Arcview deal: Does more investor interest mean more scrutiny?

The latest investment news from The Arcview Group could indicate greater institutional investor interest in the cannabis sector, but it could also signal higher expectations and more rigorous scrutiny from investors.

Cresco Capital Partners, Trivergance and several other private investors provided Oakland, California-based Arcview with $7.7 million of funding, effectively taking control of the daily operations and strategic direction of the firm.

The deal could have several implications for the cannabis-investment landscape.

According to Cresco managing partner Matt Hawkins, his firm plans to grow the Arcview business 3-5 times larger than it is now.

While the companies have not provided details yet on how they plan to achieve that goal, we believe Arcview has multiple avenues, such as expanding the investor member base, the company roster and the breadth or depth of analyses and reports.

Any combination of those factors could signal there is a greater investment appetite from a larger audience of accredited and institutional investors – a huge positive for cannabis companies looking to raise capital.

A broadening of the cannabis investor base could potentially lead to more companies getting access to funding and larger investment commitments.

However, the positives of increased investor interest will likely come with a trade-off: deeper scrutiny from investors that may not be advocates of the industry and are simply looking for compelling investment opportunities.

Interest – and, ultimately, funding – from more traditional or institutional investors has the potential to bring significant changes to how companies present their investment story or execute their business models.

We may have seen evidence of this increased scrutiny and accountability earlier this month as Constellation Brands used its $4 billion investment in Canopy Growth, along with four of the seven board of director seats, to terminate Canopy CEO Bruce Linton.

Traditional or larger institutional investors that aren’t as rooted in cannabis advocacy will likely focus more on detailed, well-documented business plans, current profitability or defined break-even targets and consistent, clean operational execution.

Arcview co-founder and CEO Troy Dayton has a similar outlook with respect to potential for increased focus on profitability.

“It is a sign of maturation and, with maturation, comes more of a focus on the bottom line than on the passion and the impact of the cause,” he said. “But more money is great, it means further layers of investment, a larger ecosystem, more supply of capital.”

Craig Behnke can be reached at [email protected]