MJBizMag January 2021 - 46

New Year, New Opportunities
This applies not only to small
businesses that might be new to raising
capital but also to older and larger
cannabis companies.
" Multistate operators are starting
to get their homes in order, and that's
started to bear significant fruit during
COVID, given that many MSOs have
put up record numbers in Q3 (of 2020), "
Wadhera said. " The stage we're at now
is there's going to be a real focus on
businesses that are fundamentally strong,
and those will be the ones who attract
the most capital from investors. "
INSTITUTIONAL
CAPITAL
COMING IN
Another change that
already has started
to take place and
can be expected to continue in 2021 is
the entry of institutional capital in the
cannabis space.
" You'll see more institutional dollars
start creeping in, " Wadhera said. His
own firm, he said, has partnered on
deals with institutional firms such as
Drive Capital in Columbus, Ohio, and
former Starbucks CEO-turned-venture
capitalist Howard Schultz. Other wellknown
mainstream venture capital
and angel firms include San Franciscobased
Founders Fund and New Yorkheadquartered
Lerer Hippeau, while the
California Public Employees Retirement
System-the biggest pension fund in
the United States-plus Boston-based
mutual fund
company Putnam
Investments
also have
made cannabis
investments.
" You're seeing
more of that. I
don't think it
will all explode
at once. You will see more capital inch
back into the space. I don't think it's
going to reach 2018 levels immediately.
It'll take a couple of years. "
Karan Wadhera
RISE OF THE
INVESTMENT
ADVISERS
The looming increase
of available capital,
coupled with the
inexperience of willing investors, will
also create opportunities for investment
advisory firms focused on marijuana.
" There are growing numbers of
investors who are interested in deploying
capital in cannabis but aren't sure
how, " Bennett said. That presents an
opportunity for people to " become a
trusted voice " about cannabis investing
to those people.
Emmi agreed. " We're going to see
more investment advisory services, and
I believe money and investors will trend
toward that. If you have an extra $1
million and don't know anything about
marijuana, you go to an investment
advisory firm specializing in marijuana.
People are going to start talking to
their registered investment advisers to
see if cannabis meets their investment
objectives, " he said.
46 Marijuana Business Magazine | January 2021
While institutional investors are
wading in, they are more earlier stage
than later stage, Wadhera said.
" You're seeing folks who are happy
being earlier stage and others in more
venture-type situations. You haven't
yet seen more of the traditional private
equity dollars flow into this space, but it
will happen for sure. There is still a lot
of capital waiting on the sidelines, " said
Wadhera, noting that many institutional
outfits are prevented from participating
because of things such as limited partner
agreements, vice clauses and the like.
" As federal
trends change, as
financial institutions
evolve
toward this space,
so too will the
registered investment
advisers ...
or (they'll) run
the risk of becoming irrelevant. It would
be akin to if General Motors decided
to ignore the electric vehicle craze and
said, 'We're only going to focus on giant
gas-guzzling engines.' "
Donnie Emmi
DECLINING COST
OF CAPITAL AND
INCREASING
DEBT OPTIONS
With more capital
likely to be
made available and competing for
opportunities in 2021, the cost of
that capital-equity or debt, among
others-should come down for those
trying to raise it, Foreman said.
" The resulting impact would be a
potential downward pressure on the
overall cost of capital for cannabis
operators, " he said. " The timing is really
the big question. My perspective would
be that where you'd really see a dramatic
shift in the cost of capital would
probably be 12 to 18 months from now. "
The declining cost of capital,
decreasing stigma around marijuana
and the existence of well-run marijuana
businesses with solid financials is also
making it easier for cannabis companies
to get money through debt, Bennett
said. Indeed, many companies that were
running unsustainable cash flows have
cleaned up their balance sheets.
" So, you've got companies who can
actually service debt, and their financial
profile is less risky. And then interest
rates are lower because of that risk
association, " Bennett said. " Generally
speaking, the cost of capital is going to
be coming down and the ability to raise
debt with equity will also drive down
the overall cost of capital. "

MJBizMag January 2021

Table of Contents for the Digital Edition of MJBizMag January 2021

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