Investing In Marijuana is Hot Right Now, But Don’t Get Burned In 2018
1. Get Started with Good Intel
Mainstream media like CNN or CNBC is not the place to be gathering information about Cannabis Investing. Instead take time to visit cannabis focused sites like this one. Much of the national news is negative related to the cannabis industry. Savvy investors especially in legal recreational states are not paying attention to the latest musings from Washington DC.
John Downs, Director of Business Development for ArcView Group, offers this on possible miscues by investors. “I think the first mistake is to do nothing and take a wait and see approach to the DOJ repeal of the Cole Memo. We feel this move by Sessions will have little impact on the industry. Counterintuitively, the move is actually good for investors because it keeps larger, more risk averse, institutional investors on the sidelines.”
ArcView Group is arguably the best way for investors to start gaining knowledge about cannabis investing. They host two day conferences across the US including Las Vegas, Houston, Miami, Austin, Dallas, NYC, Washington DC, Vancouver BC and Los Angeles. In other words they will have an event somewhere close to all.
Attend cannabis investor events for several months and come to your own conclusions. Talking to other investors at these venues or perhaps on investor forums would be helpful.
2. Does your Cannabis Investment have the Right Personnel?
Many of the better cannabis concerns are probably well past their seed stage at this point and moving into Series A and B offerings. The ones that have been successful during these capital raises have been able to convince investors that they can grow a business into a thriving enterprise. A key step in executing on their business plan is hiring the best staff to further company goals. Those companies that think they can get by hiring friends and relatives for key positions are bound to get steamrolled by entities focused on hiring the best person for each job.
Canndescent, a leading premium brand cultivator with operations in Desert Hot Springs, is a great example of this. CEO Adrian Sedlin realized early on that he would have to go outside of the cannabis industry to fill important positions like Cultivation Manager or VP of Marketing. His vast business experience includes four successful start-ups and exits along with an MBA from Harvard. He sees other cultivators going in the wrong direction.
”The most frequent mistake is to invest in a master grower. While there are many people who have grown cannabis, very few master growers have cultivated cannabis at scale. Just because a person managed a corner store doesn’t mean he or she can run Walmart. The same thing holds true in cannabis” according to Sedlin.
I can remember several years ago when the feeling was that underground master growers would be able to command higher and higher salaries when companies competed for their talents. “This too shall change” as the old saying goes.
Canndescent recently hired their Cultivation Manager out of the Flower Industry. This person brought a comprehensive knowledge of greenhouse operations and dealing with the California regulatory environment.
Sedlin added “Beyond that, a common mistake is to focus too much on the cultivation piece and to ignore the other key elements of the business including, construction, licensing, financing, distribution, marketing, packaging, branding, and creating sell-through at retail. To generate a profit, one must cover all facets successfully.”
Canndescent also has added a VP of Marketing with an extensive background in Consumer Packaged Goods both as a consultant to national brands and in-house for a large supermarket chain. On both of these open positions Canndescent sought out top executive recruiting firms to get the best candidates.
John Downs from ArcView had this to add regarding this topic. “Management is the single most important factor when it comes to predicting the success or failure of a startup. And in an industry as volatile and fast-moving as the cannabis industry, it’s far more important to have a skilled jockey than a fast horse. Fortunately for cannabis investors, there are a lot of very qualified executives immigrating from other industries to cannabis to take advantage of the ground-floor opportunity. We see way more investors willing to take an active role by joining their investment target as a Director or executive so that they can be hands-on in building the business. These investor-executive types are having a substantial impact and helping continue its development at lighting speed.”
3. Manage Your Expectations
There’s a high demand for Cannabis and it is a new industry in terms of legalization. This gives investors a very false sense of expectation. It’s important that the investor examines the opportunity subjectively and consider the right key metrics. Some of these include crop yield, sales progression, and most importantly, market penetration. Great product demand does not solve these metrics. Investors need to focus on companies that bring great planning and adjustment to environmental conditions and management of marketplace seasonal trends.
Grown Rogue is a premium cultivator located in Southern Oregon. Founder and CEO Obie Strickler has an extensive business background includes executive stints in various sectors of the mining business. He has been building Grown Rogue for several years now and added this.
“Identifying companies that are based on sound fundamentals who have positioned themselves for long term success through branding and market presence. Do not be fooled by promises of quick money or high rate of returns in the short term. The most well positioned companies are focused on establishing market share and reliability for long term sustainability. Price compression is coming so focus on efficiency and optimization of process are paramount to success.”
Investing in cannabis is not all that different than any other business. While there are many more issues to consider, those investors that pay attention to these three potential pitfalls will be way ahead of the crowd.
R.W. Navis is one of the leading Executive Recruiters in the Cannabis Industry and is also actively engaged in raising capital in the space. He has contributed articles to MJ Biz Daily, Marijuana Venture, Desert Magazine, Santa Barbara Independent, and The Fresh Toast. Connect with him at www.linkedin.com/in/rwnavis/.