Exclusive Interview With “420 Investor” Alan Brochstein
[My brand here] sits down to discuss the current state of the North American cannabis industry with 420 Investor Alan Brochstein. Brochstein follows the cannabis industry closely, and shares his insights in what will be many articles forthcoming about the cannabis industry. He runs the 420 Investor newsletter.
How do you feel about the current state of the cannabis industry?
“There are lots of challenges in the cannabis industry. People i know in the industry refer to them as opportunities, but they really are challenges. I think we will make progress this year. The backend of the year is going to be important, because of state ballot initiatives and the Presidential election. We may get the first ever legalization without ballot initiative in Vermont. We are waiting to see on that. There will be six or seven other states, the biggest one’s being California, Nevada, Arizona and several others. Plus, a medical initiative in Florida.
“There is a really good chance we can make continued progress on the state level. The federal level is where the challenges are. I’ve been tracking the CARERS act and dozen other pieces of legislation loosely related to CARERS. This is in both senate and house, and is bipartisan. There is a real question about whether the legislation will ever get out of committee, however, because the committee head does not support, Chuck Grassley (R-IA), US senate.
“But, we’ve had some surprises before on the federal front. There hasn’t been any legislative action. Everything has always been an executive order which creates a huge overhang for the industry.
“In terms of the presidential election coming up, if Chris Christie, while unlikely, were to be elected president it could set back the industry for years, if not a decade. If you look at the big pieces that need to be solved, we need more research and there are federal impediments to clarity about banking. There is nothing that legally prevents a bank from banking cannabis, but it’s a gray area. Any sort of rational bank has to question whether it’s worth the trouble to bank the industry and take on potential risks. Those are the two key challenges or opportunities where we could see progress on both of those.”
How about what is going on in marijuana stocks?
“The marijuana stocks are a different story. We used to call it a wild west. It’s worse than a wild west. Its an outright debacle. The companies in the space for the most part are either scams or just incompetent. There’s only a handful that will survive and those don’t particularly stand out as having great valuations necessarily. There is no hidden gems when it comes to cannabis stock market for the most part.
“I’ve been hoping for years we’d have better companies enter the space and it’s been really slow-going. I’m not sure what’s gonna make it change in the very short term.
What has slowed the industry down?
“I think sometimes, when things are good, they can be so good they’re bad. There was a lot of excitement in 2014 when Colorado opened the doors. Investors flooded into these crappy stocks of which there has been a proliferation. Investors were burnt, private companies were getting funding with the hopes of exiting into public market. I think that big burst of activity in early 2014 in a way has dampened the industry. A lot of people don’t want to be associated with the cannabis stock industry, waiting until this doesnt have to be in the pennystocks. The penny stocks are a black mark on the industry. There is some progress being made, with company’s like MassRoots and Terra Tech, which made progress by becoming one of the first larger public companies, relatively speaking, to have licenses. They just announced an acquisition of Blum Oakland, a dispensary. This further solidifies that whole idea of true marijuana companies and not ancillary companies in the market. I think it will take some time, I think the real issue with the OTC market is that marijuana is already a stigma, and OTC makes it a quadruple stigma.
“FCC started warning people about scams in 2001 after the anthrax scare. It probably goes back to the beginning of time. You could go to their website and find a list of all different scams. Finra called marijuana out in August 2013, then the FCC came out with warning in January 2014, right after all those stocks surged, then Finra called it out again. This is just unfortunately human nature that when there is a quick buck to be made, attention on a hot issue — whether it be Bitcoin, 3D printing, anthrax or sars — criminals always want to capitalize on hot trends, and fools and their money are separated.”
What markets within the cannabis industry have great prospects?
“Probably in technology. I can’t call out too many pennystocks that are really ready to be labeled as such. Certainly, there are some good OTC stocks. Technology stocks in pursuits to lower productions costs, such as addressing energy consumptions. Another will be technology aiding compliance Any sort of technology in compliance, anything that allows seller or producer to comply more easily — that’s two examples of technology.
“I spend my time focused on Canada. It has a federally legal medical marijuana program that is almost two years old, and while off to slow start initially, it has gained a lot of traction and there is a lot of excitement. Because of a government change there, very likely in next two years, we will have legal cannabis on a federal basis in Canada. That’s an exciting part of the cannabis investment space.
“I think Canada is in a position to be a global leader. the US could be in that position, but already other countries are looking to the Canadian model, which is tightly regulated production at federal level. We don’t have that in the US. Every state is different in the US. Take an issue like the hot topic today: pesticides. Because of the federal law, it’s really hard to regulate pesticides because the EPA won’t touch it because cannabis is illegal on the federal level. So countries look to canada. They have very strict rules on everything. Their medical marijuana “program is potentially a model for other countries. We’re seeing it in Latin America, seeing it in Jamaica, there are ongoing talks in Germany.
Can you tell me a bit about how it’s regulated in Canada?
“Health Canada regulates it, and was against legal cannabis. They see no medical benefit. Basically in Canada you had a new regime created because it was federally legal to consume cannabis under an old program where you could grow it at home or non-commercially. But some of the non-commercial growers were becoming very large, and basically the country wanted make changes.
“It’s one of the dumbest things a government can do: decriminalize consumption, but criminalize selling it. Canada got smart, and wanted to cut down on mold, contamination, fires and mandate lab testing, standards and regulate production.
“Health Canada was implemented under Harper Government, which had interest in doing so except for they were required to do so. One things exciting to me is you likely have a friendlier Health Canada today with regime changes. Jane Fillpot runs and Health Canada and is pro-cannabis. The lady proceeded her, rona ambross, was adamantly against it.
“Health Canada regulates this current system, but there is no DEA in health canada, so the FDA has no control over what you and I do. They have control over people who make food and drugs do same with health canada. The laws are enforced — Health canada has not been able to stop anybody selling illegal cannabis, not in their domain what they have been able to try to do and do is sotp them from advertising, that comes under their authority apparetnyl, its been a real mess. in a perfect world, the federal government will figure out a way to regulate the supply, like they are now, and regulate the distribution as well. the only distribution legal is mail order from licensed producers, that’s a silly way to operate.”
Will there ever be stores once more in Canada where you can buy and smoke cannabis like in the old days?
“I talked to several — probably all — leading producers and they’re not interested in owning their own stores. They just want to produce. They don’t mind selling direct, but they want to be marijuana producers.
“One company, Tweed, actually invested in a storefront. they can’t put product in there and they can’t distribute product out of it. But, its a patient awareness center. The reality is there needs to be a way to sit down face to face with people and talk to them. Its very cumbersome to not be able to look at the product or speak to people face to face.”
What are the big stories for 2016?
“The Presidential election and election at state levels will be biggest thing to happen in the US. In Canada, finding out details of what legalization up there will look like, which primarily comes down to who is going to distribute. I’ve seen articles about six different potential types of distribution models. That’s going to be the big story along with banking and research issues.”
Where around the world are you watching outside North America?
“I’ve been tracking Spain. I think a lot of countries are going to move forward. on legalization. Spain is a leader in Europe and as a matter of fact there has never been an European investment conference for cannabis, but one is being hosted in Barcelona, in conjunction with Spannabis.
“Spain has all these clubs, where consumption is legal. You have to be a member of a club. I think Europe will be big. I hear about germany wanting to move forward. In Spain, there is zero interest in medical cannabis. It’s all about individual rights. Same with southern Europe in general.”
