considers these modifications to be an exception rather than the new norm. Especially in the shadow of this regulatory overhaul, he said INN, “Cannabis as a concept has been struggling to get any momentum.”

In 2024, according to the management of the Purpose Marijuana Opportunities Fund (NEO:MJJ), expenditure is predicted to increase. However, one market analyst believes that there may still be more losses before that reversal materializes.

Rami El-Cheikh, strategic partner and cannabis lead with EY-Parthenon, told INN that it’s crucial to understand that the cannabis industry is a frontier business still in its infancy. He stated, “The next 12 months will be challenging.”

“This business is confronting all the macroeconomic dynamics that all other industries are encountering for the first time; if you think about it,”

Despite the difficulties these widespread trends pose, Taerk told INN that they are giving certain US businesses a chance to distinguish out.

There are certain businesses inside that. He continued, “who are doing fairly well because they have operational size. “They can survive some of the inflationary pressures that general consumer stocks are experiencing because of their efficiency and operation.

Because certain businesses can handle it, there is a split that we are witnessing.

According to Taerk, these market dynamics are enabling a distinction to be made between the cannabis industry’s “haves” and “have-nots.”

Others continue to have difficulties since they are still developing. Too much development occurs too quickly if they don’t have their affairs in order. They ought to consider some justification, he added.

4. In Canada, it’s all about survival

The future of the cannabis industry in Canada is still unclear. Senior listings have improved firms’ access to financing, but market restrictions have constrained investors’ financial interest.

As a result, the Canadian sector will be judged by its ability to survive a challenging time marked by bankruptcies and foreclosures.

El-Cheikh said when companies leave the market, “it opens up chances for others who may survive and take their market share or acquire their market share.”

One manager of a cannabis investment fund said that, in his opinion, more has to be done to reduce the overabundance of growing operations and retail distribution locations in the Canadian market.

We overbuilt; therefore, there has to be a justification, Taerk told INN. He advised investors to take a closer look at Village Farms International (NASDAQ:VFF), a safer investment due to its expertise in the agricultural sector.

El-Cheikh told INN that one reason to be hopeful about the future of Canadian operators is that he would be carefully monitoring the emergence of chances for local businesses in foreign markets, notably in Europe.

5. Progress in Europe to diversify the market

Market players have long questioned how accessible Europe would be for present cannabis businesses regarding cannabis potential.

As anticipation grows for the likely legalization of adult-use sales in 2023, Germany is perceived as controlling the narrative around legal cannabis in Europe.

Germany has essentially accelerated and streamlined its cannabis laws and restrictions, according to Butt.

Karl Lauterbach, Germany’s minister of health, claims that the nation wants to adopt the Netherlands’ more liberal system. He reportedly remarked, “What we have learned from the Dutch experience is that we don’t want to do it that way.” “We aim to dominate the market as a whole.”

It’s encouraging that other European countries have declared their willingness to imitate what Germany is doing.

According to Butt, this movement is giving the cannabis business more traction since it alters the perception that the US and Canada are the only countries with relevant stories to tell.

It’s positive for the foundations of cannabis that “we’re beginning to see wider penetration in various regions of the globe,” he added.

Final Words

In recent years, cannabis investing hasn’t brought investors much joy, and experts advise prudence and patience in this market in the future in 2023.

Cannabis certainly has stability and promise over the long term, but there may still be financial instability, challenges, and bankruptcy shortly.

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