Marijuana Business Magazine November December 2018

the U.S. cannabis market for players from Big Alcohol and Big Tobacco. That’s because the bipartisan bill, cosponsored by Republican Sen. Cory Gardner from Colorado and Democratic Sen. Elizabeth Warren from Massa- chusetts, would codify in federal law that marijuana regulation be left to the states. It also would open the doors for banking and solve the 280E issue. “That would change everything. Then tobacco and alcohol would find a path in,” Bocskor said. State by State San Francisco-based industry expert Morgan Paxhia, a principal at Poseidon Asset Management, echoed Bocskor’s point about the importance of the States Act in evaluating future scenarios between the cannabis industry and other sin-industry giants. But he also agreed with another point driven home by Bocskor – that if the States Act passes instead of full federal legalization, then companies such as Altria and Constellation would either have to forge their own entrances into state markets one by one or partner with an existing multistate MJ compan y (see page 54). Or both. “Let’s say you’re a big alcohol com- pany like Constellation, and your law- yers say you can get in, but you have to do it state by state,” Paxhia said. “They’ll pick the biggest markets they want to be in and establish operations in those markets. And then they’ll partner with a multistate operator so they can have a footprint (in a number of states).” Either way, Bocskor predicted the size of Big Alcohol and Big Tobacco’s market footprint in the U.S. marijuana industry by the end of 2019 would be “minimal” because it will still take such companies a while to establish themselves. That’s also in part because many existing companies are going to be protected, ironically, by the same license caps in markets that plenty of business interests resisted. If a city, county or state has a limited number of marijuana business permits, then Constellation can’t simply step in and open a competing operation. The company would instead have to buy out an existing business or partner with one. That, in turn, suggests plenty of well-established companies with solid brands could be well-positioned for acquisitions, or to simply continue dominating their respective markets without direct competition from Big Alcohol or Big Tobacco. It’s Good News, Too For small business owners wor- ried about survival, both Bocskor and Paxhia have a message: The influx of money from outside the marijuana industry has been inevitable and on the way for years, so the best thing any company can do is figure out how to make the most of it. What that entails may differ from state to state and market to market, but Bocskor had one overarching insight: The interest of big companies in alcohol and tobacco means that marijuana is finally beginning to go global. “This is big news, but this is just the beginning of the big news. And the bigger news is yet to come,” he said. “Total population of all Spanish- and Portuguese-speaking people world- wide is in excess of 730 million – more than double the size of the U.S. and Canada combined,” he said. “The total population of India is 1.3 billion – nearly double again the size.” Think about the market potential of both marijuana and hemp at such scales, Bocskor suggested, and it’s hard to get a handle on how big this industry could become. Another factor is that, for plenty of existing U.S. cannabis businesses, actual investments by big companies are helping raise valuations. It’s a classic case of a rising tide raising all ships, Bocskor said. Which also means that right now is the perfect time to be out raising capital to expand. “This is one of those moments where, if you’re looking to raise capi- tal, you should be raising money. If you’re looking to get liquidity … you should be looking to sell right now,” Bocskor said. Paxhia agreed. “The doors are opening to more established players getting involved, which is going to increase competition by scale, by these larger groups, but it’s also going to bring more capital into the space,” he said. Worrying about the entry of firms such as Constellation and others, Paxhia said, is “like saying, ‘What’s the point of more innovation and technol- ogy because we already have Apple, Google, Amazon, Facebook?’ That’s not really thinking about how the world works.” The way the world works in the big commercial space, Bocskor said, is around brands. That’s the biggest weakness of the current MJ industry compared to a company such as Constellation. It’s all about name recognition, he said. “What brand name have you heard in the type of media that you’ve also heard Molson and Coors and Corona? Have you heard any cannabis brands that come anywhere close to that?” Bocskor posited. “That should be a wake-up call for the cannabis industry. That’s where people are going to get hurt.” ◆ John Schroyer is a senior reporter at Marijuana Business Daily who’s based in Sacramento, California. Reach him at johns@mjbizdaily.com. November/December 2018 • Marijuana Business Magazine • 49