Remember when investments in cannabis and Bitcoin were seen as interchangeable pursuits of the next sky-high return based on a story that sounded plausible, if not downright enticing? In the early days, cannabis investors chased Canadian operators focused on ramping up production to meet the growing demand of a newly legalized Canadian recreation market and, ultimately, booming markets in the U.S. and overseas. Let’s call that Cannabis Investing 1.0. As the Canadian gold rush faded and more U.S. states legalized marijuana consumption, Cannabis Investing 2.0 shifted focus to U.S.-based multi-state operators (MSOs). The valuation ramp-up for these companies was less meteoric than for their 1.0 counterparts, but the decline was just as certain as U.S. MSO stock prices hit the skids in 2019.
Major retrenchment across the industry may be a sign that the Wild West days are over. Cannabis investors are looking for more stability and clarity in an industry still defined by significant regulatory uncertainty and by young companies with varied capabilities and track records. As this market continues to mature, investors may be looking for a very different Cannabis Investing 3.0.
General Cannabis (OTCQX: CANN) is a Colorado-based holding company building a comprehensive portfolio of business and consumer cannabis brands. Its approach is to acquire best-in-class companies with proven track records of revenue and profitability and provide support including back-office services, marketing assistance and growth capital. This approach is designed to support the entrepreneurs whose vision and passion drive innovation and growth in the industry with solid business and financial practices and resources needed to promote long-term business viability and profitability.
Executing a Stable Growth Strategy
General Cannabis has operating divisions that span real estate, consulting, financing and distribution to grow facilities and dispensaries. This diversity creates what the Hunter Garth, VP of Business Development calls “synergistic opportunities” for operating divisions and subsidiaries to leverage the others’ strengths, take advantage of operational efficiencies, and build a larger balance sheet.
General Cannabis is executing a strategy that focuses on mature markets in Colorado and California, with Oregon on its Phase 2 radar. Garth noted the company’s “operating history and Colorado experience” as attractions to potential acquisition targets in its home state. Watch for General Cannabis to begin closing acquisitions in cultivation, processing and retail from its pipeline in early 2020, with deals Garth said are structured to keep existing management teams in place while the subsidiaries are integrated into the larger General Cannabis family.
A prime example of General Cannabis’ strategy can be seen in its recent announcement of a term sheet to acquire Hälsa Holdings. Upon completion of the deal, General Cannabis will have contracts to acquire 3 retail dispensaries in California that currently generate about $12 million in annual revenue.
As it stands now, Q3 2019 marked the company’s sixth consecutive quarter with revenues surpassing $1 million US, and a 34% increase in year-to-date revenue over 2018.
In December 2019, Steve Gutterman took the helm as CEO of General Cannabis, bringing with him two decades of experience in the cannabis, market research and banking industries. As the President of Harvest Health & Recreation, Gutterman earned the respect of industry stalwarts by taking one of the largest U.S. MSOs public and overseeing its global operations. Previous executive experience at Mobile Accord and E*TRADE Bank rounds out his qualifications to head up the General Cannabis team with its deep background in cannabis, finance, retail and consumer packaged goods.
Steve Gutterman refers to the company’s place in Cannabis Investing 3.0 as the “second mover” advantage, describing a business strategy that involves acquiring “already-successful, profitable assets in mature markets that require relatively little capital to continue to develop.”
In addition to the company’s Denver headquarters, its 90+ employees are located in Los Angeles, Sacramento and New York, supporting a geographically diversified strategy that retains a focus on mature markets and anticipates opportunity in the populated states of the northeastern United States.
One to Watch?
Part of the General Cannabis formula has been to lay the groundwork for accelerating growth that avoids the overvaluation trap. Its 2019 year-end market cap of $21 million seems modest in the context of an industry that tends toward overblown multiples. A planned capital raise in Q1 2020 will help fund the company’s pipeline of acquisition targets in Colorado and could push projected growth.
As Cannabis Investing 3.0 drives a search for reliability, sound business practices and proven experience to sort out the real opportunities from the “sounds good but no thanks” operators, General Cannabis may be a company for investors to keep an eye on. Watch this space.
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