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- Most legal cannabis dispensaries are considered essential businesses, and are still getting customers in the door.
- Experts told Business Insider there’s ample opportunity for entrepreneurs in the cannabis space, especially when it comes to dispensary products and software.
- But they also advised avoiding CBD: “There were a lot of players that rushed into this space and spent a lot of money on building out fully vertical business processes only to find … it was not really worth much,” explained Tim Seymour, the long-running host of the CNBC show “Fast Money.”
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Cannabis is having a moment despite the stagnation of the vast majority of America’s economy. Most of the 33 states with legal dispensaries have declared them essential businesses, so many cannabis companies are staffing up and reporting increased sales.
Despite being left out of Congress’ $2 trillion coronavirus relief funding, cannabis is poised to continue its expansion through the pandemic and into the recession beyond, according to investors and founders Business Insider spoke with over the last week.
Evan Nison, cofounder of Whoopi Goldberg’s now closed cannabis venture Whoopi and Maya, predicts a market ripe with opportunity for entrepreneurs and investors once a sense of normalcy returns to the world.
He considers now “a great time” for capital investments and new business ventures.
“The bubble bursting is going to clear away a lot of companies that were more fluff than substance,” said Nison, who currently runs cannabis PR firm NisonCo and sits on the board for the National Organization for the Reform of Marijuana Laws and Students for Sensible Drug Policy. “That will leave openings for people that want to build businesses like you would have to build in any other industry.”
Alan Brochstein, a frequent conference speaker and the founder of Marketfy’s 420 Investor online community, believes that trends remain favorable for cannabis, notably in legal states. The founding partner of investing website New Cannabis Ventures added, “In a weak economy, I expect to still see good growth in the industry, with core demand relatively stable but the legal market expanding.”
Dispensary shelves need better marketing and brand differentiation
Bethany Gomez is the managing director of data and strategy firm Brightfield Group, which has published its industry findings in The Wall Street Journal, The New York Times, and International Business Times, among others. Gomez highlighted dispensary products like pre-rolled joints, gummies, and vapes as the greatest long-term opportunities.
“While there are some relatively high-quality products on the market, many of the businesses have been poorly run and are rapidly losing money,” Gomez said of current brands like MedMen. In recent months, the prominent, multi-state brand saw its CEO and cofounder, Adam Bierman, step down. Not long after, the company reported a $96.4 million loss for the second quarter of its fiscal year.
Tim Seymour is the founder and CIO of wealth management firm Seymour Asset Management and the long-running host of the CNBC show “Fast Money.” Seymour said that some dispensary brands have done a good job differentiating themselves by establishing a recognizable brand. LA-based Cookies often earns industry praise for its ability to stand out as a lifestyle brand that appeals to consumers in and out of its licensed markets.
But no other consumer products sector in cannabis has yet to establish its significant players at this point, according to Seymour. He said the void presents an opportunity for those looking to gain market share in virtually any other sector, with an emphasis on products found on dispensary store shelves.
“I don’t think that the brands have separated themselves on the shelves,” Seymour said of the cannabis sectors industry products sold in dispensaries. “Right now, if anything, the brands are the dispensaries themselves,” he added.
Cannabis brands need software for logistics, operations, and more
Software piqued the interest of several cannabis authorities. They include former Bear Stearns Vice President and Senior Producer for financial website TheStreet Debra Borchardt. The Green Market Report cofounder, CEO, and editor-in-chief noted an interest in tech already underway, with more participants coming. Tech fits into the broad landscape, serving crucial and diverse facets. They include the publicly traded compliance software Akerna, as well as dispensary software provider Flowhub.
“I think that with cannabis, we are going to see less of the mainstream industries that had started to dabble,” said Borchardt, noting the industry’s investments have already slowed down. She believes the opportunity will go to current top tech players for the most part, leaving others on the outside or forcing it to partner with a larger name in the space.
CNBC’s Seymour also believes in software’s room for growth across the market.
He explained that software isn’t a new trend. The stock market trading expert said that assisting companies in navigating logistical hurdles, such as supply chain management and customer sales information, will continue to be in demand. Demand for these services already existed, but now new opportunities will crop up to serve companies shifting distribution models in light of COVID-19.
Beware of the CBD bubble
Unlike software, stay away from CBD, said Seymour, calling the sector and its forecasted opportunity a missed assessment.
“There were a lot of players that rushed into this space and spent a lot of money on building out fully vertical business processes only to find … it was not really worth much,” he explained.
Morgan Paxhia, a cannabis investor and the cofounder and managing partner at Poseidon Asset Management, agreed. Paxhia’s company holds $145 million in assets under management, with portfolio companies including Headset and Confident Cannabis.
He said that CBD, as well as ventures that directly handle the cannabis plant, such as cultivators and processors, are not a wise investments at this time.
“These are two areas we have seen too much money capitalizing many subscale and inefficient operations,” he elaborated. “As a result, we see high failure rates for previous entrants and limited investor interest in new entrants.”
Shuttered CBD brands include Kentucky hemp producer GenCanna Global USA, which filed for Chapter 11 bankruptcy in February 2020, citing liquidity issues.
Instead, markets that serve existing growers are considered more robust in opportunity and less of a risk.
Mary Pryor, founder and executive of several cannabis ventures, including inclusive stock photography brand Cannaclusive, encouraged aspiring entrepreneurs and investors to obtain certificates focused on the medical market, branding, and company culture mapping, among others.
“Given the stalls in legislation, uncertainties across the board with social equity, and a bubble burst right now — this is a chance to catch up or think of something innovative to offer this space,” she said.