Investors looking to get an insider perspective on the cannabis landscape got a crash course on valuations, potential emerging markets and industry trends during the pre-conference day of the MJBizCon INT’L show in Toronto.
On Tuesday (August 15), the Investing News Network (INN) had the opportunity to attend the kick-off day for MJBizCon INT’L. It was focused on all things business and investing for the cannabis sector.
Here are some of INN’s highlights from the first day of MJBizCon INT’L for those who missed it.
10 things to know for investors
After an initial presentation from Scott Greiper, president of Viridian Capital Advisors, investors got a rundown of the 10 main things everyone needs to know when looking to invest in cannabis. It was led by Troy Dayton, CEO of the Arcview Group, a company that oversees the Marijuana Index, which tracks North American cannabis stocks.
Dayton said investors should be aware of finicky regulations, be skeptical of export dreams and acknowledge that policy change doesn’t happen with an empty wallet.
The executive recommended placing 1 percent of investment money or earnings into organizations helping make these changes happen. Through his presentation, Dayton covered two of the biggest players in the market: investors and consumers.
Most cannabis consumers are not wealthy, Dayton explained, meaning when considering aspects such as branding and costs, keeping low-cost products in mind can be beneficial.
He highlighted lower-cost products as a “huge missed opportunity” in the space, explaining that consumers from lower incomes may be more inclined to buy from illicit sources due to cost. Dayton also explained that the industry can look simpler than it actually is. With factors like regulation and legality issues, the cannabis industry is a different ballgame from the average commodity investment.
Dayton said one of the best ways to stay sharp is to build a strong network of knowledgeable people in the industry so you have experts to turn to when choosing your investment strategy.
“There’s a certain camaraderie when you invest into this industry,” he said.
International investing considerations
Following Dayton’s presentation was a panel discussion about the different factors surrounding international investment in the cannabis space. It featured Hadley Ford, CEO of iAnthus Capital Management (CSE:IAN); Matt Karnes, founder of GreenWave Advisors; and Samuel Proctor, CEO of GTV Capital, a special situations fund focused on the Canadian cannabis industry.
As the panelists weighed the pros, cons and outright feasibility of certain international ventures, Karnes said when considering certain countries for business and expansion some major red flags are a country’s financial stability and whether it has seen recent conflict like a civil uprising. “You have to really look at the political risk, the economic risk for every country,” Karnes said.
Karnes also highlighted the importance of strategic partners when looking to scale globally.
“There are some companies now entering into the fray in cannabis that already are scaled, like the beverage companies, so if you want to make a play, you already have that kind of infrastructure, the marketing, distribution and so forth,” he said.
As the panel began to wrap up, the three speakers were asked which opportunities they are most excited about in the cannabis space in the next five years. Proctor said he is most excited about the full federal legalization of cannabis in the US, highlighting growth in the medicinal sector. “The sooner [full federal legalization] happens, the better,” he said.
“I think we now have or will soon have that needed momentum where we’re going to take the overall market-wide level of research and understanding to the next level,” Proctor added.
Hadley explained his excitement is about the opportunity for significant growth in the space, honing in on revenue and market expansion. “Today you’ve got a US$50-billion market in the US, both black and white markets, that represents probably 12 or 13 percent for penetration rate,” he said.
Hadley said the projection for the next 10 years is upwards of 50-percent entry in the market, which he explained will still be “well below” where alcohol, wine and beer are found.
Karnes echoed Hadley’s sentiment by explaining that many of his clients feel similarly towards upcoming growth potential in the cannabis space.
Canopy Ventures Managing Director Micah Tapman offered investors a look at valuations in the cannabis space. Tapman’s chat touched on the various types of risks that can go into cannabis investing.
“You need to understand your baseline risk — what is a US treasury, which is the lowest level risk for an investor? Real estate is a mid-market risk, and jump onto those types of things to then put cannabis into perspective,” Tapman told INN after his panel.
“The reality is, I could probably make 12 to 15 percent doing much less risky investing in other sectors, so if I’m going to be investing in cannabis, I really need to be north of 18 percent, which would be sort of the upper end for [factor investing], which is a risky investment, but not so risky as cannabis.”
Later in the day, INN checked out a presentation on the public markets by Jason Zandberg, a cannabis equity analyst for PI Financial.
Zandberg started by explaining that cannabis trading has remained fairly straightforward since the beginning. Investors have to pick licensed producers and then evaluate medical sales. However, he explained, that is about to change.
“This market is changing, is going to continue to change, it’s going to specialize,” the analyst said.
Zandberg explained companies counting only on licenses and the size of cultivation facilities are not worth an investment to him. He said stocks with cultivation-only licenses average about a C$68-million market cap, while pre-applicants have an average C$40-million valuation.
“A lot of investors will look at that and say that’s a fraction of the billion-dollar market cap of some of these companies, but we see this as a very expensive lottery ticket,” he added.
One emerging area Zandberg is particularly bullish on is retailing. “If we do see this overcapacity situation, we believe retailers will be in great position to capitalize on the lower price,” he said.
Don’t forget to look for our coverage of MJBizCon INT’L, with show notes from the floor and exclusive interviews on INN. You can also follow us @INN_Cannabis for real-time news updates!
Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in contributed article. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.