Weed Market Update: Wall Street Now Wants In as Cannabis Comes of Age
Progress within the context of emerging markets and specific industry opportunities is often measured best by the degree of attention on the part of Wall Street and their private equity and venture capital cousins. Whilst the past 2 years has witnessed a growing number of newly-established professional investment firms and mini PE boutiques focused exclusively on the cannabis market, the estimated $250mil in cash these boutiques are deploying across dozens of small companies is a mere pittance when considering how quickly US states, including California, are moving with respect to full throttle legalization.
We already know that mainstream Wall Street investment banks (other than one or two second tier firms) have kept themselves recused and/or kept publicly quiet on the topic of underwriting and banking cannabis deals due to the inherent risk relating to legal issues and regulatory unknowns that sit like a cloud of pot smoke over the industry. And, even if cannabis has come of age within the context of scientific and social acceptance–as evidenced by the number of US states that have gone legal in one form or another, the biggest impediment for Wall Street bankers and institutional investment funds to come to the cannabis party is the revenue management component of enterprises that ‘touch the flower’. Until recently, Wall Street and wing-tip investors have kept their wallets closed because transferring money or depositing funds relating to the sale of cannabis is prohibited under Federal Government law. But, as profiled by Institutional Investor magazine contributor Julie Segal, the investment industry’s perspective is evolving quickly…
Finance people see vast opportunity in former black markets: They are messy, opaque, cash-based, often without any records to speak of, and have plenty of holes to fill. It’s the stuff Wall Street careers are made of. When an investor successfully cleans up a mess, it is called alpha or excess returns. After the pot is smoked, the financial industry will take a business, document its process, build better systems, bring in professional managers, squeeze out efficiencies, and do a few mergers and acquisitions. Already in 2017 public companies have raised $1.4 billion in 177 equity and debt deals, compared with $543 million raised in 2016.
However much the cannabis industry has come up with ‘work-arounds’ to process proceeds from the sale of weed, mainstream investment bankers are mindful of the antiquated and misguided views expressed by the current US Attorney General as a reason for staying on the sidelines. Mr. Sessions has repeatedly called for the repeal of all state laws enabling the sale of medical or recreational Mary Jane, just as his sponsor, so-called President Trump has expressed his views that pot is bad stuff. Then again, Mr. Trump believes there is no such thing as global warming and he believes that Russian President Putin is being genuine when he says Russia has never and does not meddle in elections held by other countries.
But, the tide seems to be turning on Wall Street, if only because bankers there can never allow a good opportunity to go un-funded and rule of thumb is to never overlook opportunities that can be exploited.
Prospectus.com has advanced a number of business plans and private placement memorandums for cannabis industry entrepreneurs; the services are detailed here
Courtesy of Institutional Investor, extract below frames how the tides are turning…
Steve DeAngelo has two gray pigtails, a felony drug conviction, and $150 million invested on his ArcView platform.
“What I see happening now is the fruition of all the hippie pioneers’ most cherished dreams,” says DeAngelo. He’s a leader in the tie-dyed culture that nurtured cannabis under prohibition and, soon, out of it.
Semilegal weed has sparked a Wall Street land grab. DeAngelo uniquely has a foot in each world, and arms open to the inrushing suits. Hippie culture can not only survive financialization, he argues, but needs it to help spread the plant magic worldwide. Since the early days, “we felt that if more people consumed cannabis, the world would become more peaceful, more sustainable, more just, and a more pleasant and fun place to live in.”
For the entire II article, click here
Weed Market Update: Wall Street Now Wants In as Cannabis Comes of Age