‘Investor fatigue’ hits pot producers
Confusion over which companies are officially licensed hurts growth
Investor fatigue has taken hold in Canada’s hot marijuana sector amid an influx of look-alike producers getting licensed and going public, analysts said at an industry conference Friday.
“There’s massive investor fatigue, like enormous, and people can’t tell the difference between licensed producers anymore,” Aaron Salz, CEO at Stoic Advisory, said on a panel Friday at the Lift Cannabis Expo in Toronto.
“Fundamentally, to some degree, these businesses, as prescribed by Health Canada and being in a highly regulated industry are almost forced to be identical in many ways.”
There are 44 licensed marijuana producers in Canada, but that could easily double over the next year as the government looks to increase cannabis supply ahead of the coming legal recreational market, expected as early as July 2018.
The pace of approvals among the thousands of licensed marijuana producer applicants has already picked up. Health Canada has been giving the green light to about one or two companies each month since the beginning of the year, up from just one every quarter previously.
Listing publicly is the cheapest source of easy capital and so there will likely continue to be an increase in the number of companies turning to the public stock markets.
“If you are a licensed producer, post-Trudeau, it’s been easy to raise capital,” Salz said, adding that when the market was created in 2014, it often took a month to get a deal done, but now licensed producers can close “a $100-million bought deal overnight.”
At least 13 cannabis-related companies have publicly listed on Canadian exchanges in the past year and seven more have announced their intention since the beginning of the year.
As the market evolves, the importance of licensed producers who grow the plants will diminish as packaging, and branding that transform the drug into novel consumer products such as beverages or edibles, becomes more prominent, the panellists said.
The focus in the Canadian market continues to be on licensed marijuana producers but it’s time to switch to looking at ancillary businesses that support production and distribution, which are more developed in the U.S., said Houstonbased analyst Alan Brochstein of New Cannabis Ventures.
For example, Canadians have yet to explore opportunities such as on-demand delivery and other tech-driven offerings that are the new buzz among Silicon Valley venture capitalists, he said.
“For every dollar spent on cannabis, several dollars are spent in and around the cannabis, whether it’s on genetics, packaging, distribution, software or compliance,” said Scott Walters, who has helped launch several marijuana startups and is CEO of Molecular Science Corp.
“I look at cannabis as a race track, where everyone has to show up and make a bet where you’re going to win or lose on a single shot,” Walters said. “But if you create or invest in a company that serves everybody, like a parking lot, they have to pay you just to show up.”