Overview of the Cannabis Investment Market

3.1 Overview of the Cannabis Investment Market

The legalisation of recreational Cannabis in the Canadian domestic market, followed by that of selected US States (progressively) and the opening of medicinal Cannabis markets in the EU, Australia and UK all led to a new asset class/commodity.

The parameters of this new asset class were not known, though perhaps they should have been, and were exploited in much the same way as the initial ‘DotCom’ boom of 2000. Continuing the analogy, those early business models have proved flawed and core assumptions have been challenged.

The internet businesses of the early Noughties took a further decade to rationalise along with the investment market, and in many ways, this is the process that the Cannabis industry is also undergoing, though also constrained by the haphazard regulatory regimes around the World.

At the beginning of this whitepaper, we have outlined some of the investment challenges which we can summarise as follows:

• The Canadian capital markets rely on ‘whole of business’ fundamentals and most ventures of scale have proved to be major historical losers;

• That capital market is now ‘gun shy’ until it restores faith in understanding what a profitable business looks like, and consequently has been, and is, closed;

• Public investment in the US recreational market is practically impossible;

• EU, Australian and UK capital markets are limited to medicinal Cannabis enterprises. As the ‘demand’ has been deliberately stunted by the medical profession, growth in these businesses is restrained;

• Moreover, EU, Australian and UK medicinal business still labour under the early Canadian mistake of ‘vertical integration’, basing their enterprises on raw material (flower) costing many multiples of readily available alternative supplies; and

• Generally, the quality of management and strategic vision is poor.

In short, there is really very little, or no, avenue for attractive returns from conventional capital markets, or investment opportunities, until the industry completes its re-organisation and rationalisation.

However, that does not mean that there are no attractive businesses, products or opportunities. It simply means that there is no strategic ‘mind’ identifying those investment opportunities nor any bespoke and reliable vehicle to invest in them safely.

That is until now.