VFF - Whale Watching: Will Institutions Migrate To Cannabis Stocks? | Benzinga
Toward the end of summer, a few friends and I would gather at our local spot on the water to watch the sunset. Most would drink, I would enjoy some kind bud, and we talked or didn’t talk depending on the mood.
The night of August 30th, I was pulsing. The HHS news had just leaked and while I was physically there, I was mentally checked out, going through the math in my mind and mumbling something about 280E to anyone who happened to enter my orbit.
The following Thursday a group of us gathered to celebrate our pal Sammy’s birthday and kick off the NFL season. At the end of the night, a buddy of mine needed a ride and as I wasn’t drinking, I was happy to oblige and pay it forward.
The conversation turned to—what else—cannabis and the seismic shifts that we had just witnessed. "If you’re looking at this space for the first time,” I said, "you have no idea how fortunate you are because this is what we’ve been waiting for.”
- Click here to get Cannabis Confidential delivered to your inbox daily.
I hosted a few of that crew to watch my Raiders that Sunday and our friend—who has a huge role at one of the world’s largest asset managers—bee-lined to me and began to pepper me with questions on 280E, swap mechanisms and importantly, the potential to generate meaningful alpha.
I saw the light switch flip so I made him an offer: "come spend a few days with me at ATB next week. You may never speak to me again by the time it’s done but there’s no better way to educate yourself on the space than to just dive right in.
We Jilt this City
To understand where we are, you have to appreciate how we got here. I’ve been trying to make introductions between Wall Street types and U.S cannabis operators for many moons with varying degrees of success, some of which have proven bittersweet.
In 2020, in an effort to co-join these universes, we introduced a respected west coast small-cap fund manager to several U.S. cannabis operators. Lo-and-behold, when the next 13-F filings crossed the wires, they were splashed all over the space. It felt like genuine progress; until it didn’t.
A few months later, after participating in a deal for a U.S plant-touching operator, the PM is said to have gotten a tap on his shoulder from compliance. I don’t profess to know the particulars of that conversation but suffice to say they were nowhere to be found when the next 13-F’s hit in the Spring of 2021.
Then there’s that time a few years ago when a tier one U.S. operator did a $300M bought deal and Blackrock is reported to have been the lead investor. The only problem was that several days later, after not being able to custody the stock, they were forced to DK the trade and scurry back to the sidelines.
[institutional investors + large CPG avoid this space like a plague lest they be tainted with the very same 280E blame-brush that is now in the process of being repealed]
Layer in multiple false starts on SAFE banking, the COVID-induced canna glut that expedited the price curve normalization, maddening state level delays, a persistent illicit market, custody fuckery, pernicious algorithms and the structural/ naked short base and well, any semblance of optimism has been a weapon of mass destruction.
Moby’s Dick
Our local whale wasn’t the only big hitter attending the event.
Another, who is likely a top-three holder in the space, took I-90 West into town and met us for a few Arnold Palmer’s Tuesday night before the ATB cocktail hour.
My hope/ intention was to connect them with each other—whales of a feather—as well as with some of the better people/ opportunities in the space, a sequence that started with Ziad Ghanem/ Keith Stauffer at TerrAscend (with a nod to JW, a late scratch).
From there we went to the ATB cocktail hour where every conversation with an old friend or familiar face, started with, "It’s great to see you—so happy you’re… alive.” It has been a harrowing journey these last seven or eight years; the hugs were genuine.
There were active conversations on a number of topics, from the implications of the HHS recommendation to the specter of the DEA affirmation being coupled with the Garland Memo and timing thereof; and the senate mark-up of SAFE banking and the likelihood/ timing of potential passage in the House.
It was great to catch up with several peers in the investment community, haggard as we/they are, all sharing what one of the whales called "a thousand-yard stare.”
The discussion veered to the source of recent flows, as well as the process/ mechanism that’s being used to transact (routing through Europe; rotating brokers to cover/ re-short before delivery) and the whispers of enforcement that seem to be getting louder.
One fund manager shared that, as far as locating borrows for short-sales, a broker (not ATB) told him, ‘we know who the good accounts that locate the shares are, and others who do so much business that there’s an implicit ‘don’t ask, don’t tell’ policy. Swell.
There were several stories about one particular Canadian bank that is aggressively calling U.S operators advising them to raise money—and when the companies send their deck to set a process in motion, their stocks suddenly get hammered.
^ certain clients are said to get the call to short stock + look to cover on the offering, which printed money for a cadre of Canadian criminals hedge funds for a long time.
As sunlight is the best disinfectant, I share these stories; those motherfuckers are real.
All-in-all, it was timely and classy kick-off that set the stage for the main event.
By the time the whales and I got to the venue, we had a set agenda in an effort to put the best industry foot forward. I won’t delve too deep into the one-on-one’s but I will share that the lineup included Glass House (OTC: ...