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3 Key Takeaways From MJBizCon

MJBizCon has become the premiere cannabis industry trade show. This year’s event included two floors full of exhibitors and four days of sessions if you include the pre-conference sessions. The event had over 40,000 registered attendees. After attending the full conference, walking the exhibition floor, and meeting the attendees, three major themes emerged.

Capital Investment is Slowing Down

Throughout the conference, multiple presenters and panelists focused on the fact that venture capital, private equity, and institutional lenders have all backed off of cannabis investments. Al Foreman of Tuatara Capital specifically spoke about the concept that every industry has micro cycles. He described these micro cycles as: initial excitement investments → overvaluations → saturation of investment dollars and businesses → failure of businesses to perform to expectation → attrition of businesses and investment funds → stabilization of established businesses due to less competition → renewed excitement about a thriving industry → cycle repeats. Foreman stated that Colorado, the longest established cannabis market, has experienced 5 such cycles already.

What does it mean for businesses? You will need to bring financial sophistication and conservative valuations to the investment table today. At the overall stage of the cannabis industry, we are in attrition. This means that without strong performance in a stagnating market, you will be unable to attract investment dollars.

What does it mean for investors? This is a great time to vet and invest in strong business models. Low valuations means that your investment dollars will get you a larger ownership stake. Since only strong businesses will be able to make it to your desk, you have a better chance of a higher return on a larger percentage of capital. Buy low, sell high might work during this attrition stage.

Operators Still have Professional Growing to Do

The legal cannabis industry has been established on the backs of legacy operators. These individuals have extensive, valuable knowledge and experience for how to operate, but often not how to operate in a traditional way. Meaning, for many years, they were incentivized to not keep records of their finances and operations because it would incriminate them in a court of law. Because of that, they often struggle with recordkeeping and disclosures which are requirements when seeking capital investment from well established investment sources.

In addition, this lack of recordkeeping has left legacy operators without data to analyze past performance as a means to influence future decision making. Thus, much of their decision making is based on anecdotal evidence from word of mouth, and feelings they have. In the past, these decisions served them well, but can handicap them when pitted against other competitors who do use data to their advantage in decision making.

While at MJBizCon, it was clear that this split between the existing, well established business world, and the spirit of the legacy operator remains strong. This was clearest to me when Berner, the founder of Cookies, took the stage. Berner has created a cannabis brand that is well respected among both cannabis operators and consumers. His brand, Cookies, extends beyond simply cannabis to clothing, music, and an ever growing empire of lifestyle offerings. Even as successful as the brand has been, there were times when Berner lacked the business polish typically seen with other founders outside of cannabis. For example, after speaking at length about the importance of genetics to their business model, Berner was unable to answer what percentage of Cookies’ budget was spent on genetics R&D. And yet, his company is incredibly successful, which a traditional investor might interpret as an enigma.

What does this mean for businesses? Cookies is a rarity due to its early entry to the market and trailblazer nature. The brands and businesses of the future will struggle to repeat this kind of success with similar strategy and behavior; business acumen and financial sophistication will win in the future.

What does this mean for investors? Don’t be blinded by what Cookies has done. Sheer will, early entry, and good initial product was enough 10 years ago. The world of legal cannabis has shifted since then, and the companies that operate in the same way will not be able to perform in today’s market. You should look for stronger businesses with less anecdotes and more data.

Investment is Sleeping on Brands

Outside of the cannabis industry, it has long been the case that brands win the economic game. Period. With the following prompts, I would wager good money that you will be able to name at least 5 brands: soda, clothing, talk shows, cell phones, coffee shops. Beyond just naming those brands, I would further wager that you could describe the feelings you have about each of those brands. Why? Because they have done a good job of speaking to you and equating your experience with their product to their brand. Cannabis shouldn’t be any different, and yet MJBizCon might have convinced you differently…

During the “Attracting Investors” session, Janer Hasse of Benzinga mentioned several times that VC money is not going to brands right now. Others on the panel, namely Helene Servillon of Journey One Ventures, disagreed anecdotally, but the data supports Hasse’s claim. Investment continues to be pointed primarily at operators. I personally believe that this is largely due to the access to physical collateral protecting their investments in the case of operators, and the fact that the marketability of a brand is questionable at this point due to the limited access to capital markets like the NYSE.

What does this mean for businesses? Shift your focus to brand creation. Investment sources are starting to walk away from cannabis operations. That means that there may be capital available for alternative investments like brand creation. Leveraging the existing excess capacity at current operators’ facilities to deploy new branded products would be a faster, more efficient way to enter a slowing market.

What does this mean for investors? Stop sleeping on brands. If you take a step back and view well established markets, in particular the CPG market, most of the value is dominated by brands, not the manufacturers and operators themselves. Although initial cash flow may be less favorable than that of an operating entity, the present value of a terminal event like an IPO or M&A transaction could be far more attractive and the present value of cash flows over the same holding period.

Parting Thoughts

MJBizCon remains the largest cannabis industry event in the country. The access to a wide net of ideas and industry trends thus remains the biggest value an attendee can get out of the event. If you also attended, we’d love to hear what you got out of your experience as well! Leave us some comments.

Our CFO Morgan Hopkins, CPA pictured smiling in front of a large sign that reads "MJBizCon" outside of the Las Vegas Convention Center
Our CFO Morgan Hopkins, CPA attending the first day of MJBizCon in Las Vegas


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