Our lives have dramatically changed over the past few weeks as we come to terms with the reality of the situation in which COVID-19 has placed us. For most Americans, the economy has come to a complete standstill as social distancing and increased ‘stay-at-home’ measures have become the new normal. Only certain ‘essential’ businesses remain open across the country as the nation works together to flatten the curve of this pandemic. In this blog post we will explore the impact of COVID-19 on the cannabis industry, how private equity has performed historically in distressed periods and why cannabis investors should look at the current state of the economy opportunistically.
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, creating tremendous wealth for entrepreneurs and investors. Legal cannabis now accounts for about 120-150 thousand jobs, 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.
Candidates Overwhelmingly Support Legalization. Plus, Colorado Surpasses $1B in Cannabis Sales in Record Time and Congress Hears Historic Cannabis Reform Testimony from Powerful Coalition of Civil Rights Activists
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);
20 Governors Pen Letter to Congress in Support of Cannabis Banking Reform; Leading CPG Data Firm IRI Partners with Cannabis-focused BDS Analytics.
CBO Scores Cannabis Banking Bill; Rand Paul says “Good Chance” it gets a Hearing.
38 State Attorneys General Sign Letter to Congress Urging Action on SAFE Banking Act
Colorado legislature passes law promising new wave of cannabis investors; Missouri expands medical MJ program.
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.
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).