Despite the sector's volatile state after a roller coaster 2019, former National Basketball Association forward Al Harrington continues to steer his fellow athletes to invest in cannabis while remaining patient on investment returns.
"What people have to understand is there is not a lot of profit in legal cannabis right now just because of the way its regulated, the tax structures and different things like that," Harrington said in an interview with CNBC. "But the one thing I tell them from a risk standpoint is – its prohibition."
"If you're going to be a part of something that will be around forever, and we're on the ground floor of pioneering the industry that I firmly believe will be bigger than the liquor industry and potentially bigger than the cigarette industry. And we know how big both those industries are. That's the risk, but the reward outweighs the risk."
Harrington, 39, made his rounds in Chicago, the site of the 2020 NBA All-Star Game, to promote his cannabis company, Viola. The company closed on a $16 million Series A funding round last October, adding new investors from ex-athletes, including former NBA players Josh Childress, Kenyon Martin, and Wilson Chandler.
Harrington, who grossed roughly $89 million in his playing career, played 15 seasons in the NBA, including two seasons with the New York Knicks.
His stance on the cannabis industry comes at a difficult time for the sector. The cannabis ETFMG Alternative Harvest ETF (MJ) is down 4.03% year to date and has dropped 37.41% over the past six months and took a 53.96% hit over the past year. ETFMG founder and CEO Sam Masucci blamed the initial excitement of the sector for its current decline, saying investors over-purchased cannabis companies.
"The prices of these companies get ahead of where they should be; they don't have the revenue to support it," Masucci said. "And so, the industry gets way overbought, and then it gets way oversold, which is exactly what you've seen in cannabis."
Unclear regulations in the U.S. have also contributed to the instability of the cannabis sector. Though some states -- like Nevada, California, Colorado, and now Illinois, which grossed over $19 million in sales the first 12 days recreational cannabis was eligible to purchase -- have legalized cannabis, there is no clear sign when it could be federally regulated like in Canada, which is where many companies in the ETFMG Alternative Harvest ETF are based.
But as more states like New Jersey (which expects $210 million in state tax revenue from cannabis sales, according to the New York Times) and New York (which projects $772 million in tax revenue) get closer to the legalization of cannabis, a federal bill may gain more momentum. The 2018 Farm Bill has already legalized CBD derived from hemp plants and contains no more than 0.3% THC; hence, some form of cannabis is already legal.
"The train's left the station," Masucci said. "People are using it whether it's just straight CBD, hemp derived [or] THC in states where it's approved."
Like Harrington, BioSteel Sports Nutrition Inc. founder Michael Cammalleri is also advising former players to research cannabis. Understanding the proper regulatory environment surrounding cannabis will help fuel investment returns.
Cammalleri, who played 15 seasons in the National Hockey League, including three seasons with the New Jersey Devils, sold 72% of his sports nutrition business to Canada-based company Canopy Growth. The company will utilize BioSteel to grow its food and beverage products infused with cannabis.
Cammalleri, 37, said that investing in cannabis is a "challenging." He warned that investors should use caution as the industry is filled with companies who can't meet the returns on potential investments.
"Everybody has a buddy who has a cannabis company right now," Cammalleri said. "I think there are going to be a lot of winners and a lot of losers within the sector. So, I would say for an athlete investing, be careful at where you position yourself and what brands you position yourself with."
Harrington concurred, saying that he tells former NBA players that investing in cannabis isn't "a get rich quick opportunity." Another wall Harrington said he runs into while educating former players is financial advisors who may not agree with investing in the sector at the current time.
"They're never going to encourage you to take money outside of your portfolio because that affects their bottom line," Harrington said. "So I'm just trying to encourage the players to educate yourself on [investing in cannabis]. Don't miss out on this."