Cannabis investors were able to discover some of the new trends in the space and learn where the industry may be headed in 2019 during the Arcview Investor Forum in Vancouver.
The three day event, which ran from April 23 to 25, gave investors the chance to hear from thought leaders in the public sector, including analysts from financial institutions who are researching the space.
As has been the trend at other recent investor focused marijuana events, multi-state operators (MSOs) in the US market dominated conversation. Read below to find out about highlights from the event.
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Analysts offer their take on the status of the market
Hosted by Gerald Pascarelli, an associate with the beverages and restaurants division at Cowen (NASDAQ:COWN), the event’s analyst panel reviewed how investors have gravitated towards the US market thanks to the emergence of MSOs.
Graeme Kreindler, equity analyst with Eight Capital, said the recent acquisition agreement between Canopy Growth (NYSE:CGC,TSX:WEED) and Acreage Holdings (CSE:ACGR.U,OTCQX:ACRGF) offers validation for the entire MSO play.
Analyst Matt Bottomley from Canaccord Genuity (TSX:CF,OTC Pink:CCORF) said his coverage has mostly shifted to the MSO space given the growth in the sector.
John Zamparo, equity analyst for the Canadian Imperial Bank of Commerce (CIBC) (NYSE:CM,TSX:CM), told the audience that, while investors have matured along with the sector, in his view some still see cannabis as a resource.
The Canadian bank is a recent entrant to the marijuana space, initiating coverage of Canopy Growth, Cronos Group (NASDAQ:CRON,TSX:CRON) and Aphria (NYSE:APHA,TSX:APHA) in January.
According to Zamparo, investors need to realize that the market will be dominated by differentiated products rather than growth production numbers.
Pascarelli agreed with his fellow analysts and added that he views the space as a consumer packaged goods industry.
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While Bottomley agreed that the metrics need to change for these stocks, he said that when evaluating companies the funded capacity and lowest cost of production metrics are a “necessary evil.”
Canaccord was one of the first financial institutions in Canada to jump on coverage and deal making in the marijuana market.
The panelists were also asked about the issue of value in the sector and the disconnect between some of the valuations in the market compared to results seen so far.
Zamparo said the cannabis market demands that investors project into the future to evaluate a company. “That’s what you have to do in today’s industry,” he said.
The analyst for CIBC added that investors can get too bogged down by focusing on profits from these companies.
“That does bother some people, not looking at profitability,” said Zamparo, as he explained that his firm looks at elements such as disruption and top line enterprise value to sales. “I think if you’re actually interested in profitability in Q1 of 2019 or Q2 of 2019, I think you’re missing the bigger picture about what these companies are trying to become.”
Kreindler added that his clients are similar in their hunger for profits from marijuana firms.
He explained that there is still a constant evolution of the metrics for these companies and the standards are currently being established.
In addition, the panelists discussed the potential for the current gap between Canadian firms and MSOs in terms of valuations.
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Kreindler projected that policy changes in the US will lead to some reevaluation on the monetary worth of MSOs.
Zamparo explained that, while the MSOs could catch up to Canadian valuations, this convergence of multiples could signify a decrease in valuations for the Canadian cannabis firms.
Other experts offer predictions and views on the market
Talking about the evolution of the investment market for cannabis, Urban Smedeby, president of ManifestSeven (formerly MJIC), said investors have quickly shifted away from their initial reservations in the risk associated with marijuana investing.
The executive explained that he is seeing more aggressive investors who are not backing away from the risk in this space.
Smedeby spoke during the “Raising Capital While Avoiding the Regulatory and Compliance Landmines” panel, and his firm is a business solution company focused on the cannabis space.
Sander Zagzebski, a partner with the corporate and business practice group at law firm Greenspoon Marder, told the audience that he expects to see merger and acquisition activity grow in terms of deal size and sophistication.
The lawyer said he can foresee the entry of antitrust reviews given the increase from deals in the US.
Zagzebski spoke during a panel titled “Crystal Balling the Future of Cannabis.”
“We have a group of folks that are aggressively trying to become the leading players so that when legalization happens they are going to be juicy acquisition targets for a US-based, consumer-branded company or something like that,” he said.
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As part of a panel discussing the various options to raise capital in the public markets, titled “Capital Market Funding Options: IPO, RTO, ETFs and SPACs,” one executive told the audience a new model of investing is about to begin trading in Canada.
Jonathan Sandelman, CEO of Cannabis Strategies Acquisition (NEO:CSA.A), said special purpose acquisition corporations (SPACs) are poised to capture the attention of marijuana investors due to the transparency and increased level of regulation.
“Its mission is to be very much like a private equity firm, but with daily liquidity, with the optionality not given to a private equity manager but to the investor,” he said.
According to Sandelman, his firm has already acquired five US cannabis companies in order to establish a presence in the market.
These purchases were approved by shareholders of the company in March.
“With a SPAC, you’re investing in a management team who’s going to go out and acquire assets … in the future,” said Anna Serin, director of listings development with the Canadian Securities Exchange (CSE).
Serin told the audience that the CSE will be offering SPACs at some point.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Acreage Holdings is a client of the Investing News Network. This article is not paid-for content.