Part of cannabis and investing
What would compel ambitious deal makers at Goldman Sachs and other top-tier investment banks to turn their backs on Wall Street, and instead seek their fortune on a backwater Canadian stock exchange? In a word, weed.
More than a dozen privately owned U.S. cannabis companies are lined up to list their shares on the Canadian Securities Exchange (CSE) in coming months, according to regulatory filings and other public documents. In the queue, you’ll find the maker of THC-infused gummy candies − PLUS Products Inc. − alongside Acreage Holdings, which sells cannabis in 14 states, and Curaleaf Inc. and Columbia Care LLC, two leading suppliers of medical marijuana.
All these businesses are run by former bankers and money managers who walked away from careers that would have made them millionaires for a shot at being a billionaire. Two of the three founders at PLUS are private-equity veterans, the third is from Facebook, while six of eight senior executives at Acreage worked on Wall Street. There are six former financiers in the senior ranks at Curaleaf, while Goldman and Fidelity Investments alumnus hold four of the top six jobs at Columbia Care.
Cannabis plants at Tilray, a medical marijuana grow-op in Nanaimo, Aug. 14, 2014.John Lehmann/Globe and Mail
These cannabis kingpins are about to experience a round of wealth creation that matches anything seen in the dot-com era as they list their companies on the CSE, a marketplace that was best known as the home for moose-pasture junior mining plays. Several of the U.S. ventures are expected to command $2-billion-plus valuations when their shares begin trading.
The CSE is landing these American companies because it takes a liberal view of U.S. regulations, while established exchanges such as the TSX, NYSE and Nasdaq continue to steer clear of any company that could potentially run afoul of U.S. federal laws that still say smoking a joint, or popping a gummy, is illegal.
If you continue to wonder if the cannabis market is for real, set those doubts aside: The proven talent gravitating to this space speaks to the fact that marijuana has blossomed as an industry, a peer to established sectors such as brewing or pharmaceuticals. The Wall Street crowd is starting companies, then recruiting from name-brand consumer product companies: You’ll find veterans of Anheuser-Busch InBev, McDonald’s, Nike and Williams-Sonoma at cannabis companies planning to list on the CSE.
Meet with the big dreamers in the cannabis space and you’ll hear comparisons with the fortune Sam Bronfman made on booze after Prohibition, with software when Bill Gates arrived or with the steel industry before Andrew Carnegie. The cannabis market is already creating its own mythical figures, as Seattle-based private-equity executive Brendan Kennedy of Privateer Capital is a multibillionaire based on his personal stake in marijuana producer Tilray Inc.
It’s brave talk, but while cannabis companies deserve growing acceptance, there is good reason to be leery of lofty valuations in the sector. And it’s important to keep in mind what the Wall Street mindset implies for these U.S. cannabis companies once they begin to trade on the CSE.
Anyone trained as an investment banker tends to take a transaction-focused approach to business. And the Wall Street crowd is acutely conscious of boom-and-bust market cycles. They are keenly aware that cannabis stocks currently trade at eye-popping multiples to their sales, based on the perception that there’s enormous growth in store for producers of medical and recreational cannabis.
It’s fair to assume that many executives at soon-to-be-public cannabis producers are here for a good time, not a long time, when it comes to their holdings. Take cues from the buying and selling of these Wall Street veterans as they navigate the cannabis craze.
Andrew Willis