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Don't Have A Million, But Want to Invest in Cannabis?
Here's my take on it.
From an excerpt with Green Entrepreneur (full article here).
Get our detailed investor check list click here.
Let’s get to the million dollar question, which is: I don’t have a million dollars, but I want to invest in this business. Where do I start?
First my advice is always that you should go to the experts, that's why I came to Cresco Capital Partners. I wanted to invest along private equity and venture capital experts so I could learn from their 10,000 hours instead of having to do my own.
Say you've already done that. Then you need to get your seat at the deal-making table. Then you start to get deals and access into the space that outstrips your network. One of the first secrets is, wealth is made on the private side. If you look at anybody who has accumulated wealth – not just rich, but real wealth – it’s because they’ve done investing either on real estate or in their own company on the private side. That’s just the “why” of this even mattering.
Explain that a little bit to me. On the private side, meaning they’re not public companies that they invest in?
It’s very hard to make generational wealth or real wealth by investing in public stock markets. Outpace inflation, definitely, but replace your income? That's tough. You can see that very quickly. Say you put all the faces from the Forbes 100 list of billionaires on one page. What you would notice if you went through all their bios? Not a single one of them made their money from smartly investing in public stocks.
The brilliant Warren Buffett, Carl Icahn, they only move when they have three things...
The best investors like Warren Buffett, Carl Icahn, etc they only move when they have three things:
The first one is an unfair advantage. For instance, Carl is an activist . He can go bother the founders of the company until they make changes to the actual company and make him money. So you need an unfair advantage in some way.
The second thing that you need is intimate knowledge. Not insider knowledge. You can’t have anything illegal. But you need intimate knowledge of the industry, the company, whatever you’re investing in. You really can’t get that with public stocks because otherwise it would be insider information and you have to be incredibly careful to be ethical and law abiding. On the private side you can have financials, access to the actual founders, access to their actual distributors and request a financial colonoscopy for all intents and purposed. Essentially what you need is information beyond what the news and Jim Cramer could scream at you on CNBC. You need that.
Then the third thing is the ability to affect the outcome. That’s how we invest on the private side because by giving them capital, we can talk to them about how they’re going to exit, who’s going to buy them, help them structure the exit on the backend, and the list goes on. When I invest I want to be more than money, I want to be a fulcrum they can place a lever on to lift more than their bodyweight.
Those three items are really key to investing. But we’re talking at a super high level. We’re not all going to have that on Day 1, but you should always have that in the back of your mind. That is the goal. It’s why I’m really worried about anybody who’s a price speculator.
What does price speculator that mean? Why does that worry you?
The crypto crisis, the housing crisis, the internet bubble, and then if we go way back to tulip mania, (which was where people were paying hundreds of dollars for a tulip bulb), it’s all the same thing. It’s all called price speculation, which basically means people invest in something just because they think the next guy is going to buy at a higher price and they’ll be able to sell after he gets in. But they don’t believe that there’s real value in what they’re investing in.
We’ve got to be careful about that. There’s a little bit of that in cannabis, so on the public side I’m really cautious about investing.
It seems out of whack right now on the public side of cannabis with the valuations of the underlying companies.
You may be right, I don’t have a crystal ball. If I did, we’d be on my yacht while recording this podcast. But what is important on the public side, or any time valuations or the price of stocks is concerned, is to always be looking at the downside.
Does it make sense for the top 10 cannabis stocks to be worth 4x more than the top 10 biotech, tobacco, pharma, or healthcare stocks, from a price-to-sales perspective? Which just means the price that they’re worth versus how much they actually sell.
Does it make sense for the top 10 cannabis stocks to be worth 4x more than the top 10 biotech, tobacco, pharma, or healthcare stocks, from a price-to-sales perspective?
I don’t know. It’s a growth industry; it could be, but my instincts say probably not. The key to investing is always buy low, sell high, and train your brain on that. Focus on price first before excitement. That is how we avoid price speculating.
Say you want to get smart on cannabis investing in 30 days how do you do it?
Step One: Get Smart
You should be, in my opinion, not doing anything except getting smart. Listen to all the podcasts on Green Entrepreneur, and then go over to CannaInsider podcast, and then go and look at some of the investor intelligence reports like Cohen. Don’t spend a lifetime; do this in a weekend. You can binge-listen to a couple podcasts, binge-read all the investor intelligence on MJBiz or Green Entrepreneur or Cohen and in that span of time you will be more knowledgable than 90% of the populace on your subject matter.
Step Two: Get In The Game
If you want to invest, or if you want to do anything – you need to go where the game is played. Say you want to play baseball. The first thing that you should probably go do is watch a baseball game. Then you go try to play a baseball game amongst you and your friends. Then you try to figure out who are the reporters that cover baseball. Then you should probably try to go to three or four conferences of people who are talking about baseball, playing it, or selling baseball gear.
If you want to invest, or if you want to do anything – you need to go where the game is played.
It’s not dissimilar to investing. You go where the game is played. In cannabis, in my opinion, that would be places like ArcView, which is kind of like AngelList. AngelList is where you can go and invest in lots of different startups, but at very low dollar amounts in a quasi-crowd equity investing model. ArcView is similar but for cannabis, and they also have research and conferences to support. So you go to a couple ArcView conferences, and you join that insider circle.
Step Three: Meet the Players
Then you start reaching out to the insiders. Prior to an Arcview event you email all the speakers that are relevant. You setup a goal of 3-5 one on one meetings. You prepare with notes and background on the individuals and you try to stay in touch feeding them deals and ideas. These three steps are more than 99.9% of humans will take the time and effort to do. It is amazing how much success lies just over the other side of trying.
What is truly crazy is, after you do those three things – listen to a ton of podcasts, read as much as you can about the industry, and then get hooked up to an industry group and go to one of their conferences – you are smarter than 90% of the population on cannabis.
What’s the conversation you have with these people that you connect with in cannabis as a newcomer? Is that the moment when you present yourself, about who you are and what you have to offer?
First, if you go where the game is played because you want to be in the game, you will have opportunities presented to you that you never otherwise would.
First, if you go where the game is played because you want to be in the game, you will have opportunities presented to you that you never otherwise would.
That’s my promise to you. If you do these three things and you go to where the game is played with a curious mind and dig in, you’re going to have opportunities arise that you couldn't have planned yourself.
If you have that belief, then when you go, here are two things that are super important.
One is curiosity.
We’re all egoists, right? I like to have my ego stroked. But the truth is, if somebody comes up to me and says;
“Codie, I’ve been reading your stuff, listening to your podcast here, I saw you speak here, and I’m really curious as to what you meant in this sentence”
or “I’m really curious, what do you think about this?”
or “how would you enter this space?”
or “why did you do this particular move?”
– those small, tailored questions to somebody’s ego, showing that you’re truly curious, not wasting there time. It speaks volumes. If you do that to five or ten people, the likelihood is you have two to three to four who want to engage with you. So that’s where I’d start. Curiosity.
Second item is give before you take.
I just interviewed an analyst today for our firm. The way he came to me was similar to what we've just been speaking about. He reached out, said he had listened to a few of our thought pieces. But he did something different than saying, "Hire me."
He said, “I’ve been doing research and analysis on the space in grad school right now and did some models on vertically integrated companies...” -- which are companies like Acreage.
"... I did some research on a few of your portfolio companies and their competitors. Would that be useful to you?”
Of course that is interesting.
I looked at it. The models were actually really good, so I followed up with him and gave him a bit more work. Right now I’m looking at the lab testing space. Every time somebody wants to sell you cannabis, they’ve got to go take it to a third-party lab to see if it has any pesticides in it or if it is THC at the level that they say it is. I’m interested in that key portion of the industry. So I said, “Why don’t you try to apply your thought process to this lab space?” He did it, did a great job, and I’ll probably offer him a job.
So that second key is not what they can do for you, but what you can do for them. If you provide value to people who are in positions of power, that is so rare – so rare – that they are going to want you in their circle.
The moral of the story is this...
..investing is not only for the high and mighty.
New industries have opportunities that pervade them if you are curious, driven and give before you take.
Be one of the few who do, and you just may find another wealth driver for you.
Get our detailed investor check list click here.
Or read full Green Entrepreneur article here.
Codie A. Sanchez
Managing Director - Partner at Cresco CapitalPartners, LLC