Brent Johnson, Hoban Law Group
It’s now August 2020, and I believe most of us thought we’d be over the hump with the COVID-19 pandemic. Well, it certainly appears that the virus will remain a challenge for many months to come and a continued force on the broader economy and the cannabis industry. That said, the cannabis industry is booming, which continues to provide opportunities for those who are looking to invest in it.
As I last reported, there are still plenty of “diamonds in the weeds” when it comes to investing in the cannabis space, and I don’t expect that to end anytime soon based on market trends and deals that are getting executed. In fact, I expect it to continue to improve. Here are some highlights on general market trends and key deals that give me confidence about where things are headed for investment in the cannabis industry.
2020 Cannabis Trends
The projected trends for 2020 are playing out as expected for many parts of the cannabis industry despite COVID. Sales of cannabis-related products keep setting records in multiple states. In Colorado, for example, sales are at an all-time high (pun intended). Sales of cannabis products in Illinois are unprecedented. In Oklahoma, the same. Pennsylvania too. Oregon as well. Even in California, where many folks were predicting a meltdown due to many issues (a story for another time), cannabis sales are setting records. … You get the point. Also, adult use of marijuana, in general, is up (1 in 4 adults used marijuana in the past year) and perceptions of the cannabis industry are trending positive. Where there is customer demand and positive trends, there is opportunity throughout the entire supply chain, both plant-touching and ancillary.
Cannabis Mergers and Acquisitions
M&A activity is rebounding as well, and deal sizes are getting larger. Note the recent acquisition of Vireo Health International’s cultivation and processing operations in Pennsylvania by multistate marijuana operator Jushi Holdings for $37 million. There are many other examples as well and the projected trends on the M&A front are very positive.
Cannabis Venture Capital
Venture capital deals are on the rise as well. A recent notable transaction was the closing of an $11.5 million Series B financing of springbig, a leading provider in cannabis CRM and loyalty marketing technology, which included an investment by one of our closest strategic investment partners and a client of Hoban (and for whom I’m an advisor), KEY Investment Partners. The round was led by TVC Capital, a software-focused growth equity fund. Other investors included Argonautic Ventures, HALLEY Venture Partners, and Salex Capital. Note to self – VCs are playing in the space and are deploying capital. And it’s clear that investors are focused both on technology, distribution, and brands in addition to plant-touching opportunities.
And also remarkable is the rise in new investment funds being formed in the space. Here at Hoban, we’re working on a number of investment funds ranging up to $100 million that are planning to deploy capital in the very near-term. One in particular is based on social-equity initiatives. Others are focused on traditional debt and/or venture-style equity investments. Other funds are raising money as well, which only means more capital to be deployed into the industry.
Despite the “new normal” that we’re all adjusting to, the future remains bright for the cannabis industry. In my earlier article, I advocated that there are “diamonds in the weeds” for investors that know what to look for and how to navigate the space. At the risk of repeating myself, and perhaps even doubling down, it turns out that the diamonds are real and the predicted trends are playing out.