The year 2018 has already seen many cannabis companies debuting their initial public offering (IPO) on the stock market. If the company has not listen themselves, often they’ve opted to debut a name change/new company model via a reverse takeover, or RTO. Big-name brands in the legal weed industry, including Green Growth Brands, MedMen, Green Organic Dutchman, and Tilray, have all gone public this year. While being listed certainly has its perks, such as liquidation, broader stock options, amplified brand image, and access to risk capital… does newer always means better terms of potential investments?
The process of initiating an IPO involves the selling of a privately held company’s stock to outside investors. While you can see capital gain from investing in a new cannabis IPO, there is always risk attached. Some cannabis companies may also go the route of an RTO to list their company’s shares. This involves the purchase of a currently listed company, changing the name and stock ticker symbol, and listing their own shares via the same exchange platform that the previous company was on.
As a commodity, cannabis is subject to pitfalls. Investing in fast-rising and “new” pot stocks is often appealing. Legal cannabis presents investors with an opportunity to make money from an untapped consumer market, but it’s difficult to be so sure about a new company that has no proven track record of success (or perhaps no company history at all).
Amidst the rise of cannabis reform, investors must ask themselves, “Should I invest in new cannabis IPOs, RTOs, or look toward an already established cannabis company?” While newer may seem attractive, you shouldn’t count out the “old dogs” of the industry.
Cannabis Investments are Becoming More Common
It’s no secret that the cannabis industry is attracting major investor attention. Estimated to become a $57 billion industry by the year 2027, cannabis has become the hottest commodity to invest in, not just for recreational purposes, but for medical too.
Last year, Statista revealed how 19% of study respondents reported that they have invested in legal weed companies that both do and do not touch the plant. What’s more, in 2017, investments in both cannabis retail and cultivation topped $236 million.
Currently, public cannabis companies offer business models built around areas such as agriculture technology, ancillary products and services, biotechnology, consulting services, cultivation and retail, products and extracts, industrial hemp and organic farming, and so much more. With so many areas of the industry to invest in, is it any wonder why investors are loving the cannabis market?
2018 Welcomed Numerous Successful Cannabis IPOs
The first ever cannabis IPOs emerged just under two years ago. In November 2016, Innovative Industrial Properties went public and CanniMed followed in the same IPO footsteps at the end of the year. In addition to the aforementioned cannabis IPOs, numerous other cannabis brands emerged on the public stock market in 2016. This list includes Spirit Holdings and Charlotte’s Web Holdings.
Charlotte’s Web Holdings is a fine example of a well-established cannabis company that only recently went public, despite its inception in 2013. The cannabis oil brand was developed in a bid to reduce epilepsy symptoms in a young girl called Charlotte Figi and managed to raise $100 million in its IPO. What established companies will have, however, is a proven track record that you can assess properly before judging its potential based on whether or not it has gone public yet.
Investors Can Feel Confident about Established Companies
From the established company track record to the history of strong earnings growth, there are many reasons why long-standing brands are better investments than brand new, publicly-traded companies. Sure, an IPO is impressive, but a cannabis company that was established some years before the rise of legal weed will know a lot more about the industry as a whole. Moreover, if they’re still in business, their services are obviously still high in demand or unique in some way.
Well-established companies will understand what it takes to navigate the waters of the legal cannabis industry. Not only this, but long-standing cannabis brands like Nutritional High will be experts at investing in the right avenues. Through its recent acquisition of Green Therapeutics, (which was valued at $6 million,) Nutritional High has demonstrated its in-depth knowledge of the industry. The company has continued to expand its footprint in the largest legal cannabis markets to date including California, Colorado, Nevada, and has launched a joint venture with Abba Medix to target the Canadian market as well.
Assessing Cannabis Investments for Risk
With the above information in mind, investors should always consider the true potential of a cannabis investment before jumping at the chance to invest in companies with IPOs.
- What are the current gaps in the cannabis market?
- Is the market already too saturated?
- What about a niche area of the cannabis market?
- Where are the money-making opportunities?
- Which cannabis products are trending?
- What demographics are those products appealing to?
Sitting down and doing some intensive research is the best way to approach a cannabis investment. Considering key factors, as well as monitoring specific product segments to analyze any alterations in market share, will enable you to make an informed decision. In addition to a conversation with yourself, an investor should consider reaching out to the investor relations team that represents the company to get a better idea of where the company is headed.
“It is better to buy a wonderful company at a fair price than a fair company at a wonderful price,” American business magnate Warren Buffet once said.
Since Buffet’s investment portfolio contains an abundance of well-established companies, including Exxon Mobil (XOM), Walmart (WMT), Wells Fargo (WFC) and Coca-Cola (KO), – which recently made headlines for the fizzy drinks company’s potential interest in CBD-infused drinks – it’s advisable to take his advice and focus on well-established, strong cannabis brands.