Has Wall Street Abandoned Cannabis?
A Tale of Two Cities – Charles Dickens
Two catalysts spurred this post.
The first was a recent article in the Green Market Report by Debra Borchardt. Her piece (link below) accurately documents Wall Street’s break up with the cannabis sector.
Stepping away from weed makes sense for pubco-focused Wall Street banks, funds and analysts. These firms are driven by fat investment banking and capital markets fees. When their clients & prospects hunker down or deal sizes decline, they exit.
This pullout, however, is not a full reflection of the M&A and funding universe nor broad market fundamentals. Wall Street doesn’t represent the entire capital markets universe, not even close. Most investments and deal making happens in the shadows of private markets.
To wit: 99% of all businesses are private; they won’t be targeted by major banks or covered by equity research. Upwards of 50% of all institutional capital (IC) is outside the Wall Street ecosystem. And, North America isn’t the only game in town. We represent just 55% of the total investable capital worldwide.
One can also argue that some of the pullback (e.g., SPACs, funds and ETFs) is evidence that these vehicles were never fit for cannabis purpose.
Which brings me to the second catalyst: the view from Britain.
I have friends who are MDs at some leading investment firms. I met with 2 of them last week in London. Their funds (one is private wealth, the other private equity) are not currently invested in cannabis but are Alpha return hunters and familiar with weed.
We talked about how British IC views our space. Their feedback and interest in our industry was encouraging:
> The stigma around cannabis is declining; full legalization is seen as inevitable.
> Cannabis is battling investor psychology. Many fund managers will automatically follow their peers and won’t expend serious effort to understand a new industry. They will also weigh cannabis investments against competing asset classes.
> Cannabis is no longer invisible. A large, growing and global sector has naturally piqued the interest of fund managers looking for outsize returns, manageable risks and bargain valuations.
> The sector is viewed as unhealthy and lacking in professionalism. More industry education is needed including an improved explanation for why we are better than other alternative assets.
> Cannabis is not a fit for every portfolio. Better fund targeting with a bespoke story could unlock more capital.
Summing up, we’ve reached the nadir of Big Bank engagement. Yet there are glimmers of light elsewhere. Many see the lucrative cannabis opportunity, this time more judiciously. The US is not the only capital game in town. It’s now up to companies to do their part.
Call me. I help firms improve their capital raising strategy, optimize governance and tell a better investor story.
#capitalmarkets #funding #M&A #MSOS #wallstreet #london #LPS