Exclusive Interview with Tim Seymour, CNBC’s “Fast Money” Co-Host, Portfolio Manager of the Amplify Seymour Cannabis ETF CNBS and CIO of Seymour Asset Management
Tim Seymour, the co-host of “Fast Money,” the portfolio manager of the Amplify Seymour Cannabis ETF CNBS and CIO of Seymour Asset Management, last spoke with New Cannabis Ventures in May. Nearing the end of 2022, a tumultuous year for cannabis, he weighed in with his industry perspective and shared insight into the cannabis ETF space.
Listen to the entire interview or read the summary below:
Looking Back at 2022
The dynamics of federal regulation have always been a challenge for the cannabis market, significantly affecting asset prices in the industry. This year, the cost of capital and companies’ balance sheets have also been front and center in industry conversations. While multiple industries have been under pressure, cannabis companies have less institutional support and less of an analytical lens on it, according to Seymour. This year, he believes there has been a major reset in expectations for the legislative outlook, what kind of multiples cannabis companies should have and what companies will survive this tough period.
Macro trends, like inflation and recession, call into question the place cannabis has in the overall market. Is it a consumer staple? Is it a consumer discretionary product? With such strong sales during the beginning of the COVID-19 pandemic, many people thought cannabis would be more insulated from economic headwinds. Seymour pointed out that isn’t the case for this cash-based industry with many consumers who are feeling the pressure of inflation.
Pricing pressure is one of the biggest trends shaping the landscape for cannabis companies right now. Surplus supply in the legal market and the entrenched illicit market are placing significant pressure on legal operators. Seymour offered the New York market as an example of the power of the illicit market. Adult-use has launched in the state, but regulators are slowly rolling out the licensing process. In the meantime, the sophisticated infrastructure of the illicit market persists.
In 2022, cannabis companies have also had to contend with tighter capital markets. Seymour sees that dynamic pressuring middle and lower-tier cannabis companies the most. He expects to see more aggressive activity from lenders.
Seymour also shared his insight into the cannabis ETF space. He believes investors interested in the cannabis can use ETFs to get diversified exposure to the sector. The Amplify Seymour Cannabis ETF CNBS has assets around $45 million. He sees it differentiating itself through its strategy and its performance.
CNBS is a dedicated cannabis ETF; more than 80 percent of its assets earn 50 percent or more of their revenue from the cannabis sector. It takes an active approach to the industry, responding in real time and meeting with company management.
Over the past six months, Seymour has taken a defensive approach to managing CNBS, keeping a relatively high cash component in the portfolio. Over the past six to 12 months, he has not seen much geographic change in terms of where investors want exposure. But the ETF has allocated capital to debt players that have demonstrated some more resilience in this environment.
Some cannabis ETFs focus solely on the U.S. market. While Seymour recognizes the U.S. as an exciting place to invest, CNBS takes a global approach.
CNBS is down approximately 57 percent year-to-date, but it is outperforming other cannabis ETFs, according to Seymour. It can own cannabis assets around the world. He pointed to AdvisorShares MSOS cannabis ETF, down approximately 65.6 percent year-to-date (From the time of this interview 12/19).
CNBS has also demonstrated a sticky investor base. The number of units in the ETF are up about 10 percent year-over-year, according to Seymour.
The ETF is not concentrated solely on big, vertically integrated companies. It has invested in MSOs, but also Canadian LPs, REITs, retail operators, ancillary companies and debt players. Ultimately, the ETF is aiming to give investors exposure to the industry as it is today and to find the companies that are going to be the future of the cannabis space.
Cannabis Industry Outlook
What sets apart the companies that will survive the challenges of today’s cannabis environment? Seymour expects that capital and balance sheets will be the answer. He highlighted the importance of free cashflow and restructuring debt obligations to get through the next couple of years.
Already, he sees larger players showing differentiation in their exposure to wholesale markets and ability to build brands that offer some insulation from pricing pressure. Companies that are able to operate efficiently in an asset-heavy industry have the opportunity to emerge from this period even stronger.
While there are players that will survive to see the future of cannabis, investors may be frustrated with the industry today. The industry has become more sophisticated, but it has experienced multiple drawdown cycles. Legislative progress is sluggish. There is a mismatch between the industry’s progress and asset prices, according to Seymour.
News coverage of the cannabis industry may be another source of frustration for investors. Seymour spoke to coverage at CNBC, where he co-hosts “Fast Money.” While cannabis is an important topic, and one that Seymour values, it isn’t the only story in the broader markets. Overall, his goal is to educate viewers through thought leadership and critique, not to focus on one single industry.
Seymour does see reason to be bullish on the cannabis industry. He believes there are companies that are going to survive in the long term. Today’s investors are investing well ahead of institutional capital, and they will eventually be rewarded by the size of the global cannabis industry.
Federal legalization in the U.S. will likely be a watershed in the cannabis industry, ushering in many other players from other industries like pharmaceuticals, tobacco, alcohol, agriculture and healthcare. Seymour anticipates that those kinds of players are likely to buy rather than build in the cannabis industry, kicking off an enormous amount of consolidation. When other sophisticated CPG companies enter the industry and make acquisitions, these kinds of deals could double or triple multiples.
Going into 2023, cannabis legislation remains a key point of focus. Seymour thinks that cannabis has support in Washington, D.C. He talked about the bipartisan medical cannabis research bill signed into law by Biden earlier this year as an important step forward. As more research illustrates the medical efficacy of cannabis, the more fuel there will be for rescheduling. In the meantime, there will be cannabis companies that to grow their footprints and continue their journey to becoming sophisticated CPG companies.