Newsletter Fall 2023 – Movement on the Federal Level and KEY in the News
KEY Investment Partners Portfolio Company Katalys Raises $5.4mn in Seed Round
Katalys a versatile commerce media platform, operating at the intersection of content, commerce, and performance marketing technology raised a $5.4mn seed round by lead investors KEY Investment Partners, WGD Capital, and GreenAXS Capital. The round will be used by Katalys to introduce additional product features and to continue their marketing and sales efforts.
Katalys caters to diverse requirements within the affiliate marketing and commerce media landscape. For major media firms and online publishers, Katalys provides integrated commerce solutions to enhance revenue performance. Meanwhile, for e-commerce brands and retailers, the platform enables effortless product discovery and customer acquisition at scale. By seamlessly merging embedded commerce tech with cookieless attribution and a reliable identity graph, Katalys empowers partners to enhance trustworthy connections and increase revenue in the performance marketing sphere.
Read the full announcement here.
KEY Portfolio Company BDSA Presents Findings at the Recent MJ Unpacked Conference
BDSA, the leading cannabis data analytics company (and a KEY portfolio company), recently presented at an industry leading conference, MJ Unpacked, about the next generation of the cannabis market! The Company presented a holistic overview of the cannabis market, how the market is evolving and how BDSA provides insights to the global cannabis market. BDSA is recognizing that the cannabis industry is entering a new era where regulations are loosening across the US and consumer adoption is increasing faster in new and emerging adult use markets.
The KEY takeaways from the presentation were as follows:
- Positive advancements in Federal regulations
- High consumer acceptance and adoption rates, with more than half of US adults expected to have access to adult-use cannabis by 2025
- Mature markets are anticipated to continue seeing sales decline through 2023, while emerging markets present the largest growth opportunities by 2027
- Flower prices in mature markets are stabilizing in mid-2023 after years of contraction
- There are significant observable differences between mature and emerging markets in terms of pricing, number of brands and retailers, and growth opportunities.
KEY Investment Partners’ Founding Partner Tiby Erdely Interviewed on The Sativa Segment by Richard Y. Cheng
In this episode of The Sativa Segment, KEY Investment Partners’ Founding Partner Tiby Erdely joins Richard Y. Cheng to discuss investments in cannabis and the concerns related to capital raising as well as the future landscape of the industry and the opportunities in the industry today. Tiby gave his background and gave an overview of KEY.
Tiby noted that since KEY’s founding, KEY has invested in 16 different portfolio companies across the cannabis industry. Tiby then gave an overview on KEY’s current portfolio construction (75% deployed into ancillary providers and the remaining 25% into plant touching entities). Tiby explained how KEY is primarily funding companies in the Series B to Series C range and that KEY has board representation on five of the sixteen companies that KEY has invested in. Tiby then gave an overview of how difficult the capital markets have been recently in the cannabis, primarily due to the lack of regulatory momentum (until recently) and the general capital market conditions.
Listen to the full recording here.
KEY Investment Partners’ Founding Partner Tiby Erdely Interviewed Mara Sheldon (Principle at Squire Patton Boggs) on Cannabis Unlocked
In this episode of Cannabis Unlocked, KEY Investment Partners’ Founding Partner Tiby Erdely interviews Mara Sheldon (Principle at Squire Patton Boggs) to discuss the recent U.S. Department of Health and Human Services (HHS) recommendation to the Department of Justice to reschedule cannabis from a Schedule 1 drug to a Schedule 3 drug.
The conversation begins with Mara’s thoughts on HHS’ recommendation and what rescheduling could mean for the cannabis industry. Mara said that this is a huge effort from the Biden administration regarding cannabis reform. Moving from schedule 1 to schedule 3 has a huge impact on the industry. The biggest being 280E no longer being applicable to cannabis plant touching entities, this would allow cannabis related businesses to deduct expenses beyond cost of good sold (today they are essentially taxed on their gross profit).
Mara followed up saying that rescheduling could reinvigorate the capital markets appetite for the cannabis industry and could potentially cause the NASDAQ or the NYSE to reevaluate their positon. Mara then touched on the potential positive regulatory momentum (SAFE Banking, the MORE Act, etc) that would greatly benefit the cannabis sector.
Listen to the full recording here.
News Around the Industry
Senate Committee Passes Cannabis Banking Bill
The SAFER Banking Act, a bipartisan law allowing banks to work with cannabis businesses without penalties, has finally gained momentum in Congress. Recently, the Senate Committee on Banking, Housing, and Urban Affairs held a markup session on the legislation, leading to its decisive approval. Despite previous overwhelming support from the House for the SAFE Banking Act, the bill’s earlier version, this Senate vote marked the first positive response from Senate members.
The legislation now moves to the Senate and House for further debates, amendments, and votes before potentially reaching President Biden’s desk. If successful, this move could end the banking ban that has plagued the legal cannabis industry, enabling businesses in legal states to operate with mainstream banks, eliminating their vulnerability to theft and criminal activities associated with cash-only transactions.
Community leaders have praised the Senate Committee’s approval of this significant legislation. Mike Bologna, CEO of Dip Devices, a Denver-based vaporizer provider, emphasized how the SAFER Banking Act provides financial institutions serving state-sanctioned marijuana businesses with clarity and security. He noted that this legislation would ease access to capital, promote responsible financial practices, and drive innovation in the cannabis industry.
Former Top FDA Official Predicts Agency Will Make Schedule III Cannabis Recommendation With ‘Election Cycle’ In Mind
Former FDA official Howard Sklamberg suggests that marijuana will likely be placed in Schedule III of the Controlled Substances Act (CSA) following President Biden’s administrative review. Sklamberg believes maintaining Schedule I status or complete descheduling are unlikely outcomes, with rescheduling to Schedule III being the most probable scenario due to its practical impact on issues like federal tax deductions for cannabis businesses. He emphasized that the FDA’s review process is on an accelerated timeline, considering the significance of the issue, the White House’s interest, and the upcoming end of the administration’s term in 2024. Once the FDA completes its review, it will share findings with the DEA, which will conduct its own review before making a final decision.
Sklamberg dismissed concerns that Schedule III classification would lead to a crackdown on state cannabis markets, pointing out the FDA’s and Justice Department’s hands-off approach despite cannabis being a Schedule I drug. He also mentioned that FDA’s approach wouldn’t significantly change even with rescheduling, as increased enforcement would strain agency resources and potentially compromise other responsibilities.
New York Will Open Adult-use Cannabis Retail To Multistate Operatorss
New York regulators have voted to allow the state’s medical marijuana operators to apply for adult-use retail licenses, a move that could open the doors for multistate operators (MSOs) to enter what is expected to be one of the largest cannabis markets on the East Coast. The Office of Cannabis Management (OCM) approved resolutions permitting applications for retail or microbusiness licenses from October 4 to December 23. This decision has led to concerns among smaller cannabis businesses that the market will be dominated by large players.
The New York Medical Cannabis Industry Association (NYMCIA) welcomed the decision, but advocates for small businesses have criticized the move, arguing that it favors big corporations over local businesses. Despite the approval, lawsuits against the OCM, including one from MSOs, are still pending. The situation has created uncertainty about the future of the state’s cannabis licensing process and its impact on small businesses and social equity applicants. The OCM has yet to respond to public comments regarding the matter, leaving the path forward for New York’s cannabis industry uncertain.
Three In Five Floridians Support Marijuana Legalization, New Poll Finds As State Supreme Court Weighs 2024 Reform Ballot Initiative
New York regulators have voted to allow the state’s medical marijuana operators to apply for adult-use retail licenses, a move that could open the doors for multistate operators (MSOs) to enter what is expected to be one of the largest cannabis markets on the East Coast. The Office of Cannabis Management (OCM) approved resolutions permitting applications for retail or microbusiness licenses from October 4 to December 23. This decision has led to concerns among smaller cannabis businesses that the market will be dominated by large players.
The New York Medical Cannabis Industry Association (NYMCIA) welcomed the decision, but advocates for small businesses have criticized the move, arguing that it favors big corporations over local businesses. Despite the approval, lawsuits against the OCM, including one from MSOs, are still pending. The situation has created uncertainty about the future of the state’s cannabis licensing process and its impact on small businesses and social equity applicants. The OCM has yet to respond to public comments regarding the matter, leaving the path forward for New York’s cannabis industry uncertain.
Texas Court Upholds Injunction Allowing Delta-8 Sales
The Texas 3rd Court of Appeals has upheld an injunction preventing the ban on delta-8 products in the state, allowing businesses like Hometown Hero CBD to continue selling these products. The injunction was granted to Hometown Hero CBD in November 2021, and the recent ruling enables the company to keep offering delta-8 products in Texas.
The 2018 Farm Bill legalized hemp and authorized the sale of delta-8, delta-9, and other intoxicating hemp-derived cannabinoids as long as they contain up to 0.3% THC by dry weight. Due to the popularity of these products, some states, including Texas, have attempted to ban them, leading to legal battles nationwide. In September, a federal judge in Arkansas blocked the enforcement of a state ban on products containing intoxicating hemp-derived cannabinoids. The Cannabis Regulators Association has urged Congress to include rules governing hemp and its derivatives, along with a new definition distinguishing “hemp” from “marijuana,” in the upcoming Farm Bill, which is set to be reviewed this year. Despite the legal challenges and bans in certain states, the fate of the hemp-derived cannabinoid industry remains uncertain at the federal level.
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