Big wig investors are piling into cannabis, says world’s biggest pot boss
Big wig professional investors are increasingly investing in medical cannabis capital raisings — crowding out retail investors.
For years professional investors weren’t interested in anything other than “digging holes in the ground” — but that’s now changed, says the world’s most powerful legal pot dealer Bruce Linton.
More than 30 professional investor groups requested meetings in Sydney with Mr Linton on Monday alone, he told the conference.
“The capital markets, at the sophisicated level are actually looking at this space, so you don’t have to do the crazy hustle of retail investors,” Mr Linton said.
Already Canada’s NextLeaf and US hemp grower Sweet Earth are tapping Australian professional investors ahead of Canadian listings — instead of raising money in the mature Canadian market from more experienced cannabis equity investors, or listing in Australia.
Lenny Kerman, a director at Canadian pot consultant Theracann International, says extracting capital from investors was “incredibly easy” two years ago in Canada — but investors there have become much more discerning.
Canopy Growth this year took $US5 billion in funding from Constellation Brands.
That sum spurred major interest in the sector and Mr Linton expects to have the money in the bank this week.
The outlook for Australia
The next kick for Australian pot stocks is when they start making money, says Hunter Capital managing director Stephen Silver.
Australia has had 23 cannabis-related IPOs which raised about $250 million, Mr Silver says.
But taking out Elixinol (ASX:EXL), which ranks in the top 20 companies in the world, the remaining 22 companies only made $2.5m in revenue between them in the September quarter.
Theracann’s Mr Kerman predicts the volatility in equity markets around pot stocks will start to calm down from early 2019.
Investors hoping for takeovers by Canadian stalking horses could be disappointed.
Mr Silver and Mr Kerman say the jury is out on what large Canadian companies intend to do with their Aussie investments.
Canopy owns 11.1 per cent of AusCann (ASX:AC8), Aurora Cannabis owns 23 per cent of Cann Group (ASX:CAN) and Aphria owns 25 per cent of newly listed Althea (ASX:AGH) according to Bloomberg.
Mr Silver says local cannabis stocks are excited to win cornerstone investment from overseas producers — but confusion can set in when that investor sets up their own office in Australia.
Canopy Growth launched their brand Spectrum Health in Victoria in April.
Picks and shovels
Ancilliary cannabis services — those that aren’t directly growing or making cannabis goods — can be a good investment choice.
Mr Kerman says larger valuations possible in the Canadian market are driven not by a bubble but because institutional investors are recognising that cannabis is a “multi-faceted monster” which can be parlayed into many different industries.
He sees the “true value” in cannabis as ancilliary services.
In Australia, these kinds of companies are beginning to appear.
Among ASX-listed companies Rhinomed (ASX:RNO) is adapting its nasal stent for cannabis drug delivery and Lifepot Health (ASX:LSH) is buying a cannabis vaporiser.
Among unlisted Australian companies, Emerald Clinics and Cannabis Access Clinics are setting up networks of medical clinics, while CMTREX wants to build a mercantile exchange platform allowing companies to buy and sell cannabis in bulk in the same way as grain markets work in the US.
What to look for
Investors in Australia are tending to rate companies by their management teams.
Mr Kerman says companies without solid management are “dead in the water” and as more countries enter as low cost growers, cultivators without a solid exit strategy or offtake plan will struggle to attract investors or hit their potential.
Mr Silver says businesses that “are backable” by revenue and decent margins are likely to be the survivors over the next decade.