Big Cannabis ETF's Manager Warns 2023 Will Be A Tough Year: Here's Why

Jason Wilson, cannabis research and banking expert at ETFMG, the issuer of the ETFMG Alternative Harvest ETF MJ, expects 2023 to be a challenging year for many businesses in the industry.

Jason Wilson, cannabis research and banking expert at ETFMG, the issuer of the ETFMG Alternative Harvest ETF MJ, expects 2023 to be a challenging year for many businesses in the industry.

Mature And Newer Markets

While some mature markets experienced softening or declining legal cannabis sales in 2022, newer markets showed strong growth. Wilson predicts this trend will continue in 2023, with slower growth in mature markets such as Canada and continued growth in international markets, particularly in Europe, as Germany moves forward with recreational legalization.

According to Wilson, slower sales growth in mature markets is partly due to lower prices driven by competition and oversupply.

"Accordingly, the silver lining for operators in mature markets is that the lower prices should help the legal market take market share away from the illegal market. This might not have an immediate effect in 2023, but it should be beneficial in the longer term. Notwithstanding some regional bumps in the road, overall, sales across both the domestic and global markets are expected to continue to experience strong growth," he said.

The Catalyst For Cannabis Stocks

Wilson believes that the largest catalyst for cannabis stock prices will continue to be regulatory reform.

He expects the Secure and Fair Enforcement Banking Act (SAFE) to be re-introduced this year, providing protections to financial institutions and other professional services that conduct business with state-legal cannabis-related businesses. Additionally, the States Reform Act (SRA), which removes cannabis from Schedule I of the Controlled Substances Act while allowing individual states to determine appropriate cannabis reform, may be reintroduced.

Wilson also anticipates more clarity on the administrative review process that commenced late last year regarding how cannabis is scheduled under federal law.

However, despite these potential regulatory changes, Wilson warns that cannabis businesses are struggling to compete with the illicit market due to inadequate regulatory reform or lack of regulatory reform. In the U.S., the lack of federal reform is burdening cannabis businesses with higher operating costs and effective tax rates.

"Of course, whether any of this will result in actual reform in 2023 remains an open question," he commented.

Canada, California, Ontario

In international markets such as Canada, onerous taxes and burdensome regulations are putting undue financial pressure on cannabis businesses. As a result, operators are struggling to compete with the significant and largely unenforced competition from the illegal market.

Although some progress has been made in California and Ontario to help legal operators compete with the illegal market, Wilson argues that these challenges are likely to persist until more comprehensive and appropriate regulatory reform is implemented.

A Tough 2023 Ahead?

The cannabis industry faces significant challenges in 2023, but there are still some opportunities for growth, particularly in newer and international markets.

While regulatory reform remains the primary catalyst for cannabis stock prices, operators in mature markets may benefit from lower prices as the legal market takes market share away from the illegal market. Nonetheless, the cannabis industry's ongoing struggles to compete with the illegal market due to inadequate regulatory reform suggest that more comprehensive and appropriate regulatory reforms are necessary for the industry to thrive.

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