On September 19, Peter Schwartz of Anderson Economic Group, will speak at Kahner Global's 3rd Annual Cannabis Private Investment Summit in New York. This event gathers industry leaders and investors for a day of collaboration and networking.
"It really has been a fascinating time to cover the [cannabis] space," Peter Schwartz says of his work at Anderson Economic Group. A Consultant in its Strategy and Business Valuation practice, Anderson Economic Group counts the alcohol industry as one of its core areas of expertise.
"At first, we looked at how the cannabis market cannibalized alcohol beverage sales," explained Schwartz. "Now, we have expanded that coverage to examine market size, indicative business value, tax implications, legal status, political momentum, and so much more for all 50 states and Canada."
Schwartz took some time ahead of Cannabrunch to answer our questions via email.
How does collecting data on cannabis products differ from other consumer products? Any challenges that face the cannabis industry specifically?
Since laws differ from state-to-state, coverage of the cannabis industry requires an additional layer of analysis in order to be consistent. It has been an enlightening exercise, and we are very proud of our AndCan Index, which tracks market demand for all 50 states on a monthly basis and has been called in national press the “Dow Jones Industrial Average for the cannabis market.”
What do you think of the current state of analysis on the industry out there?
What Anderson Economic Group does is quite different from other sources of industry analysis. We are business economists and our coverage emerged out of two technical papers on the cannabis industry delivered to major, international economics conferences in 2015 and 2016. What we provide is unique—and our insight works in concert, not in conflict, with other analyses that’s on the market.
What about comparing the commercial cannabis market to other industries? Given the drug's Schedule I status, how can such comparisons help (or hurt) investors' understanding of the industry?
While some economic indicators used to cover other industries are applicable to the cannabis market, its inconsistent legal status and early stage of development make the business of cannabis unique in many respects. As a result, it’s important to use tried and true metrics—but only when adjusting for peculiarities of this market. Granted, this is counter-intuitive for some investors—but often not the savvy ones!
There has been some criticisms of seemingly absurd valuations in the cannabis industry. (For example, many are wondering how High Times could be valued at $250 million, essentially tripling their valuation in a month.) What do you think is going on here?
The criticisms of seemingly absurd valuations—and also egregious projections of market-size—are valid. Many are compiled by industry cheerleaders who have a vested interest in large numbers, and, therefore, can be misleading. There’s a term in economics that is applicable, if ironic, to this situation: sober analysis. That’s what’s needed most—and what Anderson Economic Group provides—for this market.
As to your example, it is important to note that $250 million is not a valuation for High Times. That’s the target amount for a Special Purpose Acquisition Fund (SPAC), which is something that is very different. The company’s value would not be substantially different today from its $70 million grossed-up sale value in June (60% of the company was sold for $42 million).
You have a lot of experience in the sports world. That seems to be a world that's pretty resistant to accepting marijuana, medical or otherwise. Any thoughts on why sports leagues are slow to catch up to public opinion on pot?
The sports world is legitimately resistant to performance enhancing drugs, which question the legitimacy of competition. While marijuana shouldn’t fall into this category on its face, governing bodies are understandably cautious about the use of any federally illegal drug by their athletes and have created broad-based categories of banned substances.
Sports leagues often take their lead from the World Anti-doping Agency and the International Olympic Committee. Until they change their policies—or, even more unlikely, Congress changes the law—I do not expect U.S. leagues to change their respective policies.
Are you optimistic or pessimistic about how the Trump administration will handle state-legal cannabis?
I am optimistic that the Jefferson Sessions Justice Department, despite excoriating the cannabis industry, will not enforce changes on the state-level level; in other areas of law, the administration has been proponents of states’ rights. However, I am pessimistic that there will be any change to federal law, or in the onerous federal tax implications for businesses operating legally on a state-level, that will be beneficial to the industry.
Mona Zhang is a New York-based freelance journalist and founder and editor of Word on the Tree. Follow her on Twitter @ZhangMona.
Anderson Economic Group’s AndCan Index:
Measures Demand for legal cannabis products—and what it means for states, businesses, and investors
The new AndCan Index has been covered by national industry press as the “Dow Jones Industrial Average for the cannabis market.”
Cannabis demand is up by more than 5% nationwide since the November 2016 election.
AEG Consultant Peter J. Schwartz to present further findings at Cannabrunch—the Cannabis Private Investment Summit in New York City on September 19.
Their 50-state Cannabis Market Report is available is available for purchase at: www.andersoneconomicgroup.com/CannabisReport.aspx