EXCLUSIVE: AFC CEO Leonard Tannenbaum Sees Cannabis Industry Consolidating, With No Fed Legalization On Horizon

With the U.S. House of Representatives recently passing cannabis banking legislation once again - this time as part of a large-scale defense spending bill, just days after passing cannabis banking reform which was part of the legislation - there is a distinct possibility that the cannabis banking bill could end up on President Biden's desk. This, of course, would bring marijuana businesses a step closer accessing the banking system and much-needed capital.

Among other things, the SAFE Banking Act would allow cannabis purchases to be made with Visa and MasterCard, likely bumping cannabis sales up by 15%, according to Leonard Tannenbaum, founder, and CEO at Advanced Flower Capital Gamma, Inc. AFCG, a lender to cannabis businesses.

Tannenbaum was interviewed by Forbes reporter Will Yakowicz at last week's Benzinga Cannabis Capital Conference.

Tannenbaum pointed out that the cannabis banking bill would bring more banks into the system, which is reasonable considering they're all subject to anti-money laundering and "know-your-customer" procedures.

However, he doubts that the most prominent players such as Wells Fargo & Co WFC and Bank of America Corp BAC would take the leap into cannabis, being afraid of that "one loan going to the wrong person."

"There's no chance now for a long time," Tannenbaum said, emphasizing, "they're not even in CBD."

And, it seems that BoA's latest move - shutting down the account of the famed Scottsdale Research Institute (SRI), which happens to be federally authorized to cultivate and study Schedule I substances like cannabis and psilocybin mushrooms  -  proves Tannenbaum's theory.

Legalization Not Likely To Happen, Just Yet

Furthermore, despite a widespread feeling that federal legalization of cannabis is on the horizon, the seasoned cannabis expert is pessimistic about passing Sen. Chuck Schumer's bill.

"I don't believe it's going to pass the next three to five years," he said, adding that "what legalization may look like is STATES Act," which allows each state the right to operate within their own borders, to task, monitor and test cannabis.

With that in mind, Tannenbaum said he believed that Missouri, Ohio and Georgia will

legalize recreational cannabis next.

The Companies' Partner

Meanwhile, AFC debuted on the Nasdaq Global Market under the ticker "AFCG" In March through the offering of its shares valued at $118.8 million.

"We are the company's partner," Tannenbaum explained, adding that a lot of the company's growth is coming from existing companies, citing Justice Cannabis Co. as an example.

The company recently bolstered its senior credit facility with Justice Cannabis from $53.4 million to $75.4 million, which will provide the Chicago-based multi-state operator with licenses in eight states with additional capital to purchase assets, develop its operations in New Jersey, further build its Pennsylvania cultivation facility and refinance existing debt.

Tannenbaum explained that they are partnering with companies whose business model and managements teams they believe in.

The 'Exciting' M&A Cycle

With more and more capital coming into the space, Tannenbaum thinks that "bigger institutions are getting very comfortable," adding that "the M&A cycle" within the cannabis industry is "so exciting."

With all the consolidation underway, especially in Florida, he advises his clients "who are the two, three, four-state, or even single state operators to find a dance partner

for the big win.

"This Industry is quickly consolidating, in what I believe is about a two-year M&A cycle," Tannenbaum said, projecting that "15 MSOs will dominate" the space.

On the other hand, having states like Ohio or Maryland that will limit cultivation and the number of dispensaries will allow smaller growers, which are essential to the market, to take their share.

"I hope more and more States, due to the limited licenses, don't just allow three dominant players but really allow a lot of different alternatives for the consumer," Tannenbaum said.

AFCG Price Action

Advanced Flower Capital's shares traded 0.38% higher at $23.85 per share at the time of writing Wednesday morning.

Photo: Courtesy of Kindel Media from Pexels