Thanks, Mitchell, and thanks for the thoughts. A few responses.
On #1, I'm not sure I agree that interest rates are the cause, though it certainly doesn't help. M&A was pretty anemic in 2022, when rates were lower, and operators were never buying with debt (LBOs) - deals were mostly stock with some cash, if the seller was lucky. It does make it harder to attract fresh cash to do deals because the return profile needs to be that much better than what much safer assets are currently offering.
On #2, real institutional capital hasn't participated mostly because they can't. The vast majority of their $ comes from pensions and insurance companies, which can't invest in cannabis (the closest we've seen is some modest investment in publicly-traded stocks like IIPR, oddly). If they could have, non-cannabis VC funds would have been all over the industry in 2017-19, and distressed PE funds would be all over it today.
I'm not dismissing though your more fundamental point in #2 and #3. I'm in 100% agreement that the industry isn't helping itself and needs to come around on all of that. I'm just offering different reasons for the lack of institutional investment.
Good article, Marc. Three points: 1) M&A is also down because interest rates have gone up, substantially and for the medium term. Less cheap money = fewer deals. Until this (and financial fundamentals change) I wouldn't expect high levels of cannabis deals 2) Real PE firms/institutions see the weed opportunity. They are avoiding the sector for many good reasons including lack of regulatory clarity, poor governance, low confidence in the numbers (can you say IFRS) etc. and 3) Cannabis firms may want and need PE but until they get their drek in order they will be on the outside looking in. Too many other higher return/lower risk opportunities for real PE to capitalize on.
Thanks, Mitchell, and thanks for the thoughts. A few responses.
On #1, I'm not sure I agree that interest rates are the cause, though it certainly doesn't help. M&A was pretty anemic in 2022, when rates were lower, and operators were never buying with debt (LBOs) - deals were mostly stock with some cash, if the seller was lucky. It does make it harder to attract fresh cash to do deals because the return profile needs to be that much better than what much safer assets are currently offering.
On #2, real institutional capital hasn't participated mostly because they can't. The vast majority of their $ comes from pensions and insurance companies, which can't invest in cannabis (the closest we've seen is some modest investment in publicly-traded stocks like IIPR, oddly). If they could have, non-cannabis VC funds would have been all over the industry in 2017-19, and distressed PE funds would be all over it today.
I'm not dismissing though your more fundamental point in #2 and #3. I'm in 100% agreement that the industry isn't helping itself and needs to come around on all of that. I'm just offering different reasons for the lack of institutional investment.
Good article, Marc. Three points: 1) M&A is also down because interest rates have gone up, substantially and for the medium term. Less cheap money = fewer deals. Until this (and financial fundamentals change) I wouldn't expect high levels of cannabis deals 2) Real PE firms/institutions see the weed opportunity. They are avoiding the sector for many good reasons including lack of regulatory clarity, poor governance, low confidence in the numbers (can you say IFRS) etc. and 3) Cannabis firms may want and need PE but until they get their drek in order they will be on the outside looking in. Too many other higher return/lower risk opportunities for real PE to capitalize on.