Cannabis has always been essential to some. While it had seemed to start last year in a bit of a correction, demand for it during the pandemic (and its widespread designation as an essential business), created a breakthrough for the industry. We saw early signs of that in our cannabis investor survey back in May of 2020.
Today, TechCrunch has surveyed five key investors who touch different aspects of the cannabis business, based on our TechCrunch List of top investors who founders recommend to us, and other sources. We asked these investors the same six questions, and each provided similar thoughts, but different approaches. Despite remaining headwinds, the future is looking up for most cannabis businesses, according to these investors.
Morgan Paxhia, managing director of Poseidon Investment Management, put it this way: “2021 could be nothing short of amazing for our industry. We expect capital flows to pick up massively from pent-up demand, good public markets bringing more IPOs, lots of M&A and new innovative startups coming on scene. We see opportunity with social equity for the first time, driven by private markets rather than poorly constructed regulations. It’s going to be fun!”
- Morgan Paxhia, managing director, Poseidon Investment Management
- Emily Paxhia, managing partner, Poseidon Investment Management
- Anthony Coniglio, CEO, NewLake Capital
- Matt Shalhoub, managing partner, Green Acre Capital
- Jerel Registre, managing director, Curio WMBE Fund
Morgan Paxhia, managing director, Poseidon Investment Management
2020 was a blockbuster year for cannabis. What advice are you giving your portfolio companies entering 2021?
Typical mantra for us, stay focused. Markets, deals and valuations are volatile in our industry but we all have to do our best to tune out the noise and focus. I’d say a great example of a team with focus is GTI. They have executed against a strategy while many of their supposed peers have done very irrational deals, impaired shareholder value, etc. GTI continues to march down its path and their results are showing.
How is COVID-19 changing the cannabis landscape?
2020 was an inward-facing year as most companies could not travel, capital was tight and macro was uncertain. This inward work has led to a lot of fundamental improvements for operators. There are others that got one last puff of wind but their businesses are too impaired and will continue to fall to the wayside.
2021 could be nothing short of amazing for our industry. We expect capital flows to pick up massively from pent-up demand, good public markets bringing more IPOs, lots of M&A and new innovative startups coming on scene. We see opportunity with social equity for the first time, driven by private markets rather than poorly constructed regulations. It’s going to be fun!
From retail to SaaS to research, there’s a lot of inroads to investing in cannabis. What sector of the business do you see has the best opportunity for growth in 2021?
We are bullish on select state markets. For example, new adult-use markets in NJ and AZ and existing markets with new growth prospects opening in CA and NY.
SaaS could get very interesting as there are several players reaching scale that are garnering mainstream attention.
International opportunity is mostly Mexico. It is the largest federally legal market that will just be opening in 2021. Many have not taken this one seriously but we have and are very proud of the efforts that went to moving such a monumental step forward.
The history of drug enforcement in the United States has been deeply unjust and racist; as we enter a period of growing legalization, are there things that startups and investors can do to address that inequity?
The industry, meaning established companies, entrepreneurs and investors need to drive solutions here. Regulations have been terrible and only exacerbate the issue. We have been putting a lot of thought into this area for years, watching various aspects such as the missteps taken by government and the unfortunate poor intentions from supposed investors.
We see a path emerging here that is collaborative, simple and should be attractive to capital providers. Stay tuned.
Who are some leaders in the cannabis space — companies, founders, growers?
- My sister Emily is a co-founder and rock star! She is a true leader in this space on so many levels.
- Ahmer Iqbal, CEO of Sublime — Ahmer took the role at a very challenging time and with very little capital was able to rebuild the company into a leader in the CA market.
- Jason Wild — Not only is he a savvy investor, he puts his money where his mouth is. Outside of Poseidon, I do not know any other person in this industry that puts up so much of their own money into what they believe in.
- Coleman Beale, CEO of Bastcore — If you are not familiar with the industrial hemp renaissance in the U.S., look no further. This technology-driven hemp-processing company is rejuvenating textiles in the U.S., using domestically grown hemp and processing for uses in such textiles as denim.
Emily Paxhia, managing partner, Poseidon Investment Management
2020 was a blockbuster year for cannabis. What advice are you giving your portfolio companies entering 2021?
This year is the first time in a while that we are starting off with momentum as an industry. January 2020 and 2019 were technically bear markets for cannabis and those headwinds were intense. However, thanks to the good work by some of the leading companies in the industry such as GTI, TerrAscend, Curaleaf, Trulieve and Cresco, we are seeing renewed interest in the sector. We are telling our portcos to be prepared to harness the positive momentum and to use this time to scale their businesses. It is not a time to slow down. It is a time to push hard to demonstrate strength and further differentiate the strong companies from those who merely benefited from the sector’s hype.
How is COVID-19 changing the cannabis landscape?
COVID-19 highlighted the positive contribution that cannabis has to society in terms of wellness, job creation and tax revenue generation. In a year where we saw massive contraction across lasting and high-growth industries, cannabis ran ahead. We saw people continue to spend even in the time of economic uncertainty on this category, showing that cannabis is considered a staple in many homes across the country.
A great story out of Illinois is the fact that over 300 government jobs were saved due to the tax revenue generated by the industry. This is a tangible benefit of legalizing and regulating cannabis, instead of spending taxpayer dollars to go against it. Let’s face it, every state will need all the tax revenue they can generate on the backside of this pandemic.
From retail to SaaS to research, there’s a lot of inroads to investing in cannabis. What sector of the business do you see has the best opportunity for growth in 2021?
I am very excited for what is coming in California. This market has not been for the faint of heart and has rightfully scared many away. However, I am very bullish on the operators who have stayed, who have been prudent and who have been laying the foundation to become dominant players in this massive market. Cannabis tech is going to be a massive growth story over the next few years. As more (and critical) states turn on, the competition across the U.S. will only continue to increase and these providers will benefit from savvy selection and scaling with their key businesses.
Is your firm open to investing in psilocybin mushrooms startups as they slowly become legal (or decriminalized) across the United States?
No, we have found that staying focused serves our execution and returns. We are fans of psychedelics for assisted therapies, etc. However, many do not realize the monetization of psilocybin is nowhere near the same as cannabis or even traditional pharma or CPG. The great thing about psilocybin unlike a pharmaceutical medication, is that you do not need to take a lot of it to see the long-term benefits. Further, it is not hard to grow mushrooms and they are by nature regenerative. I think what we see is people taking agency around their health and wellness, so people can easily grow mushrooms at home (psilocybin, adaptogenic, etc.) For example, check out Personal Plants.
The history of drug enforcement in the United States has been deeply unjust and racist; as we enter a period of growing legalization, are there things that startups and investors can do to address that inequity?
Yes, to start with, we are looking at a new investment vehicle that will be expressly to support equity applicants. Capital is key to moving equity businesses forward. Further, investors can be connectors for founders and can provide input on fundraising strategies and data rooms.
Who are some leaders in the cannabis space — companies, founders, growers?
- Cy Scott, CEO, Headset — He gets the importance of good, clean, real-time data for our rapidly evolving industry.
- Kyle Sherman, CEO, Flowhub — He and the team are building a vision of supporting the evolution of cannabis retail through their software.
- Erich Pearson, CEO, Sparc — He has been in the industry for 10 years as a patient and industry advocate and was a leader in establishing a biodynamic grow in Sonoma county.
- Morgan Paxhia, co-founder, managing director of Poseidon — Smartest and most mission-driven investor I know in the industry.
Anthony Coniglio, CEO, NewLake Capital
2020 was a blockbuster year for cannabis. What advice are you giving your portfolio companies entering 2021?
While our pipeline is robust, maintaining the highest discipline in the transactions we pursue is core to our investment thesis. Organically our portfolio continues to perform well. All tenants are current on rent, yielding stable cash flows for NewLake with annual rent escalators commencing as we approach the first anniversary for many of our investments. While we are confronted with a new surge in COVID-19, cannabis remains one of the essential industries that has done incredibly well.
The leading MSOs continue to report strong growth, margin expansion and cash flow. We expect this trend to continue, particularly as new states implement recently approved ballot initiatives. For our portfolio companies, we continue to keep them up to date in trends and be good stewards of current investor’s capital.
A real estate portfolio provides safety via diversification. We believe that diversification is an important component to a successful long-term investment strategy. We focus on diversification by tenant, geography and property type. It is difficult to predict the winners in a category during the best of times. Today’s uncertainty regarding the future economic and operating environment, coupled with the evolving regulatory landscape, make the task all the more difficult. By diversifying our exposure to a portfolio of tenants, we minimize the risk of any one default severely impacting our investors.
How is COVID-19 changing the cannabis landscape?
Due to the pandemic, the cannabis industry saw a much-needed step forward in legalization in the U.S. when the government deemed cannabis as an essential business — and listed right alongside hospitals and grocery stores.
Adult-use states have generated tremendous tax revenue from the increased cannabis sales during the pandemic demonstrating the value of the industry to state and local governments. As we saw with prohibition being lifted because the government needed access to that revenue, every state’s going to need every single dollar they can get and we might start to see a bigger push to federal legalization.
For companies whose business has been upended from COVID-19, I see them falling into three categories: (1) Winners — teams that adapt and change to respond to the new environment, seeing new opportunities and not getting caught up in “that’s the way we always did it”; (2) Mediocre performers — These teams do enough to keep the business going but they lose ground to competitors. Expect to see turnover in the C-suite 6-12 months from now as owners/boards realize the team is a bull-market management team and they need to bring in new leadership to get the company back on track; (3) Strugglers — There will be some companies that just can’t manage well through the crisis. Either they had too much debt or lost too much revenue, [they] hurt their reputation through actions during the crisis. Generally this group just can not figure out a way to reestablish the sustainable business model they had pre-COVID-19.
From retail to SaaS to research, there’s a lot of inroads to investing in cannabis. What sector of the business do you see has the best opportunity for growth in 2021?
We think approval of adult-use sales in New Jersey will create a domino effect in the Northeast and result in over $1 billion of sales in NJ alone, during 2022. We think approval by NJ voters will be a catalyst for coordination with New York, Connecticut and Pennsylvania creating an adult-use region with a population of nearly 45 million people.
In 2021, there will be significant investments in real estate and related infrastructure. Similar to adult use in Illinois, we will see increased demand for retail, cultivation and manufacturing properties in New Jersey and the surrounding states. We could see over five million square feet of real estate reallocated to the cannabis industry in the coming years. NewLake is positioning to be a provider of choice for the real estate capital needs of the industry.
Matt Shalhoub, managing partner, Green Acre Capital
2020 was a blockbuster year for cannabis. What advice are you giving your portfolio companies entering 2021?
We continue to stress the importance of being capital-efficient and always striving to do more with less. In a high-growth industry, it’s easy to get caught up in a never-ending hiring spree and constant capital expenditures. In the last five years the cannabis capital markets have seen a number of ups and downs, and the smarter operators have adjusted their business plans accordingly to not get too far ahead of their skis and too reliant on potential future investment.
How is COVID-19 changing the cannabis landscape?
Seeing cannabis deemed essential nearly everywhere has been pretty significant. In many places it is now far easier to get cannabis products than a haircut, which is something I never could have imagined happening. This, combined with some of the shift in policies being discussed in the U.S. could open up the industry to a new world of investors.
From retail to SaaS to research, there’s a lot of inroads to investing in cannabis. What sector of the business do you see has the best opportunity for growth in 2021?
Our portfolio across our two funds covers many different sectors in the industry. In Canada we’re most bullish on cannabis retail, and companies that are laser focused on 2.0 products. In the U.S. we’re most interested in companies with a history of good execution and a strong presence in states that are in the process of or likely to transition from a medical market to an adult-use market in the near- to mid-term.
Is your firm open to investing in psilocybin mushrooms startups as they slowly become legal (or decriminalized) across the United States?
It is something we would consider, though we feel that while there are many similarities between the cannabis industry and the psychedelics industry, there are many differences too, which could make it a challenge for us to write checks.
The history of drug enforcement in the United States has been deeply unjust and racist; as we enter a period of growing legalization, are there things that startups and investors can do to address that inequity?
I think we all need to continue to push to release from prison and expunge the records of those with nonviolent cannabis charges. Many different cities and states are looking to help those that have been most negatively impacted by decades of drug enforcement to enter the legal market. I think it’s important that investors like us step in to help these entrepreneurs launch and scale their businesses.
Who are some leaders in the cannabis space — companies, founders, growers?
We’re large investors in and big supporters of Fire & Flower. They are the dominant cannabis retailer in Canada and we feel that their business and Canadian retail in general is being underappreciated by investors.
Jerel Registre, managing director, Curio WMBE Fund
2020 was a blockbuster year for cannabis. What advice are you giving your portfolio companies entering 2021?
We haven’t yet placed any investments, but our view is to focus on customers. The medical cannabis industry has grown throughout the pandemic by prioritizing both safety and patient needs, and the Curio WMBE Fund’s thesis is built on replicating the business model of patient-centered care developed in Curio’s flagship Wellness Center.
How is COVID-19 changing the cannabis landscape?
COVID-19 has accelerated a patient/customer-centric focus in the dispensary space. Operational adjustments from the more tactical, such as redesigning spaces to accommodate social distancing, to the more fundamental, like implementation of curbside pickup and home delivery, are surfacing patient and consumer insights that will have a lasting impact on the industry.
From retail to SaaS to research, there’s a lot of inroads to investing in cannabis. What sector of the business do you see has the best opportunity for growth in 2021?
The Curio WMBE Fund’s conviction that the clinically oriented dispensary model will serve patients and consumers best keeps us focused on the dispensary marketplace. We also believe that our effort to support and empower diverse entrepreneurship within the cannabis industry will demonstrate the overlooked potential to expand the cannabis market by building an inclusive environment that will benefit both the cannabis business community and patients/consumers.
Is your firm open to investing in psilocybin mushrooms startups as they slowly become legal (or decriminalized) across the United States?
The Curio WMBE Fund is focused on expanding access to targeted medical cannabis treatments through a thoughtful, clinically oriented retail model. We have no plans to invest beyond that mandate at this time.
The history of drug enforcement in the United States has been deeply unjust and racist; as we enter a period of growing legalization, are there things that startups and investors can do to address that inequity?
The lack of diverse representation in the industry continues to plague its development into a thriving mainstream contributor to local economies. Startups can support the healthy development of the marketplace by committing to the development of diverse leaders within their companies, as well as building strong business relationships with firms that are diversely owned/led or that share a commitment to increasing the diversity of the industry’s leaders and stakeholders.
Investors should seek opportunities to support diverse founders, particularly African American and Hispanic entrepreneurs, members of the communities most negatively impacted by the industry’s difficult history.
The Curio WMBE Fund demonstrates its commitment to both these efforts by looking for opportunities to source from and partner with diversely led or owned businesses in the pursuit of investing in the advancement of diverse entrepreneurs who would seek to own a dispensary based on our successful Wellness Center business model.
Who are some leaders in the cannabis space — companies, founders, growers?
I’d recommend anyone looking to understand the positive role cannabis can play in the lives of patients/consumer visit Curio’s website.
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