State of Cannabis Business Investing
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What are investors looking for when looking to invest in cannabis companies today, and what are the biggest mistakes companies make when trying to attract investors and secure funding? The answers to these questions may surprise you.
The latest edition of MJBizDaily’s annual marijuana business factbook has data telling cannabis companies exactly what investors want and don’t want. Let’s dive into the results.
What cannabis business investors want
According to the data, two out of three investors (67%) say the most important factor they consider when evaluating cannabis companies for investment is the experience, qualifications and strength of the management team.
In fact, overall, this criterion was seen as more important than the potential return on investment (56%) and shows the importance of building a strong team before looking for investors for your company.
Other important considerations were the business plan, past performance and future potential. Almost half (44%) of investors prioritize a detailed and realistic business plan when evaluating their investments. So take the time and invest your own money to create a complete, successful business plan.
For every third investor (33%), historical financial data or performance is important, and the same percentage of investors rate the company’s potential and its role and awareness in the industry as the number one consideration.
Less important but still important to most investors are the pro forma financial data (22%), the timeline for the investor to get a return on their investment (22%), and the strength of the company’s reasonable assets such as intellectual property (ie patents, trademarks, etc.) or devices (11%).
What cannabis investors don’t want
During the investment appraisal process, investors see cannabis companies make some common mistakes that jeopardize their ability to secure funding.
The two main mistakes investors see are an incomplete or inadequate business plan and limited relevant training and experience on the part of the management team. Every second investor (50%) named each of these mistakes as the most common mistakes companies make.
For 40% of investors, unfounded or unfounded financial forecasts and assessments as well as grandiose statements are additional top mistakes that cannabis companies should avoid, followed by failure to recognize barriers to entry or competition (20%), unprofessional behavior or appearance (20%) and an overwhelming pitch (10%).
Where cannabis investments are made
In 2020, only 18% of global investment in the cannabis industry went to private companies ($ 0.8 billion for private companies versus $ 3.6 billion for public companies). Both private and public companies saw a significant decline in investment activity compared to 2019. Investment by private companies decreased by 78%, while investment by public companies decreased by 55%.
The bulk of global investment in the cannabis industry in 2020 was in the cultivation and retail sectors – a trend that has persisted since 2018. Overall, 60% of 2020 investments went to the cultivation and retail sectors, with the next biggest investment gainer being a real discount with just 10%.
Investors dig a little deeper into the data and target a wide variety of cannabis companies. Vertically integrated companies are the most popular, with 89% of investors taking the MJBizDaily survey. This shows that they invested in these companies in 2020.
Overall, 90% of investors invested in two or more types of cannabis companies in 2020. Both cultivation and investments in medical pharmacies and / or adult retail stores attracted 67% of investors, followed by hemp and / or CBD companies (44%). and infused product processors and extractors (33%). Together, 55% of the investors selected additional technology, product and service companies for investments.
Key insights into cannabis business investing
According to the data, a highly professional, experienced team and a comprehensive business plan are key to attracting investors and securing funding in the cannabis industry.
When looking for funding, be prepared and avoid making claims. Be realistic and secure everything with data. It’s your job to prove that your business is not only a great investment, but the best investment possible.