Cannabis Retail Offers Potential Investment Prospects

The role of a merchant banker is in part to provide capital to entrepreneurs and startup businesses that exhibit high growth potential. If you dig deeper, though, what investors are really funding are good ideas that show potential and, moreover, have the potential to disrupt industries.

Possibly the biggest disruption right now in Canada’s consumer market is cannabis. The opportunities that cannabis present are becoming more and more evident to companies around the country, and that means entrepreneurs want to be invested before everyone else gets into the act. In particular, cannabis retail is a promising sector of the industry that is presenting rapid growth potential.

Until April 1st, legal cannabis sales in Ontario were only available through an online government e-commerce store. Today, according to the provincial Alcohol and Gaming Commission, cannabis retail shops and outlets are appearing across the country in Ottawa, Kingston, Toronto, Brampton, Burlington, London, and St. Catharines.

This means millions of dollars of potential investment opportunity for companies that focus on running recreational cannabis stores. To date, large operators have attracted the lion’s share of investment dollars – but there are opportunities for smaller players too.

If you really think about it, smaller players who are looking to expand in high-value markets need capital. They could see outsized returns without requiring the significant capital investments needed by larger players. To boot, entrepreneurs are continuing to find a number of new opportunities in the evolving cannabis industry and one of those opportunities is marijuana-infused edibles. What was once known as the stereotypical “pot brownie” has moved far beyond to products that include infused beverages, candies, tinctures, and cooking ingredients.

For those who prefer a cannabis-adjacent business, information to accompany new products and uses is another important area that offers business opportunities. Putting the right data in front of consumers, and providing them with knowledge, is a need that entrepreneurs can fill.

As the number of legal cannabis consumers increases, so will the business opportunities.

It’s a great time to be a cannabis entrepreneur, but it’s still crucial to be knowledgeable about your product and your business, and more importantly, you still have to be passionate.

Entering Venture Capitalism? What to Know

One of the questions I often receive as a venture capitalist is, “How do I become a venture capitalist?” New graduates and startup veterans alike want to get into the industry, and, I admit, it can be enticing.

There are many ways to break into the venture capital world, but they can generally be broken down into two categories: serial entrepreneurship and investment banking. I define a venture capitalist as someone who distributes third-party funds into new, early-stage ventures. An angel investor is someone who invests in companies with their own capital.

If you want to be a venture capitalist or enter in the industry, my advice is to start by building your experience in the greater financial industry as soon as possible. Ask an established VC if you can shadow them and ask as many questions as you can.

You’ll also need strong analytical skills with the ability to research markets and have a mix of foresight and business savvy to pick winning investments. From my experience, success in this area also directly correlates with an ability to keep up with changing industry trends.

Finding entrepreneurs or young businesses at the earliest stages in the process is another critical skill. One way to find these potential investment opportunities is to attend meetups for emerging technologies and identify attendees offering the most potential.

Once you’ve discovered and pinpointed a potential business to invest in and have completed the necessary analysis to suggest it will succeed, the next step is figuring out finances. How much money does this business require? This isn’t the final stage of the process, but shaping out a basic set of terms is fairly easy — and highly important.

Working as a venture capital can be highly stressful, yet at the same time lucrative. Be prepared to clock in a lot of very long hours with most of that time spent listening to pitches by potential companies. It’s also, in my opinion, extremely rewarding to watch a start-up you invested in succeed.

Why Productivity and Great Ideas Matter

When I worked at a golf course as a little kid, I asked all of the members about their businesses: how they came up with their ideas, what made them successful. Now the tables are turned and young entrepreneurs will often ask me about a typical day and how I make it productive.

What excites me about my current role as an investment banker is that each day is completely different. I never know what’s going to happen, which clients will contact me for something, what type of investment someone will show us.

I actually started my career working at Arthur Andersen, one of the big accounting firms in Toronto. Then I worked at a big bank in equity research for five years and as a money manager for a few years. So, I’ve done all that corporate stuff and there can be repetition working for large companies. I like the variety each day brings now.

Being productive is about being available 24/7. The phone never stops ringing, the emails never stops coming in. And the reason for that is so people know that you’re available. It is one of things that make us unique and productive and successful.

When my partner and I founded Hillcrest Merchant Partners, we wanted to make sure that we emphasize that we are an idea company. Great ideas, great management, that’s what we look for. People talk about money, which is obviously important because it takes money to bring an idea come to life. But money is really a commodity and isn’t necessarily a differentiator.

Because money is available for good ideas, it’s really about bringing the right team together to help the idea come to fruition. Every idea requires a different plan, so I am always looking to meet great management teams with great ideas.

I want to see a track record of excellence – not necessarily having won at all costs, but having been positively competitive. I want to see a leader who gets the difference between leading and managing and who knows when to hand off the managing duties. It’s also important to establish a leader’s integrity. As an investor, I want to be comfortable that bad news is going to be shared and not glossed over.

We look for two key traits in companies: Being able to create solutions to difficult problems and coming up with ideas that apply to large, addressable markets. Typically, companies that we may be interested in investing in hold long-term patents and provide competitive, sustainable advantages over other companies. This is what gets us excited about new prospects.

I’ll usually tell people, there are 24 hours in a day. I sleep for three or four of them. I am fortunate in that what I do doesn’t feel like work. My job, my life, takes me to many different amazing places around the world. I’ve been to almost every continent and I’ve seen some of the most incredible cities in the world—just because of work.

Examining the retail cannabis space at a macro level

There are certain developments in every generation that create opportunities for those who have an eye to seize upon them. The twentieth century was full of these technological, political or cultural shifts.

The widespread production of electric power, the splitting of the atom, the rise of computer technology — these are just a few of the discoveries that changed Western society, and paved the way for new industries and news way of life.

It’s not unrealistic to believe that the legalization of cannabis will be seen in later years as one of these shifts.

Currently, the known cannabis market is at least a $100-200 billion industry, while the illicit market is worth at least $100-150 billion. The idea that it is now possible to convert that illicit market into one that is legalized is exciting. It means that what is now an unknown frontier—Cannabis retail—will eventually become mainstream.

The societal concerns surrounding legalization are not new. There were similar concerns surrounding the legalization of alcohol in Canada following the First World War, and regulations also varied province to province for a number of years. Many people had health concerns and were worried about liquor’s widespread use. They were suspicious that uncontrolled public drunkenness would ensue once people had the ability to consume freely and openly.

While similar concerns have been raised about cannabis, this sector has the advantage of showing promising scientific research and development, through which effective solutions for the treatment of chronic pain and disease are being discovered. The industry can build a mainstream reputation on this solid foundation.

So here, at the beginning of a new era, cannabis retailers have the opportunity to be first in what is sure to be a valuable space. Clear regulations will develop from province to province and governments will gradually improve those laws and make them more suitable to social expectations. Eventually, any existing stereotypes will fade.

In the meantime, the possibility that an entrepreneur could start off with a very small company and build into something exponentially larger, represents one of the most recent frontiers here in Canada, and the possibility of a larger frontier abroad.