Some things are for certain. The sun will rise and fall each day; a day on our planet earth is 24-hours long; and there are (give or take) 365 and 1/4 days in a year to give or take a few minutes either way.
Other things are less certain yet inevitable. At birth, a human being, typically referred to as a bundle of joy, will certainly grow. But how big or tall that child grows to as an adult or what direction their lives head is the result of many factors—including genetics, environment, education, timing etc.—so the end result is never guaranteed.
The Cannabis Industry and investment opportunity it represents to people placing bets, whether with their own hard-earned dough, the money they inherited, the sweat, mustard and initiative they have put into their endeavors to build a company from scratch and/or with other people’s life savings, is still in its early years (I like to say that the industry on the 25 yard line with 75 yards to go to score) with many bends and curves ahead in the road. The industry has many curves ahead of it. Whether from local, state or federal regulators, there are curves in the political mood of the White House, Congress or the DOJ when institutional money and large existing ancillary businesses finally decide to enter the fray in force like Scott’s Miracle Grow has in the last 18 months or like the dollars driving the shares of the companies mentioned in “The 7 Largest Marijuana Stocks All Have This Dubious Statistic in Common, These are some lofty valuations with little to show for it.” article on the contrarian investor site, The Motley Fool.
The Cannabis Industry is certainly one of the most hyped in recent memory. The Industry is probably as much or more hyped as the Dotcom boom and bust before the bandwidth problem was resolved and its ultimate adoption as a way of life for businesses and consumers alike. A day doesn’t go by without the media constantly running articles that overreact whenever the word marijuana is mentioned publicly.
When CBE interviews industry executives or talks to hedge fund managers or institutional investors, the issue of certainty is always top of mind. It is clear from their trepidation that the variables affecting the industry today are still in the formative stages with everyone trying to read the tea leaves correctly to maximize growth or returns on investment or profitability. CBE believes there are still as many uncertainties than “can’t lose” bets.
- With public support for legalization as high as more than 70% nationally, it seems pretty certain that cannabis prohibition will come to an end in the foreseeable future. Many of the states that do not have current CBD, Medical Marijuana or Adult Use programs will come on board in the next few years.
- Marijuana will be rescheduled at some point in the not too distant future.
- Banking Reform and the end of IRS Code 280E for cannabis businesses is on the horizon to level the playing field for the industry.
- Legalization initiatives will continue worldwide.
- Ancillary businesses currently on the sideline waiting for certainty will enter the market by buying existing cannabis focused businesses or using their leverage and existing non-industry sector footprints to dominate market share in their respective categories.
- A bubble is either forming as we speak or will form, just like it did in the Dotcom boom. As more and more real money pours into the industry and a corresponding bust will occur littered with the carcasses of well-meaning entrepreneurs and risk takers who don’t want to miss out on the opportunity the industry presents.
- Federal Oversight and Standards development for the industry will occur.
- BioTech, Pharma, Life Sciences, Alcohol and Big Tobacco will be part of the industry if they aren’t already.
- One last certainty is that the industry is still expanding and will continue for many years to come as additional states come online (including the California market that is basically still unlicensed).
- Timing, Timing, Timing of when all of the above will happen.
- The ultimate number of Medical or Adult-Use licenses approved, state-by-state to operate in the Cannabis Industry.
- The valuations of companies whose promise will only be revealed, for good or bad, based on the market forces of supply and demand and the regulatory overseers.
- Which privately held companies are legitimate professionals with the experience and knowledge to be one of the ultimate winners or vice versa.
Like any industry and any investment scenario, there will ultimately be winners and losers. Measured in pure dollars and cents, for every dollar invested half will be winners and the other half will be losers in terms of the overall dollars invested and the overall size of the eventual industry which is still being defined.
By the same token, if the 80/20 rule applies, 20% of the players will dominate their respective categories.
One last certainty, the industry is still expanding and will for many years to come as additional states come online (including the California market that is basically still unlicensed).
So, with a heavy heart for current and future winners and losers CBE cautions, Buyers Beware and wonders what the Wizard of Omaha, Warren Buffet would do? Based on his track record he Certainly will be very cautious until Certainty arrives.