This is a follow-up article to How to invest in cannabis.
Once an entrepreneur, company and an investor have moved from the seed capital round to the Series A or B round finding that $500,000-$9,000,000 investment can be challenging. Instead of looking for traditional institutional capital try a cannabis specific leading partner. There are plenty of companies and funds that provide capital to the cannabis industry. Cannabis specific private equity firm Privateer Holdings raised around $50 million in its Series-B and is aiming for $75 million, as of a January LA Times article. Founders Fund led by Peter Thiel founder of PayPal and major investor in Facebook made a significant multimillion-dollar investment in Privateer proving that large institutional money is starting to look at the cannabis industry.
Prior to reaching out to these funds keep the following in mind.
A reoccurring theme at the Marijuana Investor Summit was the importance of the management team. A strong management team with transferable skills makes investments appear more secure. For example, if a company practiced within real estate for the last 20 years successfully, creating a real estate cannabis company with a management team of seasoned veterans provide the most security. Investors are more likely to invest in a company with an amazing management team with an “O.K. idea” than a company with a great idea and a bad management team.
Your cannabis idea and company that has less than $1,000 in revenue isn’t worth a billion dollars in the eyes of venture capital. These private equity firms are looking for reasonable numbers and lean towards convertible notes opposed to dumping money into an idea that has not yet been matured. Starting with a fair evaluation will open more doors and prevent insulting asking prices.
Have at least one to two years of revenue prior to requesting Series A or B capital. Kevin Harrington from CNBC’s Shark Tank was the keynote speaker of the Marijuana Investor Summit. During the CannaPitch, his common answer was “I have to see one to two years of revenues and come speak to me.” This revenue request was a reoccurring answer to each pitch discussed. Accredited investors need to see trends and momentum building for a cannabis company to feel comfortable.
Most investors analyze dozens if not hundreds of deals prior to even considering an investment. Not a single Pro Forma they have seen has lost money, ever. Being fair with projections can make a deal “real” and in turn could give the perception that your idea and projections are grounded.
Below is a list of companies or funds that have invested heavily in the cannabis industry.
Cannabis Funds and Investment Companies
- The Arcview Group
- Dutchess Capital
- Electrum Partners
- Locarno Capital
- Poseidon Asset Management
- ManhattanCanna Fund
- Founders Fund / Privateer Holdings
- Smokejump Capital
Avoid Pot Stocks
The last piece of advice that matters the most to investors looking into the cannabis sector, AVOID POT STOCKS. The Financial Industry Regulatory Authority (FINRA) issued an alert to would-be marijuana investors, cautioning investors about the risks of such speculative investments and warning them about the potential for fraud. Quantum 9 has seen many pump-and-dump schemes that trap investors into a great idea with no follow through.
What are the Best Cannabis Investments?
Investments in companies that provide software, hardware or technology that make lives easier have the most traction in the industry today. Technology for owner/operators of cannabis businesses or technologies that affect patient’s lives are the most popular cannabis investments. For example, Quantum 9 has a seed to sale product that makes the lives of owner/operators easier. Software companies are red hot in the cannabis industry right now.
About Quantum 9, Inc.
Quantum 9, Inc. is a Chicago, Illinois-based cannabis consulting and technology firm. The firm’s core expertise includes public policy, permit acquisition, construction oversight, staff augmentation, and employee training. Quantum 9, Inc. also specializes in hardware, facility, supply-chain, and process optimization. The Quantum 9, Inc. team has successfully guided clients to maximize efficiency within multiple facets of the cannabis industry. In addition, Quantum 9’s Seed-to-Sale software enables clients to remain compliant while optimizing all areas of cultivation and retail operations through data acquisition, retention, and analytics.