EXCLUSIVE: Investor Ross Gerber On How Cannabis Rescheduling Could Slash Costs For Companies

As the cannabis industry faces ongoing regulatory challenges, financial constraints remain a significant obstacle to growth.

Ross Gerber, co-founder and CEO of Gerber Kawasaki Wealth and Investment Management and upcoming speaker at Benzinga’s Cannabis Capital Conference, shared his views on the financial difficulties confronting cannabis companies, especially in light of potential federal rescheduling and its effects on accessing capital.

Rescheduling and Its Potential Impact

Gerber sees federal rescheduling as a critical moment for the cannabis industry. He pointed out that many cannabis companies are well-managed but are forced to operate within an “absurd tax environment and regulatory department.” He believes that removing cannabis from the Schedule I classification would lead to a “dramatic improvement in financial performance for the companies.”

Currently, cannabis is still federally illegal and classified as a Schedule I substance, which severely limits the industry’s ability to function like other businesses. Gerber emphasized that if cannabis were rescheduled to a lower category, such as Schedule III, the shift would relieve many of the financial burdens these companies currently face.

Access to Capital: The Path to Growth

A major challenge for cannabis companies, according to Gerber, is the difficulty in securing capital due to their federal status. These companies often have to borrow at high interest rates because they cannot access traditional banking services.

Gerber noted, “A private [investor] might say, ‘Oh, I can lend to Green Thumb, which is just a really great company, and I could probably get seven or 8% from them, guaranteed with assets versus the 12 or 15% they’re paying today.'"

He further highlighted that if rescheduling happens, the reduction in taxes and interest expenses could “at least double the value of your typical cannabis company.” He says this change would benefit the companies and potentially attract more institutional investors who have been hesitant to enter the market due to its current legal hurdles.

Preparing for a Post-Rescheduling Future

While rescheduling could bring about considerable changes, Gerber cautioned that the benefits might not be immediately visible. He suggested that much of the impact would be behind the scenes, particularly in financial restructuring.

"The companies will be able to then meet with, let’s say, a big private equity firm, and refinance all their debt, because they have all this capital now," he said. This access to capital would allow companies to expand more aggressively and innovate without the constraints of high debt burdens.

As the industry looks forward to potential regulatory changes, Gerber Kawasaki remains focused on identifying cannabis companies that are not only well-managed but also financially robust.

“It’s just between the reduction of taxes and the reduction of their interest expenses and access to capital alone [that] will at least double the value of your typical cannabis company,” Gerber asserted, emphasizing the importance of strong financials and leadership in the cannabis business.

Want To Learn More?

Gerber's insights come as he prepares to speak at the upcoming Benzinga Cannabis Capital Conference, where industry leaders will gather to discuss the future of cannabis. His perspective on the financial hurdles and potential opportunities post-rescheduling will undoubtedly be a focal point of the event.

As the cannabis industry continues to navigate these challenges, Gerber's comments highlight the necessity of financial preparedness and strategic planning for companies looking to succeed in a post-rescheduling environment.

Photo: Courtesy of Artem Avetisyan via Shutterstock