Thursday, March 23, 2023

Why This Traditional Brokerage Firm Is Betting Big On Cannabis

New York-based Cowen & Co. has built a reputation over its 99-year existence as a solid, reputable investment bank. You know, mergers & acquisitions, equity financing, debt strategies and the like. So what is this staid institution doing in the marijuana business?

Like all smart investment houses, Cowen & Co. is searching for industries that are poised for dynamic short-term growth with strong long-term sustainability. Vivien Azer, Cowen’s lead beverage, tobacco & cannabis analyst, looks at the nascent cannabis market and believes in its future.

On Thursday, Azer hosted a special one-day summit to explore with other investment outfits the growing cannabis industry. This is the first time a legitimate Wall Street banking institution sponsored a cannabis investment event.

The “Cannabis Colloquium” conference was attended by more than 150 investors — including representatives from Blackstone, Fidelity and Janus Capital — all big players on Wall Street.

According to Azer, the explosive growth of cannabis is putting long-established beer, wine, spirits and tobacco industries at some risk. Ignore this market at your own peril, she warns.

“Even though there is not a ton of investable assets in cannabis, per se, I do cover Molson Coors and Constellation Brands and Brown-Forman and those are names that institutional investors really care about,” she told Bloomberg.

Azer. who is the first senior Wall Street analyst to cover the cannabis sector, says the SEC regulator filings of Brown-Forman Corp. and Boston Beer Co. state that the cannabis industry is a potential risk factor for their growth. And as Azer’s told Bloomberg, her research suggests that the concern is warranted: Beer isn’t selling as well in states where recreational pot is legal.

And it’s not just the United States market that is drawing interest from institutional investors; there is a lot of attention being focused north of the border.

Earlier this week, Cowen released “O Cannabis!: Initiating Coverage of Canadian Cannabis,” a 23-page report examining the “first major developed market to legalize cannabis for adult use nationally.” Azer anticipates the Canadian market could generate $8 billion in sales revenue by 2021.

The U.S. market is enjoying explosive growth — eight states now have legalized recreational use and another 29 have medical marijuana programs. Cannabis sales are expected to skyrocket from $6 billion in 2016 to $50 billion by 2026, according to Cowen’s 110-page report, which included analysis from 10 senior researchers.

Analysts forecast more than 25 percent compound annual growth in the next five years. As a comparison, this explosive industry growth curve mimics that of the cable TV business in the 1990s, which enjoyed a 19 percent annual growth and the broadband internet industry of the 2000s (29 percent).

There is concern that a Trump administration will throw cold water on the red-hot sector.

“We wonder if this is a fight the Trump administration wants to pick considering support for medical [marijuana] was higher than the president-elect,” Azer told Barron’s. “Our guess is ‘no.’ ”

Cowen is putting its own money where its mouth it. The firm’s  investment-banking division advised Canopy Growth Corp., a Canadian medical marijuana company that last month raised $60 million in funding.

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