Fresh off Canada's landmark, June 19th decision to legalize marijuana, we share an exclusive look at institutional cannabis opportunities through the lens of three funds listed on the SumZero Cap Intro platform. Each firm is active in the space in different capacities, and each approaches the complex subject from a unique perspective.
We asked these three funds to offer insights on their investment strategy in a burgeoning sector as well as the competitive landscape, technological innovations, and political headwinds shaping the legal cannabis industry.
"Canadian legalization will make cannabis more prevalent [in the US]. More US cannabis companies will become publicly-traded in Canada and therefore will place more focus on the oddity of the US federal stance on cannabis. So, I think there is a reasonable chance that in the next year or two, [US] federal legislation is approved which allows cannabis to be decided at the state level.
"This underscores the main conundrum for a US cannabis play. The first question we ask is “what happens if cannabis is fully federally legal”? I think the strategy of targeting a license scarce state (e.g. “we have 1 of 10 licenses in New York state and 20 million people X 20% users X 10% share X $1,000 per customer X 30% EBITDA margin X 8x EBITDA multiple means our New York license is worth $1 billion”) is going to fade quickly. The view that cannabis will be regulated forever like scarce gaming licenses is hard to support.
If federal legalization occurs, it will be very difficult to restrict inter-state commerce. Think of spirits—Jack Daniels is still made in Tennessee but it finds itself in stores in New York, Los Angeles and Chicago. To take that analogy one step further, Grey Goose is produced in France, and even with high import duties, it still is a category leader throughout the US without being American-made, let alone New York-made..."