Will the Marijuana Market Continue to Go Public?
As the legalization wave shows every sign that the sky is the limit right now, entrepreneurs are moving into the space as fast as funds are organizing to back them. Right now, with a seemingly ever expanding market, the industry is riding on high times.
However, beyond the euphoria of an industry coming into its own, there are certainly trends developing in the market, which is still extraordinarily risky on all fronts until federal reform happens once and for all. Right now, there are several different schools of thought within the industry and investment community on which companies make better if not lower risk investments, as well as which companies in the still-developing market are likely to go public first.
According to Jeremy Carr, CEO of BlazeNow, “Companies with ancillary products and services that may serve both rec and medical are likely to go public first. I don’t believe the SEC would discriminate between medical and recreational but as long as it’s illegal on the federal level it’s unlikely that any SEC reporting companies can profit off of the product.”
Seth Yakatan, CEO of Kalytera, explained, “That will largely be mediated by regulation.” That said, he is the first to admit that “there are no absolutes. Ultimately good investments come down to execution. There is no way to predict what will be low risk. Medical investments have an inherent high level of risk given the failure rate of most pharmaceutical and biotech drugs at the U.S. FDA.”
However, according to Steve Berg, CFO of O.penVAPE, medical and recreational companies can share a similar risk profile, depending on where they operate. “In the state of Washington, investment in rec businesses had lower regulatory risk than investing in medical businesses when I-502 passed and provided a robust regulatory framework when dispensaries were largely unregulated.” He also added that “in some respects, the alpha of rec and medical investing can be compared with investing in ‘conventional’ businesses’ counterparts” and that this is more accurate than comparing the risk of investing in recreational rather than medical. He uses the alcohol business as just one example of this.
Carr, for one, thinks “The Big Mo(mentum)” now is in the recreationally focused space. “Rec is the faster path toward full legalization and an alcohol style regulatory model would provide profit and growth faster than medical.”
Berg does not believe that one aspect of the industry will necessarily progress ahead of the other and that both aspects of the market are potentially poised for success, albeit for different reasons. “One might argue that medical will proceed rec by considering the example of GW Pharmaceuticals, a pharmaceutical cannabis company that went public years ago and now trades at close to a $2 billion market cap,” he said. “However, there are over 50 public cannabis related companies that trade publicly today, and cover both medical and rec oriented ancillary companies.”