COVID-19 & Cannabis

Today we find ourselves in a nerve-racking environment as COVID-19 spreads across the globe. The pandemic has sent the global economy into a recessionary-like environment as investors remain uncertain as to how things will play out. I’m sure all of you have read quite a lot about the virus; however, we wanted to share our thoughts on the matter, what we expect to see in the private cannabis markets in the near future and why we believe recent events could uncover opportunities for savvy investors.

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The Iron Law of Prohibition

The “Iron Law of Prohibition” states that as the enforcement of prohibited drugs increases, the potency of those drugs increases as well. Basic economic principles support this theory:

1.      Where there is demand, there will be supply. Outlawing a drug has never curtailed the demand for said drug. Unfortunately, forcing the product onto the illicit market ensures the suppliers will generally be gangs, organized crime syndicates, cartels, terrorist groups and others who utilize their profits for nefarious activities.

2.      The greatest cost for drug smugglers is avoidance of detection. As such, black market drug manufacturers are incentivized to produce drugs in more concentrated and powerful forms.

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Be Radically Open-minded and Radically Transparent

Radical open-mindedness and radical transparency are invaluable for rapid learning and effective change. Learning is the product of a continuous real-time feedback loop in which we make decisions, see their outcomes, and improve our understanding of reality as a result.

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Be Fearful When Others Are Greedy

Warren Buffet once said that the wise investor should be, “Fearful when others are greedy and greedy when others are fearful.” We’ve all heard the saying, but how many of us abide by it?

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The Racist Roots of Cannabis Prohibition and the Argument for Social Justice Reform

The rising tide of cannabis reform has led to an explosion of industry. Legal cannabis sales have grown from c. $3.4bn in 2014 to c. 10.9bn in 2018[1], creating tremendous wealth for entrepreneurs and investors. Legal cannabis now accounts for about 120-150 thousand jobs[2], and that only considers plant-touching businesses. While we in the industry tend to wear optimist hats and focus on the positive changes, not enough discussion has focused on an area of legislative reform that continues to lag woefully behind: social justice.

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Cannabis Reform: Momentum & Roadblocks

Cannabis Reform Today              

Cannabis legislative reform continues to show great traction. Within the last year:

  • Oklahoma legalized medical cannabis (Jun-2018);

  • Epidolex became the first cannabis-derived medicine to be approved by the FDA and subsequently rescheduled by the DEA (Sep-2018);

  • Canada became the first G7 nation to legalize adult-use cannabis federally (Oct-2018);

  • Michigan legalized adult-use cannabis, and Utah & Missouri legalized medical cannabis (Nov-2018);

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The Many Sides of Legalization: An Investor’s Guide to the Politics of Pot

The excitement around investing in cannabis is obvious and undeniable. It shows up in headlines on a daily basis, and investors agree that the time to get involved is before federal legalization normalizes returns, not after. But when will that be? Most will readily say that legalization is going to happen, but very few can tell how or when it will happen. Still fewer can coherently explain the confused, fractured legal status of cannabis at the state level or the many nuanced ways cannabis could experience a de facto legalization that would stimulate huge growth in related capital markets. In this article we outline the myriad political pathways cannabis could take towards legalization, and just how soon it could happen.

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M&A Lights Up U.S. Cannabis Industry as BlackRock, Vanguard Announce Investments

Fund giants BlackRock, Vanguard increase pot exposure as legalized weed gains momentum; Fmr. Spkr. John Boehner “all-in” on cannabis.

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What Investors Can Learn from the Dot-Com Boom

In the late 1990s, hot tech stocks achieved massive valuations that look ludicrous today with the benefit of hindsight. Companies like eToys, WebVan, and Pets.com achieved respective market caps of $10.3bn, $10.9bn and $369m despite never exceeding cumulative net sales of $364mn, $271mn, and $34mn. Those valuations came crashing down starting in March 2000 when the bubble burst (all three subsequently filed for bankruptcy).

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What is a Reverse Takeover?

“Taking a company public” (a term used to describe a private company’s first issuance of stock on a public exchange) can be a long, complicated, and expensive process. In the case of cannabis companies—which often struggle to access private capital—many management teams have chosen to go public at a much earlier stage than would be considered normal for their counterparts in more established industries.

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