With the flood of recent news surrounding traditional companies entering the cannabis industry, such as Constellations Brands’ investment in cannabis cultivator Canopy Growth, Coke’s interest in producing CBD-infused drinks (or not), or Altria’s pursuit of cannabis cultivator Cronos Group, one surprising lack of news has come from Silicon Valley.
One of the most common questions we get from potential investors is about our bearish attitude towards investing in cannabis retail operations. Our response is that while many entrepreneurs and investors have successfully created shareholder value by opening dispensaries, the majority of that value can be attributed to the scarce number of licenses issued by local governments.
In venture capital, fundraising and deploying capital is difficult in any environment, and one of the most important (and uncontrollable) drivers of fund returns is market timing. This raises the question, is the tenth year of a bull market really the right time to be raising a cannabis-focused VC fund? Our view is that from a relative value perspective, in the event of a market correction in the next few years, cannabis VC offers one of the most attractive sectors for risk-adjusted return.