Gen Z’s pot appetite fuels optimism
Emily Paxhia’s coming-around-to-cannabis story has a surprise ending.
Like many cannabis enthusiasts, Paxhia said she shifted in favor of the drug when someone close to her was suffering, and conventional medicine couldn’t help. But the plight of her loved one — her father, who passed away from cancer in 1996 — didn’t just turn her into an advocate for medical marijuana. She and her younger brother, Morgan, staked their fortunes and careers on the drug.
Together, they co-founded a cannabis investment fund, Poseidon Asset Management. It now has $200 million in assets under management, and Emily is one of the few female money managers in the space today.
“At the end of his life, he was so nauseous all the time — this came up as a palliative care thing,” Paxhia told me of her father.
Though a hospice nurse suggested marijuana, he never got to try it as far as she knew. But she and her brother were deeply affected by the experience, as well as the long lines they saw forming outside California’s first medical dispensaries which opened just after his death. The sense of marijuana’s medical potential drove them to start Poseidon with their own money in October 2013. By January 2014, when Colorado’s market opened, they began investing outside capital.
“I was in the DARE (Drug Abuse Resistance Education) program; hearing that it could have benefited my father was so counter to all of the Nancy Reagan ‘this-is-your-brain-on-drugs’ messages,” Paxhia said.
“That was why we’ve had so much motivation and energy. It’s not been an easy thing to stand up a cannabis investment firm.”
Paxhia, now one of the longest-standing investors in cannabis, recently launched an exchange-traded fund, the AdvisorShares Poseidon Dynamic Cannabis ETF. She spoke to me about what she sees ahead for the industry.
The Dose: Is this sixth attempt to get cannabis companies access to traditional banking — through the SAFE Banking Act — going to be the one that works? Or do you see more delays?
EP: I do think there’s a shot in 2022 — but not a great shot. And if it doesn’t happen now, it will be 2023. I did think it was likely to happen sooner considering how much bipartisan support there was around cannabis banking, and how much awareness had been raised around why we want this banked through traditional platforms. But it became such a popular issue on both sides of the political aisle that it became a tool to gain constituents — and now politicians are holding it hostage so that they can use it as a tool to curry favor with voters as we move to the midterm election cycle.
Might all this political attention help the cannabis industry despite the delays?
Unfortunately, I think what we’ve moved into is short-attention-span theatre around elections. I think some groups, like [U.S. Representative] Nancy Mace, are proceeding in a pragmatic fashion. It’s refreshing the way she’s putting forth her ideas about legalization at the federal level. She’s not trying to take a swing at taxes or other aspects that we’ve seen [U.S. Senators Chuck Schumer and Cory Booker] go heavy on. I am pro-social justice issues and glad to see the focus on that, but I don’t think we need kitchen-sink legislation. We’ve seen the challenges around the social justice component at the state level. The states are struggling to get it right — so I don’t have a lot of faith the federal government can. I would rather see continued efforts by the industry, and reforms like records expungement, and getting people out of prison. And more work around microloan programs so minority applicants can get businesses up and running.
How is the industry dealing with the delay in banking reforms?
There’s a SPAC, Northern Lights Acquisition Corp., that’s closing on a target — Safe Harbor, a group out of Colorado that’s been banking the industry for years. It’s probably going to bring more resources, a bigger balance sheet for them, more stability. I think we’ll see more private industry steps like this to move banking forward. Cannabis, as an industry, has gotten good at adapting in the absence of reforms at the state and federal level. Another example is what’s happened in the last 12 months, where the capital equity markets have seen a significant drawdown since this time last year, but credit markets around cannabis have heated up.
There have been more credit deals over the past year, why is this still a challenging space?
We’ve done lending at Poseidon, and a reality you have to assess is civil asset forfeiture — if the government isn’t happy with the business they could seize assets because the company is dealing with a Schedule I narcotic. Creditors’ assets could disappear. Yet I’m seeing a lot of capital that wants to participate in the credit market. It shows institutional capital is trying to find every way possible to participate in cannabis.
Meanwhile, with equity prices down, and wholesale cannabis prices low this year, what can we expect to see in the round of upcoming earnings from some of the big multi-state operators?
After a massive procurement of cannabis by consumers during the pandemic, and then continued spikes when people were getting government relief checks, the industry is settling into new trends. We’ll see lower sequential growth in the fourth quarter as we get normalized — which may even shift again, as the pandemic continues in waves. Those of us investing for a while have always known the growth story of cannabis wouldn’t be linear: It would be a stair-step market as new states open up. But what really excites me now are the new consumer segments opening up. I’m excited about females, millennials and Gen Z; they are the first generation entering the workforce with cannabis substantially legal. We’re seeing them apportion it a good wallet share versus alcohol. Cannabis is going to be ingrained in the spending power of a new generation.
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