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Bet on management – almost everything else in the cannabis space is smoke and mirrors. That was the key takeaway from a panel of high-profile cannabis investors, who spoke at the GMP Securities 2019 Cannabis Conference in Toronto on Tuesday.

“The biggest risk factor is that people are lying and there’s not actual intellectual integrity in stuff that comes out from companies and management teams," said Igor Gimelshtein, a director of Columbia Care LLC and former CFO of MedReleaf Corp.

This was echoed by Boris Jordan, executive chairman of Curaleaf Holdings Inc., and CEO of Sputnik Group Ltd., a major Russia-focused private equity fund: “The thing that has plagued this industry from very early stages is that management hasn’t executed on what they promised to investors. From our perspective that’s a pretty big deal, and so we really try to focus on those people who can execute," Mr. Jordan said.

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Here are some other takeaways from the discussion:

Canadian LPs low down the opportunity list:

Since mid-2018, Canadian LPs haven’t been the only publicly traded game in town. An increasing number of U.S. multi-state operators have listed on the Canadian Securities Exchange over the past nine months, and smart money is rapidly shifting southward.

Mr. Gimelshtein said he cashed out of MedReleaf in order to focus on the United States. That’s because successful cannabis markets are defined by branding, value-added products, intellectual property development and quality distribution systems, none of which are available in Canada, he said.

“We voted with our feet, sold that business to Aurora, and closed in July of last year. Since then we've taken all of that capital, myself and my partner, and redeployed it back into the U.S. to really attack all those four things,” he said.

This view was largely shared by the four other panelists, although Jason Wild, president of JW Asset Management and chairman of TerrAscend Corp., took a kinder view of the broader Canadian opportunity.

“I know that a lot of people are now anti-Canada in terms of the potential of the market up here. My view is there is a lot of opportunity in Canada, the fact is there are a lot of operators in Canada that are not executing right now. But I don’t think that diminishes what the size of the market is,” Mr. Wild said.

Biosynthesis: the future of cannabis or a niche investment?

One of the hot topics in cannabis investing is manufacturing cannabinoids without plants. The idea is to grow THC or CBD using things like yeast, similar to how insulin is produced.

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Mr. Jordan made the bull case: "Without biosynthesis, this industry is never going to go mainstream on the consumer product side, because you need to be able to stabilize all the different cannabinoids.”

“The reason the pharma industry is so anti-cannabis in the United States is because they can’t work with biologicals, so that’s why they’re lobbying. The minute anyone is able to stabilize cannabinoids and bring them on a consistent basis from synthetics, the pharmas are going to be lobbying Washington that day to approve cannabis as a product,” he added.

Mr. Gimelshtein took a more subdued view of biosynthesis: “Alcohol can also be synthesized and it is. But nobody buys it from a consumer products perspective... It is possible that biosynthetics comprise a certain category of extracted products.”

This was echoed by Mr. Wild: "There's been a product on the market in the U.S. and Canada for 20 or 30 years called Marinol, which is synthetic THC. Nobody wants it."

What’s happening with U.S. cannabis reform?

In recent weeks, cannabis banking reform has been on the U.S. political agenda. Efrem Kamen, founder of healthcare-focused investment firm Pura Vida Investments, said there’s a 50/50 chance it passes in the coming months.

“The version that passed the House subcommittee was introduced in the Senate on Friday and was nearly identical, which is a major positive. I think the question for everyone in this room is can we include capital markets language into that? I think there’s a lot of efforts to try and do that,” said Mr. Kamen.

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The odds, he said, aren’t so good for the STATES Act, legislation that would make federal cannabis laws inapplicable in states that have legalized cannabis at a state level.

“I think the social justice element is causing some tension. You definitely have the Republicans and the Democrats both becoming closer with their agreement on cannabis reform, but I think the Democrats are getting pulled further to the left, and I think that's causing some tension and maybe decreasing the probability of success there,” Mr. Kamen said.

Mr. Jordan said he expects five pieces of legislation to come to the House of Representatives in 2019.

“They’ll get to the floor, they’ll get voted on, and we think that at least two or three of them will pass," he said.

“The Senate is a different game. The House will put pressure on the Senate to act on cannabis, however the Senate is Republican controlled, and the Senate has some hawkish Democrats who are concerned about giving Trump a win and putting a piece of legislation on Trump’s desk for signature, because there’s an idea that if Trump signs any kind of cannabis legislation the millennials will vote for Trump. I think that’s a far stretch, but that’s the sort of Democratic view right now.”

“The last outlier, I would say, which could be quite disruptive for the industry, is that Trump has a right to reschedule cannabis with his signature; he doesn’t have to go the House and Senate to do that," Mr. Jordan added.

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"Before the election if he felt he needed some more votes and felt he could get the millennials to support him, he could, with his signature, reschedule cannabis in the United States. I think it would create short-term havoc, but he could do it. Positive or negative, it’s still a risk factor.”

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