William SumnerAs the international cannabis industry begins to open up, thousands of investors and entrepreneurs are pouring millions of dollars into this nascent market. At the Marijuana Business Conference & Expo (MJBizCon) in Las Vegas, attendees were able to learn about the best practices for investing in the global cannabis market and how to avoid some of the pitfalls inherent in the international investment.
Speaking on the subject was a panel of cannabis financial experts. The speakers included Adam S. Fayne, an attorney at Saul Ewing Arnstein & Lehr; John McMullen, CEO of LGC Capital; Josh Rosen, Co-founder and CEO of 4Front Ventures; and John Sabetti, a Partner at Fasken Martineau DuMoulin.
Starting off the discussion panel was McMullen, who issued a short-term prediction for the trajectory of the cannabis industry.
“I think the forecast going forward for the next one year is still going to be extremely explosive, but that’s because borders are opening globally,” McMullen said.
Citing a report by the Bank of Montreal, McMullen went on to say that in Europe alone, the adult-use cannabis market is predicted to reach $98 billion by 2025. However, McMullen also warned investors to be circumspect about who they invest with; stating that some of the cannabis companies out there are overvalued.
“If you look at valuations, some of these companies, they’re just too farfetched,” said McMullen. “There are better companies out there, real companies.”
Echoing McMullen’s sentiment, Rosen stated that it is becoming increasingly difficult to discern the difference between real investment opportunities and fraudulent ones.
“We’re this stage where discerning between signal and noise is really challenging,” said Rosen.
Rosen continued by saying that although investors are starting to conduct due diligence on par with some financial institutions, it is still relatively shallow compared to other global industries. According to Rosen, when investing in a cannabis company, investors should look at the operator’s level of personal investment.
“One of the things from my investment management career that I always looked at, and I think it still holds true, is how much skin do they have in the game? How much of it is just other people’s money,” advised Rosen.
Noting the increased level of investor diligence, Fayne closed out the discussion by recommending to cannabis operators that they should be completely transparent with investors when seeking capital funding.
“Investors these days are getting smarter,” commented Fayne. “You want to be upfront with them; you want to show them all the positives, you want to show them where there are some landmines.”
