The cannabis industry is still hampered by a lack of experienced business leaders and the high costs of prohibition, according to leading US analysts, but there’s never been a better time to invest.
Speaking at Prohibition Partners Live, founder of GreenWave Advisors Matt Karnes said the industry was starting to build legitimacy after a period when business leaders with “any kind of pedigree” were reluctant to join the sector because they weren’t prepared to risk their reputations.
He said: “You had folks that knew a lot about cannabis, how to grow it and about the intricacies, but really didn’t know how to manage a business, or how to communicate [with investors].”
Karnes said in the US, investors had been frightened off by companies consistently missing earnings targets, and bleeding cash. “There was only so much they were going to take,” he added.
He said legitimacy is “starting to materialise”, but prohibition is still costing companies so much in taxes and compliance that many will struggle to survive.
“The longer federal laws are at the status quo, the more difficult it’s going to be for many of these businesses to continue.
“The larger companies that are well capitalised [will survive], and the smaller players, maybe some will consolidate. But the ones that don’t, and stay in limbo, will provide a very attractive opportunity for the larger players to come in and buy [them] at distressed values.”
Stansberry Research senior analyst and editor of Cannabis Capitalist Thomas Carroll said smaller players with strong positions in their market would be acquired at “decent” multiples, but agreed others wouldn’t be so fortunate.