Investing In Cannabis During A Crisis: What To Know About Stocks, Debt,  Equity, M&A | Cannabis Culture

Los Angeles Venture Association (LAVA) recently hosted a webinar discussing the recent uptick of merger and acquisition activity over the last six months, and the trends that will impact the future of the market.

Two reasons for the uptick in cannabis industry investments are confidence in the economy and elections which helped legalize cannabis.  Momentum in states like Texas have increased confidence for investors to enter in the cannabis industry.   With increased capital but lack of federal regulations, investors are embracing creative hybrid financing structures, such as convertible debt that might go away through federal legislation or judicial intervention.  While many investors are focusing on regional sales, large companies that can taking higher risks are now moving in and driving the market.

One issue raised that is relevant to cannabis company valuation is the quality of company “housekeeping” – what is the quality of records of the company, what are its outstanding legal issues, and what structuring issues are invoked by having multistate operations?  For the company, this likely means any valuation issue will require experienced M&A counsel.  For investors looking at cannabis businesses, understanding how housekeeping matters can affect valuation is critical.  In addition, when outstanding legal issues can affect valuation having legal counsel who can analyze the underlying issue and determine its valuation impact is critical.