With the widespread legalization of cannabis, founding partner of KEY Investment Partners Tiby Erdely, Sweet Leaf Madison Capital CFO Kevin Bush, Grassdoor CEO Zack Ein, Katalys co-founder and CRO Matt Stein, and Gordian Compliance Solutions COO Yulia Kalk joined the Future Proof panel The Cannabis Industry: How to Invest for the Future.
A growing (pun intended) amount of investors are interested in finding the best investment opportunities in the nascent cannabis industry.
“This is an industry that is completely capital-restrained,” Erdely noted, making a pun about how it is a “grassroots-driven” industry. He sees the political acceleration of legalization as inevitable every time a new state legalizes it.
Ein’s company Grassdoor has created the backend infrastructure that is doing for cannabis what food delivery services like Fresh Direct or Hello Fresh are doing. “There’s about $40 of profit per delivery.”
Stein noted that big companies like Google and Amazon aren’t yet comfortable with cannabis, creating an opportunity for his firm to draw traffic directly from the websites of CBD brands. “Traditional platforms are not allowing these kinds of relationships. We’re facilitating them on a regular basis.”
Sweetleaf Madison, meanwhile, provides financial support to the growing industry. “The challenge to lending to the industry is every state is its own country,” Bush said, “what works in Ohio may not work in Michigan.”
A Tough Weed To Pull
Compliance also creates challenges, and Kalk agreed with Bush’s diagnosis of the difficulties in financing in the cannabis industry. “The main question that stops people from investing is not understanding how to operate from a compliance standpoint in that industry.” Despite different regulations and policies between states, Kalk noted that most compliance failures come from violating regular operational practice, “the punishment comes down not because it’s the cannabis industry, but because you violated some other rule.” She compared cannabis to crypto regarding the increased scrutiny it gets from regulatory bodies.
Ein said that, unlike Lyft or Uber, using 1099s for independent employees, his firm has had to make their drivers and delivery people full-time employees.
Bush said, “Cannabis is like the wild west. You’ve got all sorts of characters.” He sees it as more important to do proper due diligence. “The whole industry is fascinating because you have this illegality at the federal level,” he said.
Katalyst has unique roadblocks, given the national illegality. They can’t do ad buys on platforms like Facebook, so they’ve had to innovate strategic ways to increase brand traffic. All of the firms represented on the panel have had to be nimble in their approach to the industry. Erdely pointed out that many companies in the industry have been forced to innovate to survive.
Looking to the future of compliance in the industry, Kalk said, “I don’t expect that there will be something new focused just on the cannabis industry in financial regulations.”
For a glimpse of comparable performance, cannabis seems to track with booze. During the COVID lockdown, cannabis use surged. “Not only do I expect cannabis to fair well in a recession, I expect states to work faster in a recession to legalize cannabis,” Erdely noted.
For more news, information, and strategy, visit VettaFi.com.
