Wall Street takes notice of marijuana: Q&A with cannabis analyst Vivien Azer

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By Omar Sacirbey

Vivien Azer, apparently the first cannabis analyst at a mainstream investment bank, is bullish on the marijuana industry.

And her confidence in the market is a significant reflection of how Wall Street views cannabis. Azer is an analyst at Cowen and Co., a New York investment bank founded in 1918.

Her belief in the marijuana industry was reinforced last month when 150-plus investors – including representatives from such prestigious financial institutions as Blackstone Group, Fidelity Investments and Janus Capital Group – attended Cowen’s “Cannabis Colloquium.”

Up to now, big institutional investors have been wary of cannabis given that the federal government considers it an illegal substance.

Azer began with Cowen in 2014, when she was lured away from a successful career with banking giant Citigroup in part with a promise she would get to cover cannabis “when the time was right.”

That time arrived in September 2016, when Azer initiated Cowen’s coverage of the cannabis sector. She spoke with Marijuana Business Daily about how she came to cover the cannabis market, professionalism in the industry and whether Wall Street’s interest in cannabis is real.

How did Cowen approach you with the idea of being its cannabis analyst?

It was actually the other way around.

I left Citigroup in the spring of 2013. As I was in my discussions with Cowen, the Colorado market had just opened up and I had been there and gone to a dispensary and kind of looked around at what was happening in Denver, and said, “Gee, you can’t put this genie back in a bottle. This is the real deal, this is happening.”

So I expressed my preliminary interest in cannabis to Cowen management because I wanted to understand their appetite for cannabis coverage. And they were absolutely open to the idea of cannabis coverage because Cowen is very committed to thought-leading research, and this fits that bill.

I joined Cowen and focused on my core coverage, which is tobacco and beverages, and we just were (cannabis) industry observers for two years, watching the industry evolve.

And then we started doing work in earnest in 2016 as more and more ballot initiatives were proposed for the election, and that’s what really informed our timing around our initiation in September.

The industry had gotten sizable enough, because Colorado was annualizing over a billion dollars in retail sales. So was the state of Washington, and Oregon was opening up.

Now that you have been following the industry for a while, how would you judge the level of professionalism?

There’s a wide variety of actors in the space, but I’ve been pleasantly surprised by the level of sophistication that we’re seeing in the industry, and the investors that I talk to would note the same.

With Donald Trump in the White House now, do you think investors should proceed as they did before the election?

I think you want to be cognizant of the potential risks the Trump administration presents for the industry.

U.S. Attorney General Jeff Sessions has been pretty clear about his feelings about cannabis. But at the end of the day, we view this as very low on the list of priorities for the administration. If you look at popular support, you would have to question why they would want to fight this fight.

If I unpack the risks between medical and adult use, medical feels defensible given that you have (29) states with medical marijuana, and 60% of the population lives in a medical state and there’s clear support among most Trump voters for medical cannabis.

That’s evidenced by what happened in Florida, where legalizing medical cannabis passed with 71% approval, which is significantly more support than what Donald Trump got in the state.

From an adult-use standpoint, the thing that gives me the most comfort is it seems California is positioning itself to be a defender against overreach from the Trump administration.

Having a former attorney general (Eric Holder) as outside council for the state will prove to be helpful if there is interference from the attorney general.

How is legalization affecting merger activity in the Canadian market?

We’ve already been seeing that.

The best example is Canopy’s pending acquisition of Mettrum in an all-cash deal, which will expand their competitive moat and improve their market leadership position. In terms of institutional interest, that’s much more a function of market development.

The Canadian government believes the illicit market in Canada is $7 billion. That is quite sizable when you compare that to the alcoholic beverage industry in Canada that generates retail sales of $21 billion.

So it’s really the market development that will be the catalyst for institutional investors.

Any hope that marijuana businesses will get easier access to banking services?

I don’t think banking is an issue. The banking really speaks to the broader positioning of cannabis from a regulatory standpoint given that’s it’s still a Schedule 1 controlled substance.

But the companies that I talk to on the private side, they all have access to banking – it’s just smaller, local and regional players.

What are some of the questions you hear most from investors?

There’s quite a lot of interest in consumer demand and the sizing of the (cannabis) category, and the potential negative implications for alcohol.

But, really, (investors are trying to) understand category development and consumer demographics. The average age (of cannabis consumers) is 37, and that really surprises a lot of investors, and there’s still that stereotype in some people’s minds about what the average cannabis consumer looks like.

There’s your core cannabis consumer who likely combusts cannabis, but there are a lot of consumers in the United States, about 30% of consumers, who have tried cannabis but don’t regularly use it.

And that’s where the opportunity really is to expand the market. But given the declines in smoking rates, combustion is not going to be the form that they’re most comfortable with.

Omar Sacirbey can be reached at omars@mjbizdaily.com