Cannabis firms must focus on profitability, communication for long-term viability

cannabis industry crossroads, Cannabis firms must focus on profitability, communication for long-term viability

Deepak Anand, co-founder & CEO of Materia Ventures, left; Stephen Malloy, CEO of PharmaRolly Holdings; and Jennifer Sanders, founder and chief strategist of Aura Ventures share their insights during an Opportunities in Investment panel at MJBizCon Week's Investor Intelligence Conference. (Photo by Soliman Productions)

(This is an abridged version of an article that appeared on MJBizDaily’s Investor Intelligence.)

The cannabis industry is at a crossroads where companies will need to differentiate themselves based on profitability, strong yet simple capital structures and investor communication.

That’s the overall takeaway from Marijuana Business Daily‘s inaugural Investor intelligence Conference, part of last week’s MJBizCon Week in Las Vegas.

Companies that want to thrive in the new environment generally will have to improve their focus on corporate governance and shareholder communication, according to Investor Intelligence’s analysts.

Tale of two companies

Two cannabis companies made headlines last week that support this theory.

Colorado-based Medicine Man Technologies appointed strategic investor and grocery consolidator Justin Dye as the company’s new CEO.

At the same time Los Angeles-based MedMen issued a news release detailing far-ranging actions to strengthen the company’s balance sheet and enhance corporate governance.

When our analysts spoke with Dye in Las Vegas on his third day as CEO, the conversation was generally an example of the kind of strategy and thought process investors like to see.

The overarching goal is to build the industry’s most admired cannabis company that executes with consistency. Dye spoke of a long term of serving customers, shareholders and the community.

By contrast, MedMen announced further layoffs at the corporate level and realigned much of the company’s existing equity and debt offerings.

The company likely is not taking these steps because it wants to, according to Investor Intelligence equity analyst Mike Regan.

Rather, it must do so in order to survive the current operating conditions and capital markets.

Companies don’t make changes like this from a position of strength, he noted.

Action steps

Marijuana firms will need to professionalize if they want to succeed for the long term.

According to Investor Intelligence’s analysts, this includes:

  • Focusing on profitability and cash generation.
  • Simplifying capital structures – or how equity and debt are distributed and obtained.
  • Communicating transparently with investors regarding their business models and financial targets. Investors will want proof of your plan for growth.

Read more analysis on this topic and others in our premium subscription service, Investor Intelligence.