2021 was another year of growth, but also uncertainty, for the rapidly expanding cannabis industry.

For Jonathan Havens, co-chair of Saul Ewing Arnstein & Lehr’s Cannabis Law Practice and chair of the firm’s Food, Beverage and Agribusiness Practice, and Marc Adesso, partner of Saul Ewing’s Cannabis Law and Corporate practices, there are several key developments from 2021 that will impact the industry’s outlook in 2022.

Here, they share their predictions.

1. Federal policy reform has stalled.

While this year saw cannabis policy reform efforts gain momentum at the federal level, Havens said there was “no real advancement,” even for incremental reform like the Secure and Fair Enforcement (SAFE) Banking Act.

That piece of legislation, which would allow banks to provide services to the federally illegal cannabis industry, cleared the House for the first time in 2019, and twice in 2020 as part of two separate COVID-19 relief bills. This year, the House passed the SAFE Banking Act for the fourth time in April before approving it a fifth time as an amendment to the National Defense Authorization Act (NDAA) in September.

The banking legislation has consistently hit opposition in the Senate, where it most recently stalled when legislators removed the bill’s language from the NDAA.

In terms of more sweeping policy reform efforts, the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act, which would federally legalize cannabis and encourage social equity in the industry, passed the House in late 2020 before its reintroduction this year. It received approval from the House Judiciary Committee this fall.

Meanwhile, U.S. Sens. Chuck Schumer, Ron Wyden and Cory Booker unveiled the preliminary draft of the Cannabis Administration and Opportunity Act (CAOA) this summer to federally deschedule, tax and regulate cannabis, although formal legislation has yet to be filed.

“There has not been meaningful federal reform on the cannabis front, and unfortunately, that’s not something that we see changing much in 2022,” Havens said. “Yes, there is a midterm election coming up at the end of 2022, but given the current Senate rules and the makeup, it’s going to take 60 votes to get this done, and we’re just not sure there are the votes there for incremental reform, let alone meaningful, sweeping federal reform.”

2. States are increasingly taking matters into their own hands.

Despite the challenges at the federal level, the industry has continued to grow at the state level.

State-by-state policy reform efforts accelerated with the successful ballot initiatives in the 2020 election, when Arizona, Montana, New Jersey and South Dakota voters approved adult-use legalization measures (although the South Dakota Supreme Court struck down that state’s initiative last month). At the same time, Mississippi and South Dakota voters approved medical cannabis legalization measures (although, as in South Dakota, the Mississippi Supreme Court has since overturned the initiative).

Going into 2021, the Connecticut, New Mexico, New York and Virginia state legislatures all legalized adult-use cannabis, while Alabama legalized medical cannabis, and Havens is looking to Maryland and Pennsylvania as the next states to legalize.

“The East Coast is certainly ripe for it, given that there are so many adult-use states now with New York, Connecticut, Massachusetts and others,” Havens said. “While not every state might want adult-use … everyone views it for what it should be viewed as, which is a tax play. There’s a tremendous amount of tax revenue that can be derived through legalization.”

Havens also points to Florida as a contender for adult-use legalization in the next year or so.

“It’s states that are strong medical states that are looking to transition to adult-use,” he said. “Florida is a natural target there. I don’t know if it’s going to be 2022, but Florida certainly has an appetite for it, or at least there’s a meaningful constituency within Florida.”

3. ‘Markets don’t always act rationally.’

When President Joe Biden took office at the start of the year, many industry stakeholders thought a Democratic administration would take steps toward federal cannabis legalization, which led to increased valuations in late 2020 and early 2021. While the markets acted as if Biden would advance federal decriminalization efforts, Adesso said that the former senator has not historically supported sweeping reform.

“Markets don’t always act rationally,” he said. “What you saw this last year, I think, is some irrational exuberance around the Biden administration taking power.”

RELATED: What Would a Joe Biden Presidency Mean for the Cannabis Industry?

The result was “a big pop, then that came down and now those valuations have stayed depressed,” Adesso said.

Those depressed valuations are largely what he calls “emotional responses” to potential shifts in federal policy, and he added that they are not a fair reflection of what is really happening in the market.

“You had a lot of the MSOs reporting good year-over-year results, significant increases in revenue production [and] footprint year-over-year, and then their valuations aren’t necessarily showing that increase, that improvement,” Adesso said.

The bottom line: The market doesn’t always correlate to what is actually happening in the industry, a trend that Adesso expects to continue into 2022.

4. Alternative financing options are on the rise as the industry awaits banking reform.

Banking, of course, remains one of the largest obstacles for state-licensed cannabis businesses, as most federally regulated financial institutions shy away from providing services to an industry that remains illegal at the federal level.

“You see banks not wanting to get into this, especially at a higher level, and then that trickles down to the actual cannabis companies themselves and what they have to do to be able to finance their operations on a larger scale,” Adesso said. “Basically, what that means is when these companies are going to people for equity financing, they’re having to do alternative-type transactions. They can’t just go to JP Morgan or Bank of America and take out a $100 million line of credit. Those banks aren’t going to do that for them.”

Instead, cannabis companies are increasingly exploring different methods of selling equity into the capital market, either listing on the Canadian Securities Exchange (CSE) or on the over-the-counter (OTC) markets.

RELATED: Beyond an IPO: How Cannabis Businesses Can Access Capital

“Additionally, because of this situation, we’ve seen a proliferation of alternative finance companies also coming into the cannabis industry,” Adesso said. “One of the biggest trends we’ve seen are cannabis REITs. Two or three years ago, there were probably two, maybe three REITs. At my last count, I think there are 13 or 14 of them now. They’re doing both equity and debt deals with cannabis companies, based on those cannabis companies’ real estate, mostly [working with] MSOs.”

The SAFE Banking Act would relieve some of these pressure points, but after being stalled in the Senate five times, does the legislation have a chance in that chamber?

“I think SAFE Banking could get passed,” Havens said. “It’s a question of will Schumer and Booker and Wyden … endorse incremental reform like SAFE Banking, or is it going to be sweeping reform or nothing at all? If the latter, then no, SAFE Banking Act will not get passed, unless, of course, there’s a major shift in the makeup of the Senate or Schumer decides to change his approach.”

5. It will be business-as-usual at the FDA under Califf.

In mid-November, Biden announced that he would nominate Dr. Robert Califf, a former commissioner of the U.S. Food and Drug Administration (FDA), to return to his post.

“I know it’s been reported that he recommended some cannabis-derived drug products for patients,” Havens said of Califf. “I’m not reading too much into that, other than to say that I think he realizes that any drug, whether it’s cannabis-derived or otherwise, when well-researched and safe and effective and can treat patients, it should be used to treat patients.”

While Havens said that Califf doesn’t seem to have strong opposition to cannabis, he expects it to be the “status quo” when Califf assumes his role.

“I don’t expect that he’s going to be more or less active in the cannabis space than his predecessors,” Havens said. “I suspect he will let the science take the agency where it’s taken the agency before.”