Many within the industry are hoping 2022 will be a year of opportunity, yet the industry still faces headwinds from COVID-related impacts, marketplace consolidation and continued foot-dragging by Congress and state legislatures alike.
Even so, the “status quo” offers some potential benefits or safe harbors for the industry, as it awaits forthcoming policy reform for both marijuana and hemp businesses.
In 2021, we saw several emerging themes that impacted the cannabis industry that set the table for the rest of 2022.
Fast-paced mergers and acquisitions activity: Consolidation among hemp and marijuana companies across plant-touching and ancillary businesses propelled M&A activity to gain steam nationwide. This was highlighted by the $2 billion merger of Harvest and Trulieve, Canopy Growth’s $300 million option to acquire Wana Brands, and Jazz Pharmaceuticals’ $7.2 billion acquisition of GW Pharma, the creator of CBD-based Epidiolex.
Continued frustration over (the lack of) federal policy reform: Despite the reintroduction of the SAFE Banking Act, along with seeming bipartisan support for holistic federal cannabis policy reform (such as the Cannabis Administration and Opportunity Act) and hemp regulatory reform (such as the CBD Product Safety and Standardization Act), none of these bills could cross the finish line.
Hemp industry innovation around minor, synthesized and intoxicating cannabinoids: Much to the chagrin of many regulatory authorities, spiking consumer demand compelled many companies to innovate products focused on various THC isomers (delta-8 THC, delta-10 THC and more), heightened potencies of delta-9 THC and various forms of synthesis (bio and chemical).
Incremental progress in state cannabis legalization efforts: Within the past year, Alabama legalized medical cannabis while Connecticut, New Jersey, New Mexico, New York and Virginia all legalized adult-use cannabis. Today, 37 states in the U.S. have legalized medical marijuana, and 18 states have legalized adult use of recreational cannabis.
Here are some predictions of what lies ahead for the cannabis industry in the rest of 2022.
Midterm elections and federal policy reform: Given it’s an election year, it seems unlikely that Congress will collaborate to enact any significant cannabis policy reform ahead of the 2022 election. There seems to be too much at stake for those seeking reelection, and other priorities are consuming the attention of Congress (despite bipartisan support).
Perhaps Congress could agree upon an incremental change in the meantime – such as the SAFE Banking Act, to address functional banking concerns for the industry or a bill to address the Food and Drug Administration’s concerns around hemp-derived CBD – but, otherwise, 2022 seems unlikely to be the year to revolutionize cannabis policy. It’s possible that more progress will be made in advance of the 2024 presidential election. Even so, perhaps it is blessing in disguise that federal legalization is not quite here yet, as it gives operators more opportunity to prepare.
State marijuana legalization initiatives: States like Illinois hope that 2022 is the year when adult-use licensing truly gets off the ground. Some states – like Vermont and Montana – are expanding their existing programs. States like New Jersey will be completing the initial application processes, while New York and Virginia will hurry up and wait. Regardless, there are plenty of merit-based license application opportunities to explore for those inclined.
As the year progresses, keep an eye out for new legalization initiatives. States like Rhode Island, North Carolina and South Carolina all have strong chances to enact legislation. Even some dark horse states such as Kansas or Hawaii may pass legislation. Each of these states is yet another step toward reaching critical mass and compelling comprehensive policy reform at the federal level.
Consolidation, MSOs, M&A and raising capital: Building off of the momentum of 2021, expect to see the M&A activity increase. Ahead of potential federal legalization in the coming years and with many recently legalized states, buyers and sellers both are anticipating deal flow accelerating, particularly as many targets continue to be scooped up by well-capitalized, publicly traded companies or other sophisticated multi-state operators seeking to establish market share and brand reputation across maturing marketplaces and newly established ones. For example, many states with limited license opportunities (merit-based or lottery) will attract much interest around M&A and consolidation activity.
Evolving hemp regulations: Regulators are often following the industry’s innovation and playing “catch up.” In the absence of federal regulation by the FDA, state regulators are taking hemp regulation into their own hands, including the continued expansion of registration and labeling requirements around intoxicating cannabinoids and potency caps, and considering how to handle biosynthesis and chemical synthesis.
The intersection of alcohol and cannabis: We know the Alcohol and Tobacco Tax and Trade Bureau and the FDA will not allow CBD-infused beers, at least for now (who knows what the future holds). Yet, the past several years provided ample examples of potential synergies between the two industries: strategic partnerships (Hexo and Molson Coors partnering on Truss CBD); strategic investments (Constellation Brands’ investment in Canopy Growth); distribution (Southern Glazer, RNDC and Breakthru all launched hemp product distribution initiatives in 2022); product development (CERIA Brewing Company’s non-alcoholic, THC-infused beers); and brand leveraging (Pabst Blue Ribbon’s development of an adjacent cannabis brand).
In late 2021, Tilray acquired Breckenridge Distillery, an established bourbon brand, with the hopes of later expanding into non-alcoholic, cannabis-infused spirits. As companies in both industries explore strategic initiatives in 2022 and beyond, keep a close eye on developing partnerships across these industries.
There are plenty of reasons for the cannabis industry to be excited in 2022, as normalcy hopefully returns across our society relative to the impacts of COVID. Throughout 2020 and 2021, the industry experienced plenty of M&A activity, lots of industry innovation and product development, yet many states remain “untapped” in terms of marijuana regulatory schemes. We remain hopeful these trends will continue through 2022.
Even if there are headwinds ranging from COVID to political realities in Washington, D.C., to contend with, there may even be silver linings in merely a “status quo” 2022:
- Increased deal flow in advance of anticipation of federal legalization;
- Ample time and opportunity for states to implement recently enacted legislation and collaborate on further regulatory evolution to provide more regulatory certainty; and
- Further development of licensees and brands to execute on strategic plans, further establishing revenue trends, market share and other critical factors in anticipation of greater freedom in interstate commerce in the future.
Regardless of how much Congress may or may not accomplish for the cannabis industry this year, there is plenty of reason for optimism; with lots of room for improvement, evolution and innovation across the industry, there is much opportunity in 2022 and beyond.
This article was originally published by Marijuana Venture.