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According to New Frontier Data, many industry stakeholders are hopeful that the close of 2019 saw the bottoming-out for public cannabis stocks, which they expect to rebound in 2020. According to data from Viridian Capital Advisors, there are already positive signals coming from raises of industry capital during the start of the new year. In the first two weeks of 2020, there were seven capital raises worth a total of $250 million. Although the number of deals was lower than the 15 done in the first two weeks of 2019, the average deal size was more than 2.5x larger than the same period last year, suggesting that the recent poor stock performance of the cannabis sector has not dampened long-term outlook for the potential of the industry.
“There are fundamental issues within the cannabis industry that we have solved, and by doing so we will have created a significant competitive advantage for company and investors.”
John Cataldi, Co-Manaing Partner NAVF
One Cannabis fund to watch is NAVF Pharma, they are considered an enormous industry business innovation, after nearly three years of legal, due diligence and business structuring, the Native American Venture Fund’s Cannabis Endeavors, (NAVF Pharma Fund) has solved a significant tax code disadvantage to the cannabis industry known as 280E, which disallows cannabis businesses to take standard tax deductions. The result is that marijuana businesses are currently paying tax on their gross profits instead of net profits, leaving them less money to reinvest, hire, and distribute to their investors. NAVF-Pharma just completed its SEC filings is expected to close on its $50M capital raise in Q3, 2020. According to John Cataldi, Co-Managing Partner to NAVF Holdings, during an interview with CE Hutton’s Canna Fund, “there are fundamental issues within the cannabis industry that we have solved, and by doing so we will have created a significant competitive advantage for company and investors.
According to Politico, more than 40 U.S. states could allow some form of legal marijuana by the end of 2020, including deep-red Mississippi and South Dakota and they’re doing it with the help of some conservative voters. Currently, there are cannabis-legalization measures on the ballot for either medical or adult-use programs in 19 states. If all States were to pass their respective bills, it could add$11.5 billion in annual cannabis sales revenue by 2025. A similar level of potential expansion was seen in the run-up to the 2016 election, which included California’s adult-use passage.
Similar momentum is expected to follow in November 2020 should only a fraction of the states’ measures pass. Also, like 2016, however, there is a significant risk of irrational exuberance as potentialities presented by new legal markets can be too quickly conflated with immediate business opportunities.
The expansion of legalization represents a significant opportunity in the long term, but state regulators hold the respective keys to their markets’ realization of any profits.
