CCORF - Round-Up: Arcview Investor Forum Vancouver
Cannabis investors were able to discover some of the new trends in the space and learn where the industry may be headed in 2019 during the Arcview Investor Forum in Vancouver.
The three-day event (April 23 to 25) in Vancouver gave investors the chance to hear from some of the thought leaders in the public sector, including analysts from financial institutions researching the space.
As has been the trend at other recent investor focused marijuana events, companies dubbed as multi-state operators (MSOs) in the US market dominated the conversation of the event.
Read below to find out about some of the highlights from the event, including the commentary from analysts of the public sector.
Marijauana analysts offer their take on the status of the market
Hosted by Gerald Pascarelli an associate with the beverages and restaurants division at Cowen (NASDAQ:COWN), the analyst panel reviewed the way investors have gravitated towards the US market thanks to the emergence of MSOs.
Graeme Kreindler, equity analyst with Eight Capital, said the recent acquisition agreement between Canopy Growth (NYSE:CGC,TSX:WEED) and Acreage Holdings (CSE:ACGR.U,OTCQX:ACRGF) offered some validation for the entire MSO play.
Another analyst, Matt Bottomley from Canaccord Genuity (TSX:CF,OTC Pink:CCORF), said his coverage has mostly shifted to the MSO space given the growth in the sector.
John Zamparo, equity analyst for Canadian Imperial Bank of Commerce (CIBC) (NYSE:CM,TSX:CM) told the audience while investors have matured along with the sector, in his view some still view the sector as a resource.
The Canadian bank is a recent entrant to the marijuana space, initiating coverage of Canopy Growth, Cronos Group (NASDAQ:CRON,TSX:CRON) and Aphria (NYSE:APHA,TSX:APHA) in January.
According to Zamparo investors need to realize the market will be dominated by differentiated products rather than growth production numbers.
Pascarelli agreed with his fellow analysts and added he viewed the space as consumer packaged goods industry.
While Bottomley agreed the metrics need to change for these stocks, he defended the reasoning of funded capacity and lowest cost production as a method to evaluate companies as a “necessary evil.”
Canaccord was one of the first financial institutions in Canada to jump on the coverage and deal making of the marijuana market.
The panelists were asked about the issues of value in the sector and the disconnect between some of the valuations in the market compared to the results seen so far.
Zamparo the cannabis market demands for investors to project into the future to evaluate a company. “That’s what you have to do in today’s industry,” he said.
The analyst for CIBC said investors can get too bogged down by focusing on profits from these companies
“That does bother some people, not looking at profitability,” said Zamparo as he explained his firm looks at elements such as disruption and topline enterprise value to sales basis. “I think if you’re actually interested in profitability in Q1 of 2019 or Q2 of 2019, I think you’re missing the bigger picture about what these companies are trying to become.”
Kreindler added his clients are similar in that hunger for profits from marijuana firms.
He explained there is still a constant evolution on the metrics for these companies and the standards are currently being established.
The panel also discussed the potential for the current gap between Canadian firms and MSOs to close in terms of valuations.
Kreindler projected policy changes in the US will lead to some reevaluation on the monetary worth of MSOs.
Zamparo explained while the MSOs could catch up to the Canadian valuations, and this convergence of multiples could signify a decrease in valuations for the Canadian cannabis firms.
Other experts in the space offer predictions and views on the market
Talking on the evolution of the investment market for cannabis Urban Smedeby, president of ManifestSeven formerly known as MJIC, said investors have quickly shifted from initial reservations in the risk associated with marijuana investing.
The executive explained that he is seeing more aggressive investors who are not backing away from the risk in this space.
Smedeby’s, who spoke during the “Raising Capital While Avoiding the Regulatory & Compliance Landmines” panel, firm is a business solution company focused in the cannabis space.
Sander Zagzebski, a partner with the corporate and business practice group at law firm Greenspoon Marder LLP, told the audience he expects to see the merger and acquisition (M&A) activity growing in the size of the deal and the sophistication for these.
The lawyer said he could foresee the entry of antitrust reviews entering given the increase from deals in the US.
Zagzebski spoke during a panel titled “Crystal Balling The Future of Cannabis.”
“We have a group of folks that are aggressively trying to become the leading players so that when legalization happens they are going to be juicy acquisition targets for a US based consumer branded company or something like that,” he said.
As part of a panel discussing the various options to raise capital in the public markets, titled “Capital Market Funding Options: IPO, RTO, ETF’s, and SPAC’s”, one executive told the audience a new model of investing is about to begin trading in Canada.
Jonathan Sandelman, CEO of Cannabis Strategies Acquisition (CSA) (NEO:CSA.A), said special purpose acquisition corporations or SPACs are poised to capture the attention of marijuana investors due to the transparency and increased level of regulation.
“It’s mission is to be very much to be like a private equity firm, but with daily liquidity, with the optionality not given to private equity manager but to the investor,” he said.
According to Sandelman, his firm has already acquired five US cannabis companies in order to establish a presence in the market.
These purchases were approved by shareholders of the company in March.
“With a SPAC you’re investing in a management team who’s going to go out and acquire assets… in the future,” Anna Serin, director of listings development with the Canadian Securities Exchange (CSE) said.
Serin told the audience that the CSE will be offering SPACs at some point.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Acreage Holdings is a client of the Investing News Network. This article is not paid-for content.