Forget The Hype: Why Wall Street Is Looking At Cannabis Cash Flow Again

For years, cannabis investing has been driven by catalysts. SAFE Banking, Federal legalization, Rescheduling, election cycles….

Every regulatory headline sparked optimism that institutional investors would finally embrace the sector. Yet each rally eventually faded as operators continued facing limited access to capital, punitive taxation and a fragmented regulatory landscape.

At the IgniteIt Cannabis Capital Conference in Chicago, however, the conversation sounded noticeably different.

Rather than debating whether reform would happen, Alliance Global Partners Managing Director Aaron Gray and JW Asset Management Chairman Jason Wild focused on what happens after it does—and why Wall Street’s attention is shifting toward something far more familiar: cash flow.

Moderated by Neil Prasad, Managing Director at CBIZ, the discussion argued that cannabis is beginning to transition from a story driven by speculation to one increasingly judged on financial fundamentals.

Schedule III Is More Than A Regulatory Story

For many cannabis executives, Schedule III represents tax relief.

For investors, Aaron Gray argued, it represents something broader.

“The immediate cash flow benefit” begins with the elimination of Section 280E for qualifying operators, he explained. Cannabis companies have long paid taxes on gross profit because they could not deduct ordinary business expenses under federal law. Removing that burden improves operating cash flow almost immediately.

Gray noted that many operators had already stopped paying 280E taxes while carrying uncertain tax liabilities on their balance sheets. Once rescheduling is fully implemented, companies can continue operating without adding to those liabilities, creating a more normalized financial picture.

He also expects additional benefits beyond taxes.

Among them:

• Lower stigma surrounding cannabis.
• Potential uplistings to major U.S. exchanges.
• Greater research activity.
• A broader total addressable market as new consumers become comfortable entering the category.

“We’re still at the early stages,” Gray said. Lowering cannabis from Schedule I to Schedule III “will lower that stigma and help to increase the TAM and bring more consumers to the category.”

Wall Street Ultimately Cares About Earnings

Jason Wild believes investors are focusing on something even more important than tax savings.

Earnings per share.

“The market is a voting machine in the short term,” Wild said. “Long term, it’s a weighing machine.”

“And the weighing machine is very focused on earnings per share.”

Wild explained that eliminating 280E does more than improve cash flow.

For companies such as TerrAscend, where he serves as Executive Chairman, removing uncertain tax positions also improves reported earnings because companies no longer need to account for potential IRS interest associated with those liabilities.

“In the case of TerrAscend, we will become an EPS-positive company,” Wild said.

“And when it comes down to it, that’s what drives stock prices in every industry.”

In his view, many cannabis operators are approaching an inflection point where reported profitability—not simply revenue growth—becomes the metric investors evaluate.

A Simpler Story Brings More Investors

Gray believes cannabis has become unnecessarily difficult for generalist investors to understand.

State-by-state regulations. Medical versus adult-use markets. Different accounting treatments and multiple tax structures.

All of that complexity creates barriers for institutional capital unfamiliar with the industry.

“What we’re now trying to do,” Gray said, “is get to that next phase of the broader investor pool.”

To accomplish that, he argued, cannabis needs a simpler investment narrative.

“I think one of the things we need is to really kind of simplify the story.”

If comprehensive rescheduling moves forward, operators could benefit from similar tax treatment, broader exchange access and improved profitability, making comparisons between companies much easier for traditional investors.

Gray acknowledged that the industry remains in a “gray area” while regulators complete the second phase of rescheduling.

“I think this next six months to the end of the year is key,” he said, describing the period as an opportunity to create “a much simpler story as a whole for cannabis from the investor perspective.”

Lower Capital Costs Could Change The Industry

The panel also explored how improved exchange access could reshape cannabis financing.

Wild pointed to the first U.S. cannabis company reaching the New York Stock Exchange as evidence that regulatory barriers are beginning to fall.

“It happened a lot quicker than people thought,” he said.

According to Wild, broader exchange listings should reduce companies’ cost of capital because increased trading volume makes raising money less expensive over time.

That lower cost of capital, combined with healthier financial statements, could fundamentally alter how cannabis businesses finance expansion.

Consolidation May Accelerate

Both speakers expect mergers and acquisitions to increase as financing improves.

Wild argued that one overlooked catalyst has little to do with federal reform.

State license caps have largely disappeared.

Several years ago, large mergers often required extensive divestitures because companies exceeded state ownership limits.

“If that deal was happening today,” Wild said while discussing a previous industry transaction, “that would not be an issue.”

Gray agreed.

Beyond larger public-company combinations, he sees opportunities emerging from distressed operators and receivership situations that have created attractive acquisition targets.

“I think that’s going to drive a lot of larger-scale M&A,” he said.

Consumer Packaged Goods Companies Are Still Waiting

Another theme running throughout the discussion was the eventual participation of large consumer packaged goods companies.

Gray pointed out that many alcohol and tobacco companies invested heavily in Canada during the country’s early legalization period.

The United States represents a significantly larger commercial opportunity.

“You can certainly bet they’re eventually going to be looking at the U.S. market once they’re able to,” Gray said.

Wild believes rescheduling and broader exchange access remove many of the structural obstacles that previously complicated those investments.

Once cannabis companies can trade alongside traditional public businesses, partnerships and acquisitions become much easier to execute without jeopardizing exchange listings.

The Market Already Exists

Despite discussing taxes, regulation, and capital markets, Wild ended the conversation by returning to what he views as the industry’s strongest investment thesis.

Demand.

“This is a business that’s in the U.S. now about $30 billion and growing,” he said.

“The thing that attracts me… is that we know the market is there.”

“We know that the demand is there.”

“The opportunity is moving the illegal market over to the legal market.”

Gray echoed that long-term optimism.

He described the current regulatory progress as only the first phase.

“The first phase is giving us some of the major changes,” he said.

“The second phase is getting back to the fundamental growth industry,” opening the door to a multi-year expansion driven by both illicit-market conversion and growth in the industry’s total addressable market.

For years, cannabis investing has revolved around anticipation.

The panelists suggested that the industry’s next chapter may look much more conventional. Meaning, less speculation, more earnings, and more cash flow.

And, perhaps for the first time in years, a story Wall Street already knows how to value.

As capital begins to return to the cannabis sector, understanding how institutional investors evaluate earnings, cash flow, valuations, and growth opportunities is becoming a competitive advantage. IgniteIt’s Cannabis Capital Conference returns to Denver, Colorado, on September 18, bringing together leading investors, public company executives, lenders, analysts, and operators to discuss the trends shaping the industry’s next phase. For executives preparing for a more mature capital market, it will be an opportunity to hear directly from the people helping define cannabis finance.