2020 was an exceptional year for cannabis. Sales are up beyond expectations. Companies are thriving. Legalization is marching forward in the U.S. and globally. And cannabis investment opportunities are ripe for experienced investors with an understanding of where, when, and how to invest.
For more detailed, investor-focused discussion on these topics, register for the CanopyBoulder Investor Hub
In March, COVID-19 disrupted cannabis sales and growth. Within a month or so, sales rebounded and never looked back. In fact, three quarters of sales in 2020 totalling $12.5 million exceeded the amount recorded in all of 2019.
Nearly every state has surpassed projections with Arizona up 48%, Oregon up 37%, and even Colorado’s mature market growing an impressive 24% in 2020, according to BDSA.
Midwest and Eastern states are growing, disrupting the established Western dominance. Florida is now the 3rd largest U.S. market, Illinois #6, Michigan #8 and Massachusetts #9.
The Rise of MSOs
The stock prices of publicly traded U.S. cannabis companies have rebounded, driven in large part by explosive Q2 and Q3 growth. Year-over-year revenue for Trulieve is up 93%, GTI is up 131%, and Curaleaf up 325%.
Though still federally illegal, licensed cannabis operators are refining their tactics and strategies to generate hundreds of millions of dollars in quarterly revenues, with a few acquiring clear sight to $1B in annual sales.
By tracking the success and failure of licensed U.S. and Canadian operators, we are able to understand how dominant MSOs are impacting the industry, and disrupting previously assumed norms.
For more nuanced analysis of the top U.S. operators, we have reviewed the performance of MSOs on the CanopyBoulder Investor Hub
Federal legalization is a reflection of state by state action and the fact that 68% of Americans now support it, according to Gallup.
This momentum is reflected through recent history. Despite failing to pass MMJ in a 2014 midterm election, Florida eventually succeeded, joining 8 other states in legalizing cannabis during the 2016 General election. And by 2018, momentum had shifted so much that Oklahoma successfully legalized via a primary election - a once unheard of concept.
So when every one of the 5 states with cannabis on the ballot in the 2020 election voted to affirm legalization, Americans confirmed the expectations of advocates, industry leaders, policymakers and politicians.
Fortunately, this is not limited to the United States. The United Nations recently reclassified cannabis, recognizing its medicinal and therapeutic potential and signaling to the rest of the world that it is time to change. As well this year, the U.K. decided NOT to classify CBD as a narcotic, Mexico inched closer to adult use legalization, and Chinese provinces issued nearly 15 vertical licenses for legal hemp domestically.
While the Biden-Harris administration indicated a “commitment to decriminalizing marijuana” during the 2020 Presidential campaign, actions of Congress are likely needed to drive legalization on the federal level. Two bills at the center of the legalization discussion that appear promising are the MORE Act, which recently passed in the House of Representatives, and the SAFE Banking Act. However, a divided Congress may limit progress and only time will tell if the House and Senate will align and pass these bills.
A retreat of retail and FOMO investors drove a capital crunch for the cannabis industry in 2020. COVID-19 and the associated lack of confidence around cannabis’s recession resistant nature gave many an investor pause in early 2020.
According to Viridian Capital Advisors Cannabis Deal Tracker, equity and debt raises were down nearly 200% through Thanksgiving. Less capital flowed into fewer companies in 2020 than in 2019. COVID-19 allowed investors to receive more favorable terms from companies with strong revenue growth and a clear path to profitability. Less able cannabis firms experienced a shakeout of sorts, while the most capital efficient continue to thrive.
Worth noting, the CanopyBoulder portfolio raised over $35 million through Q3 in 2020, nearly equaling a record set during the same period in 2019, when BDSA, Front Range Biosciences, Bloom Automation, Apex Trading and Abaca raised significant sums.
With a vaccine in sight, investment and entrepreneurial interest returning to the cannabis industry, and more reasonable valuations, capital is beginning to flow back into the industry, albeit at discounts on the order of 30-70% to previous levels.
Outside of the CanopyBoulder ecosystem, ancillary company raises including those from Dutchie, Spring Big and Fyllo confirmed that great teams who focus on solving big industry problems can successfully raise capital - it just might take longer or be harder than it was in the past (not that it was ever easy).
2020 was a transition year for hemp. Much like the THC sector of the industry, hemp investments were off from a record 2019 - both in total number of deals and total dollars raised.
Riding a wave of excitement following the passing of the Farm Bill at the end of 2018, hemp and CBD brands proliferated in 2019. In anticipation of CBD entering mainstream retailers with the help of mainstream CPGs, farmers aggressively planted large crops, spurred by encouragement from large processors. A slow moving FDA delayed consumer growth through mainstream retailers, resulting in a glut of supply, falling prices and ultimately bankruptcies and defaults. Investors previously bullish on the hemp industry took pause in 2020.
Consumer interest for hemp and CBD continues to grow and industrial applications are expanding. Yet in an emerging market dependent upon regulatory approvals, fits and starts should be expected. These dynamics create opportunities for entrepreneurs and investors alike. Many expect progress in 2021 as the Biden-Harris administration is expected to push for final FDA rules. Evidence of the return of capital and investor sentiment is seen in recent hemp-related SPAC activity.
CanopyBoulder launched its 11th accelerator cohort in January 2020, making 10 additional investments out of the 5th CanopyBoulder fund - CB5.
The first impacts of COVID-19 coincided with week 10 of the 13-week accelerator program. With the aid of technology, we pivoted rapidly, adapting to the new normal and finishing the program strong. Many of these technologies - specifically Zoom, Slack and elements of the Google suite - were already in place to enable remote attendance for founders if required by travel or business commitments.
To support the 2020 Cohort Accelerator companies in connecting with investors in lieu of in-person events, CanopyBoulder launched a virtual investor platform - The CanopyBoulder Investor Hub. Over 600 investors registered and 350+ logged in to attend demo day and hear pitches and dig into data rooms prepared by the teams graduating from the program.
The Investor Hub has remained active, with new investors registering weekly. Since launch, investors have joined to regularly view company pitches, active deal information and a library of engaging investment-related content (recorded zoom call discussions, panels, webinars, and investor materials).
Amnesia, Antedotum, Everflux, Fog + Tree, Happy Cabbage, Jage Media, PurePower Botanicals, Royal Supply, Sky + Wyatt and Straight Hemp were all graduates of the accelerator program joining 15 other companies in the CB5 fund.
In August, CanopyBoulder also invested in Abaca, Trym and Elevated Signals. These three growth-stage companies completed a 4 week Virtual Growth Incubator program in early September focused on sales, marketing and growth. Each team logged their best sales and growth months on record and all three companies oversubscribed their funding rounds. In 2020, 54% of CB5 companies successfully raised capital.
With 2020 in our rearview mirror, we are proud to report the overall success of our portfolio companies across all five CanopyBoulder funds. CanopyBoulder alumni generated over $25 million in new 2020 sales through Q3.
If 2021 can be anything like 2020 from a sales and growth standpoint, then we are all in for a great year. We know success in cannabis does not come easy, but a rising tide of consumer demand, entrepreneurial activity, and legalization progress shows little indication that it will slow down anytime soon. Challenges certainly lie ahead, but the cannabis industry’s long term prospects remain strong.
Have we discounted or underestimated the cannabis industry’s potential? Perhaps it is time to dream bigger, consolidate wins, and drive forward with more confidence and conviction.
We wish everyone a happy and healthy holiday season. Please stay safe, stick together, and we promise 2021 will be even better than 2020.