My trip to the marijuana investor summit was completely out of happenstance. Right place, right time. I emailed Randy Shipley from CrowdFundConnect just to speak about a fund idea I had in Chicago, Randy invited me to the Los Angeles Marijuana Investor Summit Workshop the day before the International Cannabis Association 2015 Fall Cannabis Expo. I was scheduled to meet with a client in Los Angeles and Randy Shipley hooked me up with a free Marijuana Investor Summit workshop pass, so… I have to write an incredibly detailed account of my time there. : ) Randy you are the man!
The first talk I stopped by was the Virdian Capital Advisors presentation on “Finding and Attracting Capital” led by Scott Greiper and Michael Swartz. Scott says that it takes about six (6) months to complete the entire Initial Public Offering (IPO) process for a marijuana company so be prepared for there is a lot of paperwork when filing, I honestly think that timeframe is in an ideal situation. Negotiations on terms could take a lot longer for cannabis investments. I would say that if both sides have all terms ironed out, 6 months is doable. Scott goes on to say there are only 7 to 9 real players in the funding game including Tuatara Capital, who raised $26M and the well known Privateer Holding, who raised $75M. I agree with Scott that there are only a few companies doing this right but I think Marijuana Investments are becoming incredibly popular, and more funds will be created to capture an endless amount of money wanting to enter the market. I feel blessed to rub elbows with these financial giants, only in cannabis can a simple kid off the street stand toe to toe with the investment communities finest. Back to Scott, he states that the public stock industry will explode after California goes legal, after the recent Medical Marijuana Regulation Safety Act bills that have passed in California the market will incite a game changing moment. “The biggest risk in the California is water supply and water rights” states Michael Swartz, Viridian Capital Senior Analyst. The companies in the California market must control a consistent water supply to stay in business. Both Michael and Scott highly recommend doing cannabis investments that give you a part of the gross revenue of the operation or are tied to real estate. The best deals out there are cannabis controlled environment greenhouses from existing operators looking for capital to expand. We are all fortunate that institutional money is still scared to enter the cannabis market due to “reputation risk issues”.
I stayed for “Which fund is right for you?” put on by Frank Marino and Urban Smedeby from MJIC Inc.. Well if you were there it was really given by Frank the entire time and Urabn chimed in from time to time. Frank is the CEO and Chairman of The Marijuana Investment Company (MJIC), but has only been involved in the cannabis industry since 2010, he told everyone that he had only “come out of the closest” a couple of years ago, meaning he didn’t previously tell people he was a medical cannabis investor. I find anonymity comical since when I first entered the industry I went by the name Michael Greenfinger so my employer wouldn’t know that I was doing so much stuff outside of work and it “affecting” my focus in my every day job. I personally came out of the cannabis closest 4 years ago but I have been a medical cannabis investor since 2009. Best move of my life.
The Security Exchange knocked the wind out of the market, because stock evaluations were based solely on speculation and people were losing millions in penny stocks due to stock halting and insider trading. To tell you the truth, I was one of them. I had one of my closest friends manage my ScottTrade account with $18,000 in it, over the course of eight months the account had lost 80%. We called marijuana investing on ScottTrade quits until I dropped the remaining amount in GW Pharmaceuticals, the Apple of the Cannabis Industry. Back to Frank, sorry about the personal tangents… he is a securities professional from finance with 25 plus years on microcap investing. MJIC has made significant marijuana investments including MyDx, Marijuana Investor Summit, MJINews, Willie’s Reserve, New Frontier, Meadow Harvest Cannabis Company, C4Ever. MJIC has filed Confidential S1 – (Reg A Plus – 506 C) and looking to be listed in 2016, apparently this just happened, I spoke with an cannabis investor that I know that has money with them and they weren’t even aware of this filing. Urabn states that one of the most important factors in making a deal work is to make sure that the corporate vision and your vision sink up. Urabn says to focus on your investment objective. What impact will the investor have on the company. Investors have a claim to your time and attention after they make an investment. Your entire capital structure that can positively or negatively effected by this, take your time to really get to know where that money is coming from. On the flip side, when you make an investment is the team responsive to your needs. On either side of the investment coin, take your time. Just when you think you have something that is unique you don’t. Frank is always shocked when he thinks he sees something unique and starts to promote it just to be told there are better, faster and closer products to market. Choose your partners wisely.
Urban’s said he is seeing a lot of future value notes where there isn’t an evaluation. Urban doesn’t like that structure, likes to put the value upfront and do all of the due diligence. VCs like EBITA analysis, Urban likes to look at if “demand is there” Pharma and Hemp, 80-90% of deals are really early stage. This is a $50 Billion dollar market, $15 million dollar companies are coming out of the shadows and starting to make big moves.
What aspect of the cannabis sector do you fit? Do you plant to invest in a company that touches the plant or not? Are you looking for a Cultivation, Dispensary or Manufacturing deal or ancillary products like picks and shovels during the goal rush? There is no federal blanket position on this, feds are taking a hands off approach and let the states decide, state by state rules are important. In the California market there is a holding company that holds the assets and the collectives handle the day to day businesses as non for profits. “There is an endless supply of new money entering the space” Urban, most of these deals and companies won’t be around in two years. Viridian see 3 to 4 deals a day. Most of theses deals are done by angel investor groups. Urban stressed the importance of due diligence. “Is this just your hobby or will you be a full time company”.
What does a good deal look like? Frank said he is willing to pay a high evaluation for work to that date. Like their investment with Willies Nelsons company. Urban suggests to make sure your raise has a Min/ max structure, this makes the investor more comfortable, for example $500,000 min to $1,000,000 max.
Urban stressed to align with political and advocacy groups. Become publicly active and work with the state to get to the right people. A question was asked to Frank when it will be legal federally, Frank said he might be not qualified to answer that question and laughed. He said he didn’t know if his opinion means much but… a few years.