Marijuana Business Factbook 2019

274 Marijuana Business Factbook 2019 Chapter 7 | Cannabis Business Funding & Investing © Copyright 2020, Marijuana Business Daily , a division of Anne Holland Ventures Inc. You may NOT copy this Factbook, or make public the data and facts contained herein, in part or in whole. For more copies or editorial permissions, contact CustomerService@MJBizDaily.com or call (720) 213-5992, ext. 1. INVESTING TRENDS • Global cannabis investment activity skyrocketed in 2018, with total investment hitting $13.9 billion ― nearly 300% higher than 2017. Much of this investment was driven by publicly traded Canadian companies, which accounted for more than 70% of capital raises in 2018. The size of individual raises has increased as well, with investments in the hundreds of millions of dollars increasingly common and multibillion-dollar transactions appearing. The median amount investors are putting into marijuana in 2019 is $1.3 million, down from 2018’s median of $2 million ― but this may be an indication of new tiers of investors entering the market. In 2019, investors are eyeing ancillary technology and products firms, vertically integrated retailers in medical and recreational markets and cannabis product manufacturers. • Canadian companies are outpacing U.S. firms in terms of fundraising, accounting for nearly 80% of capital raises in 2019 through early April. The size and reach of the major Canadian companies requires significant capital to operate. And these companies are expanding their global footprints, which necessitates more cash flow and the ability to wait for a return as some international markets will not be fully functioning for several years yet. Meanwhile, most U.S. companies are working to expand their domestic footprint. Multistate operators are rising in prominence ― and scale ― as domestic mergers and acquisitions create giants operating in some of the most lucrative state markets, including Florida’s medical market and Massachusetts’ recreational space. • In 2018, marijuana cultivation and retail was the top sector, significantly outraising other sectors at $10.4 billion. The biggest mover, however, was real estate, increasing total raises more than thirtyfold to $246 million ― which speaks to the importance of real estate to the cannabis industry. Investment in the consumption devices sector increased more than 400% as consumer demand for discrete, portable consumption methods increases. • Investors are shifting away from debt financing to equity investments. As the perceived risk of investing in cannabis has faded, investors have become increasingly interested in receiving equity in a company rather than simply financing a loan. Interest in private equity and managed funds has increased among high-net-worth individuals as well. Companies will become more reliant on institutional investors than they were in the past as entrepreneurs will likely need more cash than they can draw from personal savings, friends and family and lines of credit such as home equity loans. • U.S.-based marijuana companies are listing on the Canadian Securities Exchange (CSE) at a feverish pace. Federal prohibition prevents cannabis businesses from listing on the U.S. exchanges, so listing with the CSE is a way for companies to go public in a country that has legalized marijuana at the federal level. Most of these companies are using a process called a reverse takeover (RTO) ― a move in which a company acquires a publicly traded shell company to obtain a listing rather than pursuing an initial public offering. Notable companies that have gone the RTO route include New York-based Acreage Holdings, Denver-based MJardin and Los Angeles-based MedMen.