Entourage Effect Capital managing partner Matt Hawkins has been active in the cannabis space since creating his private equity firm in 2014.
An investor for over 20 years, Hawkins has exposure across the country, spanning large operators, tech, science, licensing, real estate, ancillary services and other sectors.
Hawkins recently spoke with Benzinga to discuss what he considers the safest bet for investors to consider.
U.S. MSOs Represent "The Safest Bet"
Entourage and Hawkins view American MSOs as the best option on the board once federal legalization occurs. "I think we're going to see a significant rerate upon some federal event occurring," he predicted.
Hawkins suggests that would-be investors with limited funds should look at the top five to eight leading MSOs as options, and having exposure to some leading U.S. retailers, including making pre-public investments in companies like Green Thumb Industries Inc. GTBIF. He has exposure to MSO leaders TerrAscend Corp. TRSSF and Curaleaf Hldgs Inc. CURLF.
He considers other leading MSOs to be valuable considerations including Cresco Labs Inc. CRLBF, Trulieve Cannabis Corporation TCNNF and Acreage Holdings Inc. ACRDF to be worthwhile considerations though he has no exposure to them himself.
"The companies that have scale and breadth from a revenue standpoint would be the most rewarding companies," he said, adding that single-state operators looking to make the next step may also be worth considering.
Hawkins stressed that asking questions and looking for benchmarks are essential;
companies with over $200 million in revenue is one benchmark to look for. When asking questions, he recommended that public investors consider the quality of a company's management team, profitability, retail outlets and if the venture is vertically integrated.
Investor ROI Hinges On Federal Legalization
Hawkins noted that while no one can predict when federal legalization will occur, there are value opportunities in the current market while waiting on reform.
He said that cannabis is a hold option, with those being rewarded when legalization does occur. The closer cannabis gets to legalization, the sooner investors will be to likely seeing an ROI.
Hawkins said that legalization might take one to several years. "Your guess is as good as mine," he stated.
Bills falling short of federal legalization have not affected the markets this year. Examples include the recent rollouts of sweeping cannabis bills in the House and Senate, with neither moving the needle much on Wall Street.
While both show promise for advancing reform, neither has done much to sway the market so far. Hawkins believes a shift in the market could come if the Senate bill is revised.
"I think if there's progress made on the [Senate] drafted legislation, then we should see some positive movement," he speculated.
Consider Private Equity With Larger Funds
While discussing MSOs, Hawkins noted that opportunity exists across the board in cannabis and that accredited investors with additional capital should consider looking into the private side of cannabis as well. When a person is ready to enter the space, he advises, they should "pick an experienced fund manager to help them."
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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