Forbes by Debra Borchardt
Silicon valley investors said they felt the same thrill and passion in the cannabis industry that they had felt during the dot.com era.
Cannabis investors met Silicon Valley during the Institutional Capital and Cannabis Conference in San Jose, California this week. Cannabis investment company MedMen organized the gathering that brought together some of the most influential names in the investor space.
The sold-out conference attracted investors that were looking to recapture the excitement felt during the dot-com era. An excitement that hasn’t occurred since and one that many are beginning to realize doesn’t often come along. Having said that, the heavy cloud of uncertainty regarding the new administration in Washington D.C. has new money concerned. Seasoned cannabis investors have long accepted this risk.
The general consensus at the conference is that legalization will happen eventually, but for now, that goal may be pushed out a few years. In the meantime, it’s business as usual as institutional investors and family offices came together to hear from the industry and see whether it’s a place to put their money or their client’s money.
Jim Flanagin, Managing Director at Granite Hall, a private investment firm said he got involved when he saw the huge demand for the product. “That’s what sold me,” he said. Chuck Smith, the Chief Operating Officer at Dixie Brands also noted that he is seeing a great deal of interest from sophisticated investors.
“I’ve been doing this since 2010 and I’ve seen a lot of tire kickers,” said Jonathan Littrell, Managing Director at MedMen. “But we’re seeing much bigger checks over the last six months.”
Chris Leavey, a General Partner at MedMen also stressed that the industry is unique and shouldn’t be compared to the microbrew boom or the tech boom. “It’s a unique industry that is transitioning from a black market business to a white market business,” he said. Since institutional players are hovering, but not necessarily jumping in Leavey said that the deal terms are very good and valuations are low.
California’s move to legalize adult-use marijuana is sparking a mini-boom in companies because the state is expected to make up 40% of the entire industry. This move is also being closely watched by alcohol companies who fear their market will take a hit as consumers begin to substitute marijuana for beer and wine. Vivien Azer, the alcohol and tobacco analyst at Cowen & Co. presented a compelling analysis that showed the declines in alcohol consumption at roughly the same time as adult-use marijuana began to be legalized.
“There was massive deceleration in Denver,” she said. “You can buy a $5 pre-rolled joint to share with friends or spend much more on drinks.” She noted that 80% of people surveyed had reported making that substitution. Many people over the course of the conference made the same observation that alcohol companies are worried and some have begun to get themselves educated on the industry even if they are officially staying away.
Real estate was also a big topic of interest. George Stone, Chief Executive Officer of Kalyx Development said, “It’s the evolution of a new vertical in real estate. We’re taking older industrial buildings and repurposing them. As the cannabis business grows, we’re going to need more real estate.” The challenge for landlords though is that if their tenants have any problems, they can’t take their assets as they would normally do. They can’t seize the marijuana plants to sell them to recoup unpaid rent.
The discussions about publicly traded stocks found most of the advice centered on the Canadian market. The stock exchanges in Canada have been much more receptive to these companies and several experts said this is where they are buying stocks. Alan Brochstein, Founding Partner ofNew Cannabis Ventures said he doesn’t expect big institutional money to enter the space until the big banks are comfortable and that won’t happen until Congress makes marijuana legal. “I also think about 90% of the over-the-counter marijuana stocks should be shorted,” he said. However, he personally doesn’t short stocks.
The experts were advising family offices that it may be easy to get into the cannabis industry, but it’s not so easy to get out. Many cautioned that investors can’t expect to get a distribution on their investment in a short amount of time. They also warned that the industry will see lots of hiccups and plateaus. Yet, even with many cautionary statements, attendees continued to express that they hadn’t felt this excited about investing since the early days of dot-com investing.