The cannabis industry continues to grow rapidly across the United States, and all eyes are on the industry’s potential for investors. Today, investment interest comes not just from people looking to invest in public company stocks but also from individuals, groups, and entities that want to invest capital into cannabis businesses and licenses themselves.
How People are Investing in the Cannabis Industry
In mid-2021, we’re close to reaching the tipping point where half of the states across the country will legalize adult-use cannabis, so it’s not surprising that investment opportunities are a hot topic. Three of the top ways people and companies are investing in the industry today are through acquisitions, capital funding, and stocks. Let’s take a closer look at each one.
Multistate operators and larger companies have been busily acquiring brands with high growth potential to bolster their footprints across the country. When interstate commerce is eventually allowed, these companies will be positioned to grow exponentially and to do so very quickly.
Mergers and acquisitions are happening between big players creating industry behemoths as well as through smaller deals that give companies a foothold or expanded presence in specific markets.
In the past month alone, news about a dozen U.S. cannabis license holder mergers and acquisitions were available to Cannabiz Media clients who’ve purchased the Business Intelligence product. You can see a snippet of those news items in the image below.
Schedule a demo to see what M&A and industry news you can access through Cannabiz Media’s Business Intelligence product.
Large venture capital firms, institutional investors, and individual investors are looking for licensed businesses with strong growth potential in order to gain traction in the U.S. cannabis industry. Today, there are even highly successful cannabis capital advisory firms that work with investors to help them find the best opportunities.
What was once an industry many were afraid to dump large sums of cash into has become a market where the who’s who of investing are all actively looking for their next big wins.
During the first quarter of 2021, $357 million in capital investments went to 29 companies according to Crunchbase. This included seed, venture, and private equity in venture-backed companies only.
A handful of cannabis companies have gone public, and while they haven’t yielded windfalls of money for investors yet, there is hope that the industry’s growth trajectory will bring positive returns in the not so distant future.
According to research by MJBizDaily, 82% of global investments in the cannabis industry in 2020 went to public companies. It’s still very early in the lifespan of the industry, and many investment analysts believe now is the time to buy a strategic selection of cannabis company stocks or invest in a cannabis mutual fund.
Jon DeCourcey, Equity Research Analyst at Viridian Capital Advisors, recently told Greenstate the key to success is marrying a new-ish industry with traditional investing approaches, not theoretical projections of what could be.
What Affects the Value of Cannabis Licenses
There are a variety of factors that analysts use to determine the value of a cannabis license, not the least of which is the potential market size, particularly in states where adult-use cannabis is legal.
Beyond the usual criteria used to value a business, applying a value to a specific cannabis license is as unique as the cannabis industry. For example, intellectual property, including patents and trademarks, can significantly boost the value of a license as can real estate, location and security, and more.
Some things to keep in mind – the most important factors that investors look for in cannabis businesses according to MJBizDaily’s research are:
- Management team’s experience, qualifications, and strength: 67%
- Potential size of the return on the investment: 56%
- Detailed and realistic business plan: 44%
- Historical financial data or performance: 33%
- Potential of the company and its role and prominence in the industry: 33%
- Pro forma financials: 22%
- Timeline for the investor to get a return on their investment: 22%
- Strength of the business’ defensible assets such as their intellectual property or equipment: 11%
Key Takeaways about Cannabis Investing and License Value
Any cannabis business license holder who wants to increase the value of their license in the minds of investors should focus on meeting investors’ expectations based on the data we have that explains what they’re looking for from investment or acquisition targets.
Remember, you can connect with license holders as a Cannabiz Media License Database subscriber. Schedule a demo to see how it can help you grow your business or investment portfolio.