Cannabis, to some, is seen as a risky market. Bankers, the government, and society, in general, all have their own hesitations with the industry. This rings true for investors, too.
Some financial experts are adamant about the importance of investing in cannabis. Those who believe in the industry feel it has a long life ahead of it.
Others say beware of investing in cannabis at all costs. Due to the “trendiness” of the industry, they are certain it will die out. Not to mention, cannabis’s federally illegal substance is a turn-off for many.
2019 was a rough year for cannabis. Stocks plummeted, just one hurdle of many in the year, and sent some potential investors running. Even big players Aurora Cannabis (ACB), Canopy Growth (CGC) (WEED), and Cronos Group (CRON) fell 52.7%, 32.6%, and 37.4%, respectively, as of a Market Realist article published last November.
Capital in cannabis seemed, and was, tight.
Green Market Report had the pleasure of catching up with Jon Trauben, a partner of Altitude Investment Management, to try and decipher exactly what investors are looking for before they put their coins into cannabis in 2020.
Altitude Investment Management has collaborated with companies like Canndescent, The Green Organic Dutchman, and Grassroots.
Trauben explains that in order for the purse strings to loosen up again in 2020, investors need to see companies “meeting or exceeding their business plan and financial projections” for 2-3 quarters of the year. He goes on to say that cannabis companies need to first prove its ability to operate profitably and efficiently before investors want to take the plunge.
He adds that growth-stage companies with a proven strategy who are on the way, or already at, a profitable point in their business are the current focus for investors. “Scale, a moat and a strong management team are absolutely key attributes”, he says.
Yale Insights interviewed two Yale alumni in November of 2018. The pair formed Privateer Holdings, a private equity firm dedicated to cannabis. They explain in order for their company to make an investment, they “spend a lot of time looking at risk management, how these companies operate and brand.” They add that their company wants to see brands not focused on one state alone, but rather be a brand that can be successful in multiple states, and even countries.
Trauben sheds light on what he anticipates as a cold point for cannabis investors in 2020. He says that Altitude Investment Management believes hemp cultivation will go through a “boom and a bust cycle.” He reiterates that “the basic companies participating and servicing the industry that are executing their business plan” are the hottest points investors are searching for. “I know that’s not sexy,” says Trauben, “but it is fundamental.”