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From 1965 through the end of 2021, the compound annual return for the S&P 500 – the market’s benchmark – was 10.5% a year, including reinvested dividends, according to Warren Buffett’s latest letter to Berkshire shareholders. (Buffett cribs the numbers from FactSet.)
OK, so at least mildly interesting.
We are flirting with a bear market, typically defined as a decline of 20% or more in the broad stock indexes. We’ve seen several weeks of whipsaw trading and heavy losses. (The S&P 500 is down about 17% year-to-date.)
Also worthwhile: Traders are skittish.
The Volatility Index, which measures sentiment by comparing the volume of futures contracts, has risen from its usual level of about 15-20 to an elevated 30. Investors are worried about interest rates, inflation, war and the effects of rising prices on the economy.
But that’s all kind of – heavy.
Slumping economy doesn’t always hurt businesses
Here’s the part I like the most.
No matter how poorly the overall market fares, or the degree to which the economy suffers, some companies still manage to knock the cover off the ball.
For instance, during 2008, the market’s last major losing season, the S&P shed 37% as the nation’s financial system very nearly imploded. Though 37% in the red was the average for the index, plenty of its companies did just fine.
On the S&P, which measures the performance of the largest U.S. companies, the biggest winner was Walmart, with a 20% gain. Edwards Lifesciences posted similar gains, as did discount clothier Ross Stores, each of which managed a roughly 20% gain.
This is, broadly speaking, the best thing for cannabis entrepreneurs to keep in mind until the market finds its footing: Investors will reward strong businesses regardless of the broader economic environment.
As you refine your pitch, it’s prudent to keep a few things in mind:
- Talk up the industry. The numbers in the cannabis space continue to be very compelling. Growth is strong. Demand is consistent or increasing. Legislative fixes at the state level continue. If you need to spice up your pitch deck, check out recently released 2022 MJBiz Factbook.
- Tell your story. Focus on how you make money and how you will maintain a sustainable competitive advantage – be it via branding, a certain method of cultivation or a unique product that consumers prefer over other offerings.
Business leaders need reliable industry data and in-depth analysis to make smart investments and informed decisions in these uncertain economic times.
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- 200+ pages and 50 charts with key data points
- State-by-state guide to regulations, taxes & opportunities
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One compelling way to do this is what I call the Subaru method. Subaru rarely talks about its cars. It talks about – or shows – the lives of the people who drive them. Its commercials are more likely to show a couple with a big dog than a close-up of a piston or a crash test.
Detail how your enterprise interacts with customers and turns them into brand ambassadors. You want to develop followers, not merely raise capital.
This is the point in your presentation where you want your audience to see your passion and energy and optimism – they don’t want to hear Chicken Little grousing that the sky is falling and we’re all going to die.
Make sure you’re not trying to sell blue sky – talk up what you are actually doing, not merely what you plan to do.
One effective way to do this is with a strategic question-and-answer session. I’ve seen this used time and time again to tremendous effect.
Many executives who pitch investments like to use “planted” questions that they already have a great answer to. Avoid this. Instead, jot down the three or four main points you most want to make.
And make those points regardless of what the actual question is.
It’s perfectly OK to dismiss a specific question to make and remake these far-reaching points.
This is possible without being evasive – or you can simply answer the question briefly and then pivot. “Well, the current state of the federal prohibition really isn’t our story – it’s just the environment we compete in. What makes us the strongest operator in our segment is (whatever).”
Don’t let market derail your pitch
While it’s a good idea to have a sense of what the broader market is doing, resist the urge to retool your entire approach to meet the market’s whims. The fact is, if you’re pitching investors who worry about the market’s short-term gyrations, you’re probably targeting the wrong investors.
Before you go through your pitch deck one more time, give it a cold read with one question in mind: Has anything changed? Or, better, has anything material changed?
Usually that answer will be no, but not always. Material changes need to be addressed. The rest is noise. Ignore it. The market sure does.
One last point – and feel free to steal it. Cadillac was the only unit of General Motors that was profitable throughout the Great Depression. Which is to say again that good companies can do extremely well in trying times – even lean ones – if they deliver real value to their customers. It always happens. It always will happen.
Use your pitch to meet this moment. Lean in!
And please let us know if you run across anything that particularly resonates with potential investors. We’ll pass it along.
Andy Obermueller can be reached at email@example.com.