TDR Exclusive: Matt Hawkins Shares Update on Institutional Investments In Cannabis Stocks

The TDR Three Key Takeaways regarding Matt Hawkins Shares Update on Institutional Investments In Cannabis Stocks:

• Matt Hawkins noted. rescheduling is expected to relieve these tax burdens and create a more favorable environment for institutional Investment.
• Hawkins said, “I don’t think a Trump presidency or Republicans taking the White House changes the investment thesis in the cannabis industry at all.”
• Hawking emphasized, “It’s a great time to be investing in the cannabis sector because, arguably, once rescheduling happens, you may see valuations go up because there may be some type of inflow of capital.” 

Major Multi-State Operators (MSOs) now demonstrate strong financial performance and operational scale. Matt Hawkins, founder and managing partner of Entourage Effect Capital, gave an interview on the “Trade to Black” podcast and gave important insights on institutional investment in the cannabis sector.  Matt Hawkins stated, “We are out of this growth stage, a startup stage, and we’re down this mature growth stage of this industry.” This shift brings both opportunities and challenges, particularly as the industry anticipates crucial regulatory changes.

One of the most significant expected changes is the potential rescheduling of cannabis to Schedule 3. This regulatory adjustment could greatly impact the industry, especially regarding capital access. Hawkins noted, “The MSOs that are doing well right now are still taking capital from high-yield lenders. They’re using workarounds to avoid it, but the reality is our balance sheets still reflect deferred taxes or unpaid taxes.” Rescheduling is expected to relieve these tax burdens and create a more favorable environment for institutional investment. Hawkins emphasized, “If we get an announcement for rescheduling, what does the state of the industry look like from an institutional standpoint? I think it will improve.”

Institutional interest in the cannabis sector is strong and poised to grow significantly once regulatory changes are implemented. Hawkins mentioned, “Our anchor investor is the driver behind this. And it’s as institutional as institutional can get.” This readiness indicates that institutional capital will enter the market when the regulatory environment becomes more stable. However, there is fatigue among family offices and high-net-worth investors who have supported the industry so far. Hawkins observed, “A lot of the family office and high net worth capital that’s been in the space for a while now has fatigue and it’s dried up. So it’s going to have to be new capital coming in here to right the ship from a capital formation standpoint.”

Political development is also crucial in shaping institutional investment sentiment. Potential changes in the U.S. presidency and congressional composition add uncertainty. Hawkins commented, “I don’t think a Trump presidency or Republicans taking the White House changes the calculus as it relates to the investment thesis in the cannabis industry at all.” Economic factors, such as competition from the illicit market and complexities in the Farm Bill, further complicate the investment environment. Hawkins expressed frustration, stating, “It’s just inherently wrong. I’ve been in this business for 10 years. And I would have thought that we’d have a lot more progress legislatively by now.”

Looking ahead, the potential for institutional investment in marijuana stocks is promising, contingent on regulatory and political developments. Hawkins emphasized the strategic importance of new capital entering the market, stating, “It’s a great time to be investing in the space because, arguably, once rescheduling happens, you may see valuations go up because there may be some type of inflow of capital.” States like Michigan and Maryland serve as models of successful cannabis legalization and operation. The Midwest, in particular, is emerging as a successful region for cannabis markets. Hawkins remarked, “The Midwest definitely is becoming the one that you can look to to say, here’s a way to do this that seems to be working.”

Regulatory, political, and economic factors shape the institutional view of marijuana stocks. While challenges remain, the potential for growth and increased investment is significant. Hawkins succinctly put it, “If we do get rescheduling, you do think some institutional interest in buying will start to take place.” 

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