2024 © Poseidon Investment Management, LLC.
Disclaimer
The cannabis industry is real. Yes, it is still emerging. Yes, cannabis is still federally illegal. But things have changed dramatically in the 7 years since we launched our first professionally managed investment funds. Here are just a few reasons why we believe cannabis is still the right industry to invest in today.
The cannabis industry will double in size over the next 5–6 years. Legal U.S. cannabis sales exceeded $17.5 billion in 2020, up 46% over $12.1 billion in 2019. Forecasts predict sales will double again to $41.3 billion in 2025- and that’s just conservative estimates for the United States. Global cannabis sales will grow to $56 billion in 2026 from $21 billion today.
An analysis of publicly traded U.S. cannabis companies indicates their existing capacity only serves 19% of the total addressable market. With a current market cap around $36B, the top 10 publicly traded multi-state operators are only serving a fraction of the market’s total equity value. Valuations, however, are tracking behind those of Canadian publicly listed companies, in a U.S. market many times larger than that up north.
Underpinning 2020 growth was the fact that all legal states recognized cannabis as essential amidst COVID-19. Consumers flocked to dispensaries in prep of lockdowns. From “illegal to essential” is how many are describing it. And this designation is an appropriate reflection on how far the industry has come. 68% of American’s believe marijuana should be legalized — up from 12% in 1972. For many, 2020 was a wake up call to the pent up demand for cannabis.
Cannabis is no longer a partisan issue, and less and less so a generational issue. Only 75% of states allow for the sale of adult-use legal cannabis, and 39% are still operating in more restrictive medical-only frameworks. Still, five new states legalized cannabis in the 2020 general election, with New York and New Mexico joining the adult-use party in 2021. COVID-19 may have accelerated consumer adoption of cannabis in 2020, but legalization gains reflected a step-change in the cultural acceptance of cannabis as a part of the American way of life. Even voters in Mississippi approved cannabis legalization in 2020.
At the federal level, a Goldilocks scenario for legalization is emerging. Federal inaction is supporting a status quo that investors and operators have grown accustomed to. States are leading the way proving that they can safely regulate and tax cannabis. And to the victors go the spoils. Tax revenues from cannabis cleared $2.8 billion in 2020. These funds are being used for repairing schools, funding mental health programs, and filling state coffers depleted due to COVID-19. At the federal level, banking reform looks promising and the Senate has pledged to act on federal legalization with or without the support of the Biden administration. Legalization may not mean full interstate commerce and reparations, but even a half step will likely spark new growth and open up fresh opportunities for investors savvy enough to navigate these changes.
All scenarios have been modeled with multi-state operators clear on how to navigate disparate state-by-state regulations. With the backing of the most progressive institutional capital sources, cannabis industry leaders are in the early innings of a wave of consolidation that could last for the next decade…or more.
But it’s not just the United States. Canada legalized in 2018 and Mexico agreed to legalize medical use this year. The United States is in a legalization sandwich, and it can only last so long. Even Europe is inching forward, forcing the UN to address global drug enforcement treaties, that suddenly appear out of date. What’s happened in the United States will happen around the world. Simply put, cannabis is one of the fastest growing markets and investment opportunities in the world today.
Cannabis provides investors a generational wealth opportunity on par with the rise of the Internet, the end of alcohol prohibition, and the Gold Rush in 1849. Investors will be wise to ingest these trends and formulate strategies for investing in cannabis that will maximize returns amidst this very interesting industry dynamic.
Poseidon Garden Ventures targets late-seed cannabis firms who have launched compelling businesses and gained positive traction. As these companies consider what lies ahead — growth, expansion, and scale — we believe they will turn to one of the most experienced capital teams in the industry. For more information on our strategy, please visit us at https://www.poseidonassetmanagement.com/.
Patrick Rea is the Manager of Poseidon Garden Ventures, a $50 million venture group focused on late-seed stage companies in the cannabis industry. Prior to Poseidon, Patrick founded CanopyBoulder and was CEO for over 6 years. While leading the cannabis industry’s top business accelerator, Patrick raised and managed five funds and led investments in 115 companies. He resides in Boulder, Colorado with his wife, two daughters, and pug Millie.
About Poseidon
Poseidon was founded by siblings Emily & Morgan Paxhia in 2013, making their first fund one of the longest running dedicated cannabis investment funds. The Poseidon team has focused on a diversified strategy covering a range of company stages and industry subsectors across the capital spectrum. Now in the seventh year of conducting due diligence, deploying capital, and serving on multiple company Board of Directors, the team is considered a leader in the cannabis industry. This recognition, in conjunction with Poseidon being a first mover in the cannabis investment space, has led to a level of trust with industry insiders. Poseidon has forged a positive reputation in the cannabis industry by helping companies when others would not, resulting in proprietary deal flow.