Weed Money: Capitalism and Cannabis

by Travis C | Oct 31, 2019 | 420, Blog, Business, Culture

Cannabis grew to the behemoth it is today only by the pursuits of those willing to risk their lives.

This makes it no surprise that as the industry grows and more regulation and legislation is introduced, a lot of older cannabis industry and community members aren’t too happy. But there’s a harsh reality that we all need to face if this industry is going to grow into a federally regulated industry.

America is capitalist. It’s a free market.

Follow the weed money

The cannabis industry was partially built on advocacy, but also greed and capitalistic intent. If growers in California didn’t push themselves to grow more and more, bigger and better cannabis every year to make more money and beat the competition, we wouldn’t have the massive variety of strains and cultivars.

And you can bet your ass that some people have gotten rich as hell off cannabis, with more and more rich getting involved like celebrities, bringing more money and investment into the industry.

When the medical industry first began in Colorado, it was a small community with mom and pop dispensaries. But as recreational came into the state, so did bigger investments, resulting in dispensary chains that knocked plenty of small dispensaries out of business. It’s clear why small business doesn’t like big business, and the cannabis industry was built on small businesses, husband and wife operations, small groups of friends building something together.

But that is all changing, and it’s changing fast.

Capitalism comes for cannabis

States like Colorado and California have had several years to develop their medical and recreational cannabis industries. This means that both states are also filled with highly experienced cannabis industry entrepreneurs, ready to expand.

When a state like Oklahoma legalizes medical cannabis in 2018 with legislation that actively encourages out of state entrepreneurs to get involved, people are going to hop on the opportunity. And in Oklahoma, they definitely did.

Growers, processors, dispensary owners all flocked to Oklahoma to rent their home for 30 days in order to gain residency thanks to Oklahoma’s welcoming cannabis regulations. After they got residency, it was easy to apply and get started in the medical cannabis industry in the state. After August 2019, if you want to move to Oklahoma and start a business, you must live there for two full years before you can get residency now. In other words, if you didn’t get in before August, you’ll be two years behind.

This made a lot of industry entrepreneurs happy, but pissed off a lot of Oklahoma locals hoping to have their own local industry that now have to share it with Californians, Coloradans, Oregonians and others that left their saturated markets to start fresh in Oklahoma.

It’s a double edged sword

Capitalism has always been a double edged sword in America, which is probably why there’s so much debate around whether or not we need a new system. It promotes innovation and progress at the cost of leaving behind those that can’t compete.

Those that were once competitors that had to shut down or move shop because someone bigger or better came in, that sucks. But welcome to America. That’s capitalism, and that is what happens when capitalism and cannabis intersect.

The reality is that with a nation-wide legal cannabis industry that we want to someday achieve (even though there are plenty who don’t want that), big business is going to inevitably get involved, and small businesses will be pushed out if they can’t evolve, adapt and compete. Get an insider’s perspective on capitalism in cannabis from two long time cannabis advocates and growers, Chip Baker and Jeff from Little Hill Cultivators on The Real Dirt Podcast!

Are Big Cannabis Stocks Losing Steam?

by Travis C | Aug 20, 2019 | 420, 420 News, Business

As the cannabis industry expands, so do cannabis IPOs.

In other words, as more and more states legalize cannabis, the opportunity to become a publicly traded cannabis company has become enticing to many in the industry. But restrictions are fierce.

Due to federal law in the United States, no plant-touching cannabis business — regardless of its operation in a legal state — can list their business in American stock markets. Which is why Canadian cannabis stocks have become the focus of any would-be cannabis investor.

Canadian Cannabis Stocks

Being the first first-world country to fully legalize the sale and consumption of cannabis, Canada is on the forefront of managing a nationwide industry. And with a 100% legal industry, Canadian cannabis companies are free to go public. This has led to some big companies all but taking over the entire marketshare of cannabis.

The three main competitors in Canada currently are Canopy, Aurora and Tilray. Over the last year, these companies went public with a bang, building up shares and raking in the investment dollars. But after the IPO, there has been a consistent decline in stock value for all of these companies.

While Tilray made close to $46 million in this quarter ended June 30, they still posted a loss of $32.9 million. The second place contender, Aurora is still holding strong with no reports of major losses that would impact shareholders. However Canopy, the largest marketshare holder in Canada’s industry isn’t showing great gains.

While none of these major stocks are in danger of bottoming out any time soon, the recent projections that show profitability is still some time away have some investors considering other options. This is leading to a rising interest in smaller cannabis stocks in Canada and the US.

Smaller Cannabis Stocks Rising Up

No “small” business is going to be listed on the stock exchange, which means even the smaller cannabis stocks we talk about here are still going to be relatively large businesses. It is also important to keep in mind that as big as Canada is in size, it’s legal cannabis industry is relatively small compared to the U.S.

For example, while Colorado has an average of one cannabis dispensary to every 10,000 people, Ontario has one store for every 600,000 people, and Quebec only has one store for ever 500,000. That’s a lot of people for one location to service, which means that demand is high for quality products from whoever is selling it.

While Canopy made a lot of money in the topical, oils, and edibles market, they failed to account for the demand for high-THC products, including cannabis flower. Now they are changing their strains and upping their THC content, but until that happens, smaller companies can come in and get the deals.

Companies like Supreme Cannabis Co., MediPharm Labs Corp. and Pure Sunfarms Corp. all posted positive gains and earnings this quarter. Pure Sunfarms Corp. even reported a net income of $37.2 million Canadian, which is the largest net income reported to date in the Canadian market.

What’s next for cannabis stocks

There are people who are paid a lot more money than me to determine the future of cannabis stocks, so I won’t even try to guess. What I can say though, is that Canadian cannabis stocks aren’t going to be the only option in the near future.

While plant-touching businesses cannot be listed on the NYSE or NASDAQ, ancillary businesses are all fair game in the United States. This opens the door for companies that design the containers that cannabis is sold in, paraphernalia manufacturers, and other businesses that supply equipment, legal services and more to the legal cannabis industries around the country.

Whether or not companies in these fields will list themselves is up to them, just as deciding whether or not to invest in them is up to you. But The Real Dirt will do its best to keep you updated on exciting stocks and news that you should know about the industry.

Investing in Cannabis with Louis Han

by Travis C | Apr 2, 2019 | 420, cannabis business, cannabis industry, Guest, Season 3

Podcast: Play in new window | Embed

When Louis Han started at Arcview Group in 2015, the firm had only invested about $60 million in cannabis ventures. Today, they’ve invested over $250 million.

Louis Han is the Director of Deal Flow for The Arcview Group, an investment firm with a strict focus on investing in cannabis. Financing is one of the most difficult aspects of starting a cannabis business.

Louis and The Arcview Group make it easier.

Investing in Cannabis Businesses

Cannabis is still federally illegal. Banks operate on a federal and state level. This makes most banks averse to the idea of loaning money to new cannabis businesses, even if they operate within a legal cannabis state.

The Arcview Group negates the need for cannabis entrepreneurs to go to banks at all. With its massive investor network, from small scale angel investors to big money opportunists, Arcview can invest in cannabis businesses big and small.

Rising Opportunity, Limited Investors

While the opportunity to start a business in the cannabis industry has never been more possible, investors are still limited, and competition to obtain investment is fierce. This means Arcview can’t just invest in anybody. That’s where Louis Han comes in.

As Director of Deal Flow, an aspect of Louis’ job consists of vetting businesses seeking investment. There’s a lot of people looking for financial assistance, but only the most promising will get to interview with Arcview investors. Louis has seen some of the most successful cannabis businesses go through Arcview.

With his experience running his own cannabis business in California, plus his years with Arcview, Louis has an eye for what a cannabis business needs to obtain investment in the industry.

In This Episode

Louis Han is a cannabis investment expert. In this week’s episode of The Real Dirt, Chip and Louis talk over the phone about investing in cannabis and hemp. From how to formulate your pitch to reading your audience, Louis and Chip go through the full investment process.

In the words of Louis, “Getting involved with an investor is almost like getting married. Especially if they own a large portion of your business, they can have an impact on your financial decisions, and the way your business runs.”

If you’ve been considering seeking investors for your cannabis business, this an episode you’ll want to hear. And check out Arcview Group’s Investor Meeting happening in Canada on April 23rd!

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Cannabis Stocks: Understanding the Market

by Travis C | Nov 30, 2018 | Blog, Science & Technology

With Canada’s legalization passing this year, the stock market, more specifically cannabis stocks, are exploding.

The United States was the largest legal cannabis industry in the world with just the few states that have legalized. That all changed when Canada legalized cannabis on the federal level.

Canada created a national industry that spans the entire country, with a government managed program that handles distribution. Being the first first-world and G-7 country to enact widespread legalization, Canada’s stock market has seen a surge in new cannabis IPOs.

Cannabis Stocks in the US

Canada has the ability to allow cannabis businesses to go public now that it is legal. The United States still classifies cannabis as a Schedule 1 narcotic with no evidence of medical benefits (I still laugh out loud when I type that), and such does not allow legal, recreational cannabis companies to participate in the national stock market.

This puts cannabis businesses in the US in an awkward position. Unless they are an already listed pharmaceutical company that is creating a cannabis-derived medicine. Also with hazy laws currently regarding CBD, companies like Charlotte’s Web are able to be listed.

Other than CBD companies and pharmaceutical companies, the main stock options related to the legal cannabis industry is the supply businesses, i.e. the pick and shovel sellers. To elaborate, during the gold rush, a bunch of people may have gotten rich by finding some gold, but a lot more people got rich selling the picks and shovels to find it.

The majority of cannabis-related stock options in the US currently consist of packaging companies, safety technology companies, equipment companies (hydroponic equipment distributors), consultants and R&D companies or pharmaceuticals.

Cannabis Stocks in Canada

Due to Canada’s new laws and accessibility to the CSE (Canadian Securities Exchange), businesses operating in legal cannabis states in the US have started to list their companies north of the border. Companies like MedMen Enterprises and Green Thumb Industries are American companies that will be listed on the CSE.

It would appear that the majority of companies from the US joining the CSE are vertically-integrated, with businesses throughout the country in many different realms of the industry, from real estate to licensing to distribution. And while it is more difficult to invest in the Canadian stock market from the United States, it is possible.

Other than American companies listing their companies on the CSE, the majority of cannabis stock in Canada is, well, Canadian. With no worry of federal scrutiny, cannabis businesses in Canada can operate without problems from the government, build businesses and eventually list them. For this reason the CSE is expected to consistently list more and more Canadian cannabis stocks as the new industry grows and more businesses thrive.

So while Canada’s new industry is quickly expanding and opening up stock options in the Canadian stock market, the US market in terms of cannabis stocks is still struggling. The larger companies that are taking advantage of the CSE from the US are already multi-billion dollar companies, and thus will be highly sought after stock.

It most likely won’t be until federal legalization passes in the states that we will see cannabis stocks really start to appear for Americans to add to their portfolios. For now, you can invest in pharmaceutical companies, holding companies, and some others. It is also possible that if demand grows enough for the American cannabis stocks listed in the CSE, it will become easier to invest from the states. What will happen is still uncertain.