Cannabis Catalysts: Tim Seymour, CNBC’s Fast Money, CIO of Seymour Asset Management
Why Is The Recent FDA Recommendation To Reschedule Cannabis Significant To The Industry?
When Will The OTC Stocks Move To The Market And Could We See This In The Near Future?
Tim Seymour is founder and Chief Investment Officer of Seymour Asset Management (SAM). SAM provides both asset management and wealth management services for its clients, including direct investment and allocation to private equity and alternative assets. Tim is also the Portfolio Manager of the Amplify Seymour Cannabis ETF ticker: $CNBS.
When Will The OTC Stocks Move To The Market And Could We See This In The Near Future?
Tim Seymour is founder and Chief Investment Officer of Seymour Asset Management (SAM). SAM provides both asset management and wealth management services for its clients, including direct investment and allocation to private equity and alternative assets. Tim is also the Portfolio Manager of the Amplify Seymour Cannabis ETF ticker: $CNBS.
Transcript
00:00 Right. Tim Seymour here at CNBC's Fast Money CIO of Seymour Asset Management ready to get
00:07 into what? Can we talk a little bit about cannabis? Yes.
00:12 I think we have to, Mitch.
00:14 We have to. We have to. How are we doing today, Tim?
00:17 Benzica, first of all, let's be clear, and it needs to be clear to the audience out there.
00:21 Next week out in Chicago, Benzica is having their cannabis event. I'm going to be speaking.
00:27 I'm going to be moderating a panel. I'm going to be seeing anyone that's important in the
00:31 industry. And while this may sound like a sales pitch, no one told me or paid me to say this.
00:36 I mean, it's truly the best event in cannabis. It's an event that I think strikes the balance
00:43 between there are real investors there. Let's be clear, cannabis needs more institutional
00:47 investors. But the folks that are investing are there. The companies that are there,
00:50 bringing their CEOs in the C-suite. And stuff gets done. But what mostly gets done is I think
00:56 there's a conversation there that's always pretty accessible. And I think the format works.
01:01 So I'm excited. And let's be clear, this is the first cannabis event post-COVID that really,
01:06 you know, there have been other events, but the world has reopened, including the UN in New York
01:10 City. You know, this is the first real event. Obviously, there's been a lot of news in cannabis
01:15 over the last three weeks. So we can talk about that quickly. But there is, of course, fresh
01:20 excitement going into this event that the legislative path and that the administrative
01:26 path for cannabis at least looks like there are some catalysts here.
01:29 So let's talk about it. So what are the thoughts, of course, on the recent FDA recommendation to
01:34 reschedule cannabis here? And why is this significant for the industry, Tim?
01:38 Clearly, the tax dynamics for the industry, Section 280E, which is a US IRS and Treasury
01:45 guideline for anyone that's a Schedule I drug out there, and that includes LSD, heroin, fentanyl,
01:52 anything that's the obvious stuff where cannabis doesn't belong, is taxed at a prohibitive rate,
01:57 a punitive rate, a rate that basically makes, by definition, the business is unpopular.
02:02 If the recommendation of the FDA to the DEA through the HHS, Health and Human Services,
02:07 is something that's followed through on, then a Schedule III drug has a lot of implications,
02:14 but certainly from a balance sheet and a free cash flow perspective, it changes the industry
02:18 overnight. Now, the skeptics will say, I don't know what the timeline is for that.
02:22 DEA has a 90-day requirement to come back on this recommendation. And then it's still very
02:28 possible this could have to go into an administrative and legislative branch to get
02:32 the kind of votes that it needs, especially considering how significant it is.
02:36 Right now, this does feel like it all sits within the Biden administration's bailiwick,
02:42 if they want. And because, at least this is consistent with a schedule that the Biden
02:47 administration put out there last summer, last fall, when they got out there and they talked
02:51 about decriminalization, they talked about pardoning nonviolent offenses in cannabis,
02:55 they said, we're going to send the FDA in to do some work and investigate and really come back
03:01 and do a study on the science of it. That's what's happened. And look, for all the frustration
03:06 around the FDA, even in CBD and in other industries as well, it's a process. It's still,
03:12 it is the authoritative body on the pharma industry. So let's just say, so the pathway
03:20 to pharma and so the credibility that would come, and that's already come from that, I think has a
03:24 reverberation effect. We still don't know who's going to regulate cannabis. We still don't know
03:28 what the timeline is going to be. It's very possible as it needs to probably eventually be,
03:32 you have four or five regulatory agencies that are in the middle of this trade, and it's going
03:36 to be really complicated. But this is great news. In parallel, of course, the conversation about
03:42 safe banking pops up. In parallel, of course, you have the conversation about where there are
03:48 other things that are potentially going to then get institutional investors. On some level,
03:54 that's all we really talk about today. I mean, you guys talk every morning about both fundamentals,
03:59 technicals, but really markets are the most important dynamic. We all listen to the market.
04:04 And the market is really the most important dynamic here. The market in cannabis has moved
04:09 anywhere from 50 to 120 percent. Depending on the stock, you're looking at a couple of them more.
04:13 But what's also interesting, and as it always is with technicals, the market's basically rallied
04:18 all the way back to where they were at the beginning of this news flow last summer that
04:23 included the Biden administration and decriminalization and rescheduling. So in other
04:28 words, we're kind of right back to where we were. We got up somewhere near within some level of also
04:35 where we were in the first week of December when the DEA news came out about they were ready to
04:39 sign off on safe. And that was a mirage. So price action, very interesting. I'd say net-net,
04:45 no new money, a lot of short covering. The pipes haven't been cleared. The plumbing in cannabis is
04:49 still a major problem. Institutions still can't own it. So the reason for being and the ethos and
04:58 the big picture of the addressable market in cannabis is much healthier today than it was
05:03 even a year ago. That's without this news. One more thing I'll just say about the news around
05:07 rescheduling is that I think if you were to do this, if you were to make cannabis companies more
05:14 profitable, you would make it a lot more difficult. And I think the number one opponent of cannabis
05:19 right now, and it's the illicit market. The illicit market, there's no question about the
05:24 growth and the demand of the product, whether it's for you or not, it is for many people.
05:29 And the illicit market is probably the biggest challenge. It certainly is in New York.
05:34 Yeah. We've also seen that, Tim, I'm sure we've seen that also with California, right?
05:40 That's been recreational for so long now. And I think that you clearly see the examples of
05:45 the illicit market and how that plays in. Now, one of my biggest things in focus has always been,
05:51 when will these OTC stocks move to the market, right? What do you think needs to happen for
05:56 cannabis companies to list on major US exchanges? And could we see this in the near future, Tim?
06:01 I think we can. One of the news points that people are well aware of is when Terrasend,
06:08 which is again, an operator in the US, went to list on the Toronto. And the Toronto basically
06:13 said, we've done our work on this and we're good. We're talking about one of, TSX is one of the top
06:18 three exchanges in the world, or at least it's in the top five and it's not about ranking them.
06:23 It's to say that this is in terms of the compliance hurdle and the credibility and
06:30 the transparency required. And it's as high of a bar as anywhere. TSX says it's okay.
06:35 Terrasend, you can be sure when exchanges in the US are ready to do this, the folks that are listed
06:41 on the TSX are going to be the first ones that then I think are going to be listed on the New
06:45 York. I think exchanges are a lot closer. I think there's a lot of gray area here. On some level,
06:51 exchanges don't need to get out there and commit to the cannabis industry. Although we've already
06:57 seen a lot of inconsistency with NASDAQ listings and NYSE listings, not singling either exchange
07:02 out. But frankly, it's difficult to draw linearity straight through the issues and say we're good or
07:08 we're bad. And we've seen listings of companies that do touch the plant. So I think this is very
07:15 important as you're right. And this is going to be significant. The fact that we've moved in reverse
07:19 on the custodial dynamics and prime brokerage and the ability to custodize these stocks is shocking
07:25 and staggering. But I think it comes down to the dollars. Ultimately, is it risk reward? And for a
07:30 lot of these guys, like, yeah, for the nine accounts that I have that I'm custodizing cannabis
07:34 stocks, they're rabid about this and they're really big. And the largest one has $50 million
07:39 with me. I mean, it's not two, three, five, $10 billion of custody. So I think the numbers will
07:45 change. It's a bit ironic that as one of the last brokers kind of pulled out of research coverage
07:50 of the industry, the news comes out and it rallies 120%. And that's kind of how this goes. We know
07:55 this from market.
07:56 your charts.