Cannabis Musings

Friends, it was good to see many of you in Vegas for the lollapalooza that was MJBizCon.  A number of thoughts and observations from my trip:

  • Just about everyone I talked to is still mystified at the current state of the capital markets in the cannabis industry, particularly the public markets.  I heard the word "bubble" used a lot, but then I heard a lot more people counter that argument.  There did seem to be general consensus that the strategy of issuing more stock to get another all-stock deal done to issue more stock to get another all-stock deal done etc. is probably not sustainable.  What seems to me to be more sustainable is tapping the public markets for truly strategic and measured growth, not just relentless roll-ups.

  • Then again, Acreage Holdings just listed with a $2bn+ valuation.  

  • But what's interesting is that, even if this first real wave of public markets activity does correct, the industry itself is strong and growing like crazy and likely won't care, so it'll be a case study to watch how investors and buy/sell side activities adjust if/when that happens.

  • To paraphrase Rick Ross, everyday we're hustin'.  Everyone who wasn't there to look at all of the equipment on the expo floor (if you didn't go, this was a real, honest-to-goodness trade show, and the expo was mostly equipment and services, with relatively few brands) was making connections and finding deals.  Even the investor luncheon - there had to be 1000 people in the room listening to industry folks talking about investment opportunities in the industry.

  • Cash is back.  More vehicles are being formed and raised to put cash out the door, as operators are coming to realize that stock consideration comes with risk, and as more traditional (non-Cannabis) PE investors come into the market and want to write bigger checks and don't want to hold SAFEs (because, why would they?).

  • That's also because Series A/B rounds are on fire.  Operators in the industry are now large enough that they've grown past the seed capital stage and hitting up friends and family. (hence the real need for sophisticated/experienced charming deal/capital markets counsel such as yours truly to help them develop, structure, and make that pitch...)

  • PE funds being raised are still being funded by individual investors, not really yet with any traditional institutional investors (unsurprisingly).  One fund I spoke with noted that they've got 99 people in their new fund - they have to stop at 99 for boring securities law purposes - and the average check isn't relatively (to traditional PE funds) large.

  • Lots of focus on Senator McConnell and the 2018 Farm Bill, which (if you believe what a politician says before they actually do it) is now almost certain to include industrial hemp. Investors are very much eyeing the potential in hemp-based CBD with the anticipated passage of the Farm Bill, particularly if it really does, once and for all, clarify that it's legal (few operators seem to appreciate and/or care that the legality of hemp-based CBD is not as certain as they think it is).

  • Lori Ajax, Chief of the CA Bureau of Cannabis Control, finally gave some public guidance (after relentless public questioning) that the newly-proposed regulations weren't intended to eliminate white label products. We'll see what happens there, but she suggested that no one should change their current practices yet (this is not legal advice).

  • I personally didn't see any dreadlocks or tie dyes at the expo, and instead saw lots of khakis and sensible shoes. Another example of the fact that cannabis is moving towards being like any other business with a giant trade show and people doing regular business things. (not a judgment on dreadlocks or tie dyes - more likely to be found at The Emerald Cup)

  • That being said, Vegas brings out some odd ones.  Waiting for coffee at a stand at NYNY, an older gentleman in front of me asked if they could grill his bagel. No, not toast it (that was an option he declined) - grill it.  I'm 99.99% certain this was a sincere request.  

Looking forward to seeing you all there next year, and definitely sooner than that.  

By: Marc Hauser