A new type of investor is emerging to back private cannabis companies. And it will fuel further consolidation, IPO activity, and, most importantly, profit opportunity.
The cannabis industry is the highest growth and fastest developing industry in the world. What would be the normal cycle of any industry’s development is happening at an accelerated pace.
While rapid consolidation in most industries occurs only after the industry starts maturing, sometimes years in, mergers and acquisitions are happening now (as recently as earlier this week) at a shocking pace in cannabis. And it will pick up in pace next year.
The opening for all of this activity is the sudden and massive influx of capital into the industry. Only 18 months ago, it was incredibly difficult for cannabis operators to raise substantial funds.
Even Canadian producers, which benefitted from federal-level support for their existing medical businesses and their then-coming recreational businesses, found it difficult to raise all the capital they needed to fulfill their expansion ambitions. And American companies were starved for the capital they needed to grow nationally.
But with the new capital coming into the industry, particularly from venture capitalists (“angel” investors), the companies best suited to attract that capital were able to expand their brands and make acquisitions. In Canada, it was all with an aim of establishing a national and even international presence before competitors could, putting themselves first in the minds of consumers.
That’s starting to happen in the much bigger U.S. market now.
And here’s what’s driving all of it…
Three Wise Sources of Cannabis Capital
The door to the legal U.S. cannabis market, which used to only be open a crack, is well into the process of being kicked wide open.
The number of states with recreational cannabis programs on the books in the U.S. is in the double digits now, with at least two more expected early in 2019. And 33 have approved some level of medical marijuana.
Pair that with a series of green lights from the federal government including President Donald Trump saying he would likely sign the STATES Act, which would essentially leave states to do as they wish regarding the cannabis industry, and supported 2018 Farm Bill, which legalizes industrial hemp and gives a huge boost to CBD producers.
As such, big money has started pouring in. These are the three main sources of capital:
- Private Capital Increases: The big private equity and venture capital firms missed out on the first wave for the cannabis sector. But many of their customers, like “family offices” and smaller private equity firms, opened up their wallets and started to invest with real amounts. It was capital like this which enabled companies like MedMen Enterprises and Acreage Holdings to expand and go public earlier this year.
The most exciting cannabis IPO opportunity we’ve seen this year is about to hit the market. You need to know about these four companies before other investors are scrambling to play catch-up. Right now, each one of these companies is capable of generating between $500 million and $3 billion for investors the day they go public. We’ve laid out all of the details on these four IPOs – and how you can get in on them – even if you’ve never invested a dollar in your life right here.
- Public Capital Availability: When companies perfected the Canadian RTO (reverse takeover) and the Canadian Securities Exchange (CSE) opened its doors to American companies, capital suddenly became less wary of the U.S. companies. With the latter, the over the counter market had a liquid, regulated market-making organization to rely on. That will continue to be a source of capital for dozens of other companies in the United States, Canada, and elsewhere.
- Big Strategic Investor Interest: We’ve talked a lot about Big Alcohol’s Constellation Brands and its investment $3.8 billion investment in Canopy Growth and, more recently, the $2.4 billion investment Big Tobacco’s Altria Group made in Cronos Group. Other big companies entered into joint ventures, like Novartis‘ newly expanded partnership with Tilray Inc. These investments have been exclusively in Canadian companies, but it has provided other investors with a clear view of what the National Institute for Cannabis Investors has been saying for some time: This industry is destined to attract more and more massive investments from the largest companies in mainstream industries.
Coming Soon: The “Public Angel”
All of the above has created a “virtuous circle” where capital attracts more capital – a big strategic investor gives a few more private investors the comfort they need to enter the sector, the private investors help a company grow enough to go public, the public markets give the big investors a better idea of the “right” price at which to invest.
Soon, all of this capital will have another source – the “public angel.” This kind of “angel” is a company which is public itself, but it primarily makes investments in private companies. There are a few such companies around now, but they are mostly converting into operating companies – the opportunities available to them are just too big.
This is how one of the flagship picks in our Cannabis Investor’s Report portfolio got its impressive start – and it continues to make money off of those angel investments.
But there is another wave of public angels which will be coming to the IPO market in the next few months. Those of them which are successful will doubtless go through the same timeline as the current ones – success with some angel investments and eventual consolidation into operating companies with those angel investments they like best.
At the Institute, we don’t like to speculate too much on any particular consolidation move – people who do that are either guessing or they are in possession of material inside information. But new capital is coming to the industry, and many companies – public and private – will benefit, and consolidation will happen.
As an investor, you want to be in front of that capital – where the biggest gains are to be had – not behind it.
Thanks for being an important part of the National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors
P.S.: As we speak, an unprecedented flood of cannabis IPOs is barreling towards us. We’re talking about seeing as many as 42 millionaire-making IPOs hit in the next 90 days – four could go as early as January 31. And when it happens, it could create the next round of marijuana millionaires. And we want you to have an opportunity to be one of them. Just click here to learn how you can get in on this little-understood investing phenomenon.
8 responses to “New Generation of “Angel” Investment Riches Arising in Cannabis”
December 21 2018