June 24-25, the National Cannabis Industry Association (NCIA) held an event in Denver for members and industry thought leaders. Poseidon attended the event, and like the ArcView Investor meeting held the day before, the excitement was palpable. Poseidon's Director of Relations, Emily Paxhia, was on a panel with Troy Dayton (ArcView), Alan Brochstein (420 Investor), and Justin Hartfield (WeedMaps) discussing the investor landscape on the public and private side. A few key notes from the discussion are below.
This is not a traditional investment space. There are softer qualitative aspects, which necessitate more than the usual due diligence.
Many insiders agree that the public market is not as strong as it could be. The best deals are still on the private side. That's where the real opportunities are presently.
The industry seems to be in the second wave, where better companies are going public after building their businesses on the private side.
This is an industry where people have paid their dues. The founders and activists that have made this industry what it is now deserve attention and respect--including the non-profits that are working hard to change the laws: NCIA and Marijuana Policy Project.
The ancillary space (businesses not touching the plant) is a great place to be – no local, state regulators, tons of opportunities as the space has so much room to grow. For example, machinery to produce concentrates, machinery for trimming, processing the plant--all are enjoying success, and the sky is the limit.
There are still efficiencies to be made and implemented. Production, technologies to achieve better productivity, branding, software... It's a long path for development and growth. Technologies to help scale the industry are proving very profitable, and have a lot of application outside the industry, as well.
If you want to buy growers, look to Canada, companies like Tweed are doing it right. Our national system could get a lot better, lots of room to improve.
There are a lot of scam companies making the industry look bad.
The exit strategy for most private companies will be public markets. For example, CannLabs – went through a reverse merger, valued at $150 million. No company is really worth these sky high valuations, but the market is paying up for it. There have been a lot of press releases by some of these companies, aimed mainly at pumping a company's valuation. It makes it hard to understand what’s really going on. If you want to know what's really going on, get on the phone, call them and know. Look at their numbers, dig in. Due diligence is invaluable in an industry as young and booming as this.
On the private side – brand new companies, want $5-10 million valuation with very limited value. There are private companies that have built a brand, have 5-10X valuation on their revenues, but they are making money and will do very well either going public or when legalization happen.