The company operates retail, cultivation, and product manufacturing across Massachusetts and Maine, including the cannabis-infused seltzer brand Hi5.
From our view, no, we feel as optimistic as ever about the growth and future of regulated cannabis and have no concerns about the trajectory of the market.
From our view, we are slightly surprised by how much the market seems to value Federal changes in law, as many organizations are not prepared to handle such a monumental shift in the first place, and many businesses ascribe significant value to the moats they build around themselves on a state-by-state basis – especially in markets with limited numbers of licenses.
We would generally disagree – many consolidation strategies and deals are based on using stock as currency, and with depressed stock prices and heightened uncertainty of the future, many independent operators will be wary of deals that may have looked attractive twelve months ago.
However, we still believe that smaller independent operators in the industry might be running with a narrative contrary to the gloomy forecast surrounding the largest operators.
Headquartered in Phoenix, AZ, 4Front Ventures Corp.
It’s true that MSOs and cannabis stocks, in general, have sold off over the last year, but there’s a bigger question here: are companies struggling from a business perspective? Right now, there is a risk-asset sell-off and overall market volatility.
When Biden won, there was a lot more optimism that such reforms would be enacted – but with a split Congress, intense party allegiances, and the unwillingness of politicians to work with their counterparts across the aisle, reform measures have stood in limbo.
In the case of 4Front, we feel the innovative automation processes we’ve developed in California at our state-of-the art Commerce facility could easily be applied to a broader portfolio and an even larger footprint, realizing nearly immediate value in a consolidated model.
Even as the House just passed SAFE banking for the sixth time, it is yet again doubtful that the Senate will follow suit before the midterms. Without SAFE banking, US institutional investors are still locked out of the market.
To get ahead, I think investors need to think about 4Front and the other MSOs as they would a business in any other sector: you’re buying a share of a business – is the business solid? At 4Front, we’re growing and doing it in a way that supports the bottom line; on top of this, investors should keep the following in mind: cannabis is a kicker that will provide a huge upside when inevitable regulatory reform passes.
Further, the new wave momentum of purpose-built companies and products that focus on social equity, sustainable agriculture, and delighting an increasingly segmented customer base, is fostering a fertile environment for existing brands to be reborn, and providing new-to-world products an inclusive space to succeed.
Short-term cannabis faced two impactful circumstances back-to-back over the last two years: a vaporizer crisis fueled by illicit products making consumers sick, and a global pandemic resulting in lockdowns and supply chain problems. That said, state regulators’ mistrust of unfamiliar vaporizer products was met with credible lab-based testing and transparency in operator quality control programs – each of which bolstered consumer confidence and highlighted bad actors, both legal and illegal.
In terms of industry impact, why should we think cannabis CPGs would be any different from the multitude of products currently produced by large and small companies alike? Ultimately, the customer is in control of where they spend their money and what they spend it on.
I think it is more likely that states with similar programs that share borders will build governmental coalitions to allow for interstate transport, shared resource allocation, and tax collection, placing consequent pressure on the federal government to act before the legislative and executive branches enact reform on their own.
In fact, we expect to see continued growth as several key markets such as New York, New Jersey, New Mexico and more are in the process of getting their adult-use programs off the ground and running, increasing consumer access to legal cannabis.
While I personally had a more hopeful outlook for some widespread cannabis reform being enacted at the federal level, I was not surprised by the market reaction and how quickly sentiments changed when it became clear federal reform likely wouldn’t pass before midterms. Even aside from cannabis, the stock market as a whole is performing poorly, and investors have been selling their shares in promising companies that are not yet profitable.
Due to the hindrances brought on by the lack of federal legalization, cannabis companies have been forced to be agile and tactical to compete, and this has bolstered the sector as a whole.
On the flip side, given the fractured regulatory landscape and the fact that interstate commerce is not on the horizon, larger companies will benefit from acquiring smaller companies that already have operations in place in states they want to enter.
It is difficult to surmise when optimism will return to the market, as you never know with politics how things are going to shake out, but I do think people will look to see if and how cannabis reform is framed and discussed leading up to the midterm elections.
Headquartered in Newport Beach, CA, Pelorus Equity Group is the largest privately held provider of value-add bridge commercial real estate loans to entrepreneurs operating cannabis-use properties.
Some analysts in the marketplace may be failing to take a hard look at the long-term growth that we expect to see when these buildouts are operational.
Unfortunately, despite the public comments supporting cannabis reform during the run up to the last election, government inertia in this sector is far from surprising; it’s certainly caused a lot of disillusionment and pessimism, which has been holding back the industry as a whole.
Perhaps this is a bit bleak, but I think the prospect of federal legalization will likely only be attainable once the next administration, whether it be Democrat or Republican, has majority control of both the House and the Senate.
Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet.
The Green Market Report focuses on the financial news of the rapidly growing cannabis industry.