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Why The Stigma Around Cannabis Investments Is 'Gone'

February 25, 2021 3:15 pm
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Why The Stigma Around Cannabis Investments Is 'Gone'

The cannabis sector has yet to completely shed its reputation of being part of the "wild, wild west," but much has changed, T3 Ventures President Tahira Rehmatullah said Thursday during Benzinga's virtual Cannabis Capital Conference

Cannabis operators with plenty of experience have likely at some point entered into a deal where there was no model or the depth that was needed, Rehmatullah said.

Expectations today are very different, and investors are able to better evaluate deals and perform proper due diligence, she said. 

Expectations for proper governance and compliance protocols that weren't possible in the past are now part of the deal-making process, the CEO said. 

"The industry has really, I think, shifted in that direction where we are able to run these businesses like a much more mature industry." 

Related Link: Benzinga's February Cannabis Capital Conference Kicks Off With Keynote By Curaleaf's Boris Jordan

The panel discussion was hosted by Tim Seymour, the founder and CIO of Seymour Asset Management and portfolio manager of the Amplify Seymour Cannabis ETF (NYSE:CNBS).

Paxhia Says Cannabis A 'Great Investment Category': The general consensus among investors today is that the cannabis space represents a "great investment category," said Emily Paxhia, managing partner and co-founder of Poseidon Asset Management. 

Most encouraging is the new reality that Wall Street analysts are including cannabis brands as part of a broader consumer category, she said. 

"When you see our EBITDA versus other high growth consumer categories, it's a really attractive space to get into."

The potential for outsized financial performance has created demand among long-term investors, instead of those playing "games," Paxhia said. 

Hawkins On A Shift In Cannabis: The cannabis industry has gone through a "comparable change" in reaction to Democrats winning the runoff for Georgia's U.S. Senate seats, said Matt Hawkins, founder and managing principal of Entourage Effect.

Entourage is now "talking to more institutions than ever before," he said. 

Entourage Effect is raising funds for a new cannabis fund and joins many other new family offices looking for exposure to cannabis, Hawkins said.

The "stigma" around investing in the cannabis space "is gone," especially in traditionally conservative-leaning states like Texas, he said.  

Why Biden Is An 'Extra Lift' For Cannabis: The Trump administration wasn't considered an enemy of the cannabis sector, and President Joe Biden's administration is merely an "extra lift" for the sector, said Poseidon's Paxhia. 

Not much has changed in how she views the space, but Paxhia said this isn't true for other investors.  

"The perceptions of the broader market are almost more important than the reality of what might be happening in the changes in legislation." 

An influx of new capital amid the perception of a major shift in attitude from Washington, D.C. is a good catalyst for the cannabis industry, but creates new challenges, she said.

For instance, a shift in investor psyche could impact entry and exit points on cannabis investments, timelines and overall structuring, Paxhia said.