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Cannabis outlook as Canopy Growth, Tilray prep earnings

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Kramer Capital Research Chief Investment Officer Hilary Kramer joins Yahoo Finance’s Zack Guzman to weigh in on how the coronavirus is impacting the cannabis industry.

Video Transcript

ZACK GUZMAN: We got an interesting update from the state of Illinois earlier this week showing a pretty noted rise in terms of overall revenues tied to marijuana after that state made the sale of cannabis legal beginning in January. Overall, a 55% jump in terms of sales in the month of July versus January. So seeing some pretty serious momentum in that state.

It could be a boost for marijuana companies out there set to report. We're going to get the reports next week from cannabis giant Canopy Growth, as well as Tilray. Some other names reporting later on in the week as well.

But here to discuss what could be going on in the weed space with us is Hilary Kramer, Chief Investment Officer for Kramer Capital Research. Hilary, thanks for joining us. I mean, when we looked at it, that would seem to be-- it's a record in terms of monthly sales in Illinois there. But it's not necessarily outside the norm from what we've seen. A lot of these companies reporting notable ticks higher in revenue.

So who do you think might stand to benefit most if this trend continues here in the US?

HILARY KRAMER: I believe that GW Pharmaceuticals, which is a UK-based company, is the best of all of-- the best agreed of all of the cannabis companies in terms of being less risky than all the others. And that's because they're such a recognized and appreciated value there because of the proven scientific help that it brings to pediatric epilepsy patients. And the cannabis space, which I have studied extensively-- I've been to the hills of Medellin in Columbia. I've been in Colorado. I've been to the weed shops.

And the problem is that there is so much competition right now. So sales are going to rise, but the actual barriers to entry aren't high enough. There's a lot of money that had crowded into this space. It's amazing. It's absolutely amazing.

However, if it's not for medicinal use-- and I'm talking about the THC. That's the stuff that makes you high. It's not for medicinal use. It's just really crowded. And there's also a lot of regulation.

So as sales rise, profitability is very difficult to maintain because of the quality that's needed to really be able to grow the cannabis.

ZACK GUZMAN: Yeah, yeah, and we know-- I mean, you talk about GW Pharmaceuticals there. And that's one of the ones, the few, that actually have FDA approval for their CBD product. We've seen a lot of other companies struggle with the regulations around CBD.

But as you noted, I mean, right now, Nancy Pelosi, Speaker of the House, is defending some banking regulation that could get included in this fourth phase here. We've talked about the Safe Banking Act, getting access for these cannabis companies to much-needed financial institutions. That's a very serious proposal that could get passed here if Republicans and Democrats could agree to it. So what kind of boost would that be overall for a multistate operators here in the US?

HILARY KRAMER: That would be a boost because it would be a game changer. And it would bring all of these companies, from Aphria to Canopy, into another level in terms of market capitalization. Because what stops institutional investors from going into the cannabis space-- I mean, of course, public pension funds are going to be careful for years to come. But I'm talking about some of the investment, private investment funds that have foundation money or family office money. They're still very wary and careful about it because of these banking regulations.

And just to back up, for those that aren't familiar-- right now, banking is federally-- is a federally-regulated industry. And unfortunately, the cannabis industry doesn't fall within that. So it's like they fall into this gray zone, which stops them from being able to utilize the big banks to deposit their money, and therefore have first class-- be able to work in first-class, gap-regulated SEC filings.

ZACK GUZMAN: No, that's true.

HILARY KRAMER: So it's going to be-- it's going to be a total game changer. I hate to say it, but the real value and benefit is on the user end. I mean, that's where the opportunity is, because it is such an-- it's such a-- it's just amazing. It's really an awesome new area. And the applications for it--

ZACK GUZMAN: And quickly growing as well.

HILARY KRAMER: I mean, really, the applications for it-- it's not just for like 18 to 34-year-old group. I mean, this is something that baby boomers really care vehemently about.

ZACK GUZMAN: Yeah, I know, we've seen that growth across-- we've seen that growth across all ages, age distributions. And as you're talking about here, the banking catalysts there, something to watch as we get these reports coming out from all these CEOs in the weeks to come. But Hilary Kramer, Chief Investment Officer for Kramer Capital Research, appreciate you bringing us.