#IC19 Spotlight: Takeaways From The Cannabis Investing Panel
At #IC19, CVCA’s 2019 conference in Vancouver June 4-6, delegates enjoyed a session dedicated to investment in the cannabis industry. Here are the takeaways from the session presented by PwC Canada.
At Invest Canada ’19, a panel of investors spoke to a captive audience about the benefits and challenges of investing in the cannabis industry. The mainstage panel session was presented by PwC Canada.
The panel was moderated by Sam Znaimer, Managing Director at WGD Capital, and featured: Mary Dimour, Director of Business Development at Canopy Rivers, Blake Corbet, Co-Head of Investment Banking at PI Financial, Margot Micallef, Founder & CEO of Gabriella’s Kitchen Inc., Rami El-Cheikh, Partner, Deal Strategy & Value Creation at PwC Canada and Matt Shalhoub, Managing Director at Green Acre Capital.
“If you actually stop and pause and look at the cannabis industry, in my mind, it is really just a consumer-packaged goods industry,” Micallef said at #IC19. “And if you take your lead from how the CPG industry is currently run, then you realize that there are different verticals that you can invest in.”
Gabriella’s Kitchen (GABY), a cannabis wellness company, was founded largely based on the availability of funding from public venture capital. GABY has a manufacturing license in California, where cannabis branding restrictions are less stringent than markets like Canada.
“It’s what you do with the agricultural product that adds value,” says Micallef. “And building the brand is really what it’s all about.”
Mary Dimour, whose company, Canopy Rivers, is headquartered in Toronto, said she finds it amazing to go to California and see all the brands, flexibility and product marketing.
“[In Canada] you’re restricted to four colours for your packaging,” says Dimour. “Even when you look at it from a development standpoint, there’s already limitations being done in terms of what kind of products we can create.”
Despite these limitations, the cannabis industry is lucrative. Blake Corbet says the size of the global market is a “conservative estimate” of $150-billion, and has caught the attention of the tobacco, beverage, alcohol and pharma industries. Just last year, alcohol beverage company Constellation Brands invested $5-billion investment into Canopy Growth.
The size of the Canadian market is around five to $7-billion, “depending on the sources you look at,” says Corbet.
According to Matt Shalhoub, Canada has become the global financial hub for cannabis companies, and other countries are looking to the country as a leader in the industry. He’s seen a lot of growth in the companies in which Green Acre Capital has invested, and says there are no shortage of opportunities to create returns in this space.
“I’m of the view if you can win in a market like Canada or a market like California, over time, you’ll be able to transform that into being a winner globally,” says Shalhoub.
But Micallef fears legislation restrictions means Canada may lose out to markets like California, “which are 100 per cent entrepreneurial.”
“In Canada, you’ve got the provincial governments involved at some element of the supply chain, some provinces more than others,” she says. “So I don’t think that that is useful for the entrepreneurial environment or the development of the industry.”
Dimou acknowledges that having a government-backed LP makes it more challenging to have these kinds of investments go through due to federal regulation. As a publicly-traded fund, Canopy Rivers has to abide by the federal regulations of the countries they invest in, and therefore currently cannot invest in companies in the United States. “We actually work in the ancillary space as a result of that,” says Dimou.
Canada has an advantage in the recreational market, she says, and there is opportunity for new research and development.
“There are opportunities for larger companies or some of the companies even in our portfolio to work with other industries by material transfer agreements, so that they actually end up having a foothold in new markets,” she says.
Dimou knows of some large companies that have rolled out their R&D by running through three different pathways at once instead of doing a full set plan.
“You have to be as reactive to that as possible as a venture capitalist, because those are the types of deals that you’re looking for.”
As a private fund, Green Acre Capital has had a positive experience investing in the growing industry.
“We’ve [been] able to invest in every market we choose to, in whatever vertical we’ve decided to, and I think that that’s allowed us to generate outsized returns,” says Shalhoub.
“And I’d say for as long as possible, hopefully indefinitely, we’ll continue to be able to do that.”