Investment in the cannabis industry continues to flow. According to the Viridian Deal Tracker, during the first 19 weeks of 2019, approximately $5.65B in equity and debt capital was invested in both public and private cannabis companies, an increase of +87% over the $3.01B for the same period in 2018.
Not surprisingly, Cultivation & Retail continue to be the most active sectors with investment and M&A firms, and Real Estate (most of which supports Cultivation and Retail) the next most active subsectors. Average deal size has risen from to $23.9M from $12.7M year over year, suggesting progress as companies raise larger pools of capital to support growth.
Additionally, there were 75 M&A transactions across these related sectors over this period compared to 49 for the same period a year ago.
This activity and the rise in valuations, clearly establish the sector, specifically the Canadian Licensed Producers (LPs) and Multi-State Operators (MSOs), as the primary generator of the first wave of investor wealth creation. Not to suggest that there is no longer an opportunity to generate acceptable returns from investing in this sector, but it is pretty clear that the ship has sailed for early entry at attractive prices.
Is the next wave brewing?
This was the theme of a panel I moderated last week at The Cannabis Society’s NY event. Panelists Emily Paxhia of Poseidon Asset Management, Vikas Desai of Welcan Capital, John Trauben of Altitude Investment Management and Joyce Cenali of Big Rock Partners had a lot to say.
There was vibrant discussion around global investment opportunities, particularly in Europe and So. America, pharmaceutical cannabis, biotech, mostly biosynthesis as an alternative method of cannabinoid production, and finally, stage, seed capital vs. growth capital. We didn’t even get to the subject of industrial hemp or to ask the question “ CBD, is it just an ingredient – the omega 3 of the 2000-teens, or a medical marvel? After all, 30 minutes is not a lot of time.
While there are many investment opportunities in those subsectors that will likely generate a VC rate of return, most felt that this next wave is about consumerization, personalization, and user bifurcation. Although not evident in the amount of capital raised to date, as many of these companies are raising seed or early growth capital, as opposed to much larger growth/expansion capital, this next wave will manifest itself in several ways and across many subsectors. What we can look forward to are companies that facilitate:
— Personalized medicine and wellness formulations such as sleep remedies, skin care, and new drugs therapies, some incorporating THC, CBD, other cannabinoids and compounds outside the cannabinoid family.
— Brands appealing to different archetype users such as seniors and reluctant female health-conscious consumers as opposed to just “stoners.”
– Promised Experiences such as “relax,” “sensual,” “energy,” “sleep,” “create,” etc..
— Additional form factors and new bio-availability standards such as fast-onset sublingual sprays, cannabis-infused wines and spirits, and sparkling beverages, in addition to vaporizers, which have dramatically impacted sales of cannabis flower. Do you and your friends socially lubricate with grain alcohol? Or, do you choose sangria, white wine, beer, mimosa, or my favorite, a Paloma with Casamigos Anejo!
It’s a mixture of plant science, brands, and use cases. Not a subsector per se, but a clear evolution from the initial wave.