Don’t put all of your eggs in one basket. It’s good advice for life, and practical advice for investors in the cannabis space.
Both Randy Maslow, president and director of iAnthus, which owns and has investments in vertically integrated operations in six states, and Kevin Murphy, CEO of Acreage Holdings, whose portfolio encompasses cultivation, processing and dispensing operations in 11 states, agree diversification is a wise strategy when it comes to investing in the cannabis sector.
“I think for anyone looking to access investments in the cannabis markets it’s probably best to invest in a larger, more fortified group with more holdings statewide,” Murphy said. “Each state will perform differently, some are more conservative, some are more liberal. But it’s a pretty consistent usage rate across the country, if you average it out.”
Part of the challenge is that each state has its own regulatory structure — some are friendly to license holders, some not.
“It’s incredibly risky to begin with,” Maslow said. “If you don’t win a license, then you’re crapped out.”
Maslow added there are a variety of options for investors, including investing in a private company — but that strategy will often provide few options for liquidity and divestment.
Rick Frimmer, head of EisnerAmper’s national cannabis group, said investors should view the near-term and the long-term markets as different business models.
“In most of the states, licenses are not unlimited,” Frimmer said. “So it’s not as if anybody can decide to go into any state and get a license.”
Frimmer recommended vertically integrating in one or two states to expand market share and mitigate risk from legislative changes on the state-level. Frimmer also noted he believes branding will turn out to be more valuable than just having a cultivation area.
“In the short haul, I think that dominating a state market or creating a series of brands will be the best target,” he said. “Long term, they’ll be acquisition targets.”
Maslow also warned investors about buying companies on the pink sheets.
“There’s an awful lot of nonsense out there,” he said. “Anything that’s a new industry, the hucksters tend to find it. Today it would be cryptocurrency or cannabis, back then it was the Internet.”
Murphy concurred: “Experience plays a significant role in this business. One has to have a fair degree of business acumen, financial wherewithal and a health dose of common sense.”
Source: Justin Zaremba, NJ Cannabis Insider