Money is Flowing into Cannabis but Smaller Company are still Struggling

The American marijuana industry is in a far better place for businesses seeking to raise money than it was a year ago. Even though there are concerns for a lot of the big marijuana companies not hitting their projections. Smaller companies need to watch their cash flow and expenses. Also, you have to remember 280E will impact this business. 

In fact, the landscape has grown leaps and bounds from three or four years ago, when there were fewer than 20 medical cannabis markets in the U.S., and Colorado and Washington were the only states with recreational cannabis companies.

That was a time when marijuana businesses had little capital available to them, and investors were outliers on the risk-tolerance chart.

“The risk factors three and five years ago were so much greater, and the types of people investing were different,” said Sheri Orlowitz, who founded Artemis Capital, a marijuana-focused private equity firm in Washington DC, after serving as a prosecutor for the U.S. Department of Justice

“A few years ago, you were talking about real gamblers, penny stock people. It was a whole different risk tolerance and personality back then.

“Today, you have far less risk. There is a ton more legitimate money out there now.”

Family offices and people of high net worth continue to invest heavily in marijuana businesses, but a broader spectrum of investors are now seriously looking at the cannabis industry, ranging from private equity firms to angels to venture capital.

The investment climate has changed so much so fast that Marijuana Business Magazine took a deep dive into the topic, seeking insights from cannabis entrepreneurs involved in successful raises, other industry insiders and investors about raising MJ money in 2019 and the future.

Some of the lessons learned include:

• ‘There’s plenty of capital out there … take advantage now’
• ‘Start thinking about getting books audit-ready’
• ‘You don’t (just) ask for money’
• ‘Every investor you get will introduce you to at least one or two more’
• ‘Is the entrepreneur credible and super-knowledgeable about how the industry is changing’
• ‘In venture capital, it’s all about the future; in private equity, there’s greater emphasis on past performance’
• ‘Entrepreneurs should focus on whether a transaction is accretive and not just dilutive’