Trends Watch Outlook: Cannabis
April 18, 2019
By Elana Margulies-Snyderman
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks to Justin Ort, Co-Chief Investment Officer, Measure 8 Venture Partners.
What is your outlook for cannabis?
As you may have noticed from all the headlines, the evolution of cannabis is extremely fast moving. We believe cannabis will soon be a major global consumer product challenging the like of alcohol, tobacco, non-alcoholic beverages and the food industry in terms of both revenues and total market capitalization. Despite the heavy and uneven regulation, this market is growing rapidly as the industry transitions from the illicit market. This has generated impressive tax revenues for the states that have embraced this trend. Furthermore, the upside for the industry is far greater than just the total illicit market as cannabis use has become more socially accepted and the science is more readily understood by the general population. Additionally, clinical research into the science of cannabis and its use in biotech/pharma is picking up significantly and creating marked upside for cannabis as a health care disrupter.
What types of investments are you looking at?
We invest in companies with strong management teams operating in key segments along the value chain of the cannabis industry. We are especially focused on cannabis as a consumer packaged good, so we are seeking companies with competitive advantages in branding, marketing, supply chain logistics and distribution. We also try to identify businesses with clear barriers to entry around their business model in order to ensure a consistent lead over competitors. Opportunities exist across public and private companies so we are launching both a hedge fund and venture capital fund to ensure we are participating across the full spectrum of investable ideas.
Who are the major players?
The major U.S. multi-state operators (“MSOs”) are clearly being very aggressive in trying to get scale and market share through acquisition as well as organic growth. That trend will only accelerate as single state, regional, and super regional footprints get bolted on. We expect that more of these increasingly national players will attempt to launch sustainable national brands. Brands and distribution are therefore key themes to watch as investors are looking for new ways to express their exposure to cannabis. Regardless of the particular vertical, the winners will need to balance aggressive expansion and being good stewards of capital while operating with clearly defined and profitable business models.