Cannabis Investment Opportunities – 2017

Marijuana is a cash crop.With cannabis sales projected to grow at a compound annual rate of 25 percent or more, investors realize the opportunities available in this new market. The most significant risk factor, of course, involves federal law enforcement, and some will call attention to Attorney General Jeff Sessions’ efforts to curtail state legalized cannabis businesses. However, given Sessions’ lack of legal basis and the torrential growth of the marijuana industry, it is unlikely he will be able to turn back the rising tide of cannabis revenue flowing into the bank accounts of savvy investors. Wall Street financial firms, not Washington politicians, will ultimately set the tone when it comes to cannabis investments. For example, Wall Street veteran Hadley Ford co-founded iAnthus Capital in 2014 and currently works out of the company’s New York office, where he raises capital to finance American cannabis companies. iAnthus also operates in Canada and is listed on the Canadian Securities Exchange.

 

Investor Opinion on Marijuana Businesses

 

Piggy bank with marijuana leaf on calculator.
In a recent interview reported by Marijuana Business Daily, Ford asserts, “Fear of the Trump administration has kept competitors from entering the market, so that’s good for us [investors] from a business perspective.” Ford’s successes prior to entering the cannabis sector include deals worth several billion dollars, including co-founding a cancer treatment facility that generates $100 million in annual revenue. He clearly recognizes a good investment opportunity when he sees one. Through iAnthus’ Canadian office, Ford sees an increasingly open cannabis market and believes the U.S. market will follow suit:
“The U.S. markets are three years behind the Canadian from capital formation. [In] Canada, you can go raise public money successfully. I would expect, in the next three years, for the U.S. market to look more like the Canadian market.” – Hadley Ford
Vivien Azer, a financial analyst at New York investment bank Cowen and Co., founded in 1918, is also bullish on the cannabis industry. Azer appears to be the first cannabis analyst at a mainstream investment bank, and her confidence in the cannabis industry is a significant reflection of how Wall Street views cannabis. Other analysts point to the recent $42 million acquisition of a 60 percent stake in High Times as a sign that the marijuana industry can expect higher valuations, more capital injections, and increased acquisition activity.


States Where You Should Invest in Marijuana

 

All three of these trends point to cannabis companies as hot investment opportunities, and with fewer sources of U.S. capital (compared to Canada), U.S. investments provide a better ROI. Those better potential returns come with a regulatory patchwork that varies from state to state, which requires diligence on the part of the investor, but the opportunities are well worth the extra effort. Just ask Chris Leavy, co-chairman of MedMen, a marijuana-focused holding company in Los Angeles.
“The asset class for the most part is still undervalued, especially the assets that are plant-touching.”– Chris Leavy
Shadow of dollar on marijuana signifying it's potential value.Echoing Ford, he observes that many “traditional pools of capital” are not yet in the picture “because of the federal prohibition,” and “your starting point with valuations is from a very undervalued level” (Source: https://mjbizdaily.com/analysts-high-times-purchase-buoy-cannabis-industry/). Oregon currently offers some of the best opportunities for investors, especially since Gov. Kate Brown signed the law eliminating the state’s restrictive residency requirement for cannabis investors. Since then, Amy Margolis, executive director of the Oregon Cannabis Association, reports a significant uptick in potential investors seeking partners in Oregon. Sam Chapman, a co-founder of Oregon’s New Economy Consulting, also reports an increase in investment inquiries, with California and Colorado investors leading the way ‒ an indication that those markets have already reached a saturation point. Oregon, on the other hand, is primed for investors to step in and fund infrastructure expansion, equipment purchases and real estate acquisitions that will allow successful cannabis businesses to take their success to the next level. Chapman believes investors who get into the Oregon cannabis market sooner than later “are going to be in a great spot.”

How to Invest in Oregon Cannabis

 

So how should a potential investor look to invest in Oregon? MedMen’s Chris Leavy answered that question when discussing undervalued assets ‒ those companies that
Sign of Welcome to Oregon with cannabis leaf.
 are “plant-touching.” While ancillary businesses like lighting, potting soil and fertilizer companies may represent low-risk opportunities, those opportunities have already been widely realized. Additionally, ancillary businesses do not offer the same potential ROI as companies that grow, process and sell cannabis. Since cannabis grow operations produce the commodity from which the entire industry creates revenue, large-scale grow operations are a critical component of any successful cannabis investment strategy. Better yet, fully integrated seed-to-sale companies are among the best positioned to thrive as the industry matures. In addition to creating the source of the cannabis industry’s revenue, integrated companies can maximize profits by controlling the entire process from plant propagation to retail sales.

What to Look for in a Cannabis Company

Trails End Indoor Cannabis GrowWhen investigating these companies for investment potential, quality standards matter, just as they do in any industry. Companies should have in place best practices to ensure consistent production of high-quality cannabis products. Those standards should govern all company processes from cannabis propagation, vegetation, and flowering to plant processing, cannabinoid extraction and product manufacturing, packaging and sales. Established best practices throughout the organization will create a reputable brand, which will produce the best ROI. Establishing best practices begins at the top, a cannabis company’s management team is vital to a successful operation that translates into a high-performing investment. While experience within the industry is important, steer clear of companies whose management is weighted toward former black market growers. The best management teams will include members with expertise in applicable fields like business management, commercial agriculture, geology, pharmaceuticals, process manufacturing, natural resource development, commercial food processing and other highly regulated industries.  Management teams that include geneticists offer a unique beneficial value proposition. Since the grow aspect of an integrated cannabis company is the ultimate source of wealth creation, it is worth mentioning a few key components of a successful grow operation. Generally speaking, the grow operation should resemble a commercial agriculture business. For example, commercial agri-businesses operate outdoors or in greenhouses as well indoors, taking advantage of free sunlight as part of their growing methods instead of relying solely on electric lighting. Also, while hydroponics can produce high yields, it is important to recognize that hydroponic systems require a higher level of expertise to operate successfully and run a greater risk of catastrophic crop failure. Additionally, not all hydroponic systems are appropriate to large-scale growing. Nutrient film technique such as aquaponic and drain-to-waste systems can provide good results, but systems like deep water culture are resource intensive and costly to build and maintain.

 

 

Time to Invest

 

With nationwide cannabis sales expected to top $5 billion this year, the time for waiting on the sidelines is over, and some of the best investment opportunities today are integrated seed-to-sale businesses in the investor-friendly Oregon cannabis market. But as with any investment, don’t overlook the due diligence required to identify the best addition to your portfolio.