Grow Opportunity speaks to Matt Maurer on investing in cannabis ventures
Matt Maurer, Co-chair of our Cannabis Law Group and Chair of our Franchise Law Group, spoke to Grow Opportunity on investing in cannabis ventures.
It seems like the words volatility and Canada’s cannabis industry have become synonymous, and it’s because there is a significant level of detectable turbulence happening in the space. Everything from over taxation, supply chain woes and skyrocketing production costs splash across headlines, akin to the dreary precipitation at this time of year.
Naturally, the financial sector and investment pool examine the situation and reflect accordingly. But with so many variables involved when it comes to investing in these ventures, what is the best way to determine who to get involved with?
Furthermore, how do companies decide which investment scenario is right for them?
“Early on it was a lot easier to get money invested,” says Matt Maurer, co-chair of the Cannabis Law Group at Torkin Manes and Grow Opportunity columnist. “Everyone was happy to throw money at cannabis companies because LPs in particular were pre-license and going public; it was the good times, if you will.”
Maurer went on to say that as the market has matured, he feels investors are now more hesitant to lend. This is due to the volume of companies doing poorly, consequently scaring off investors and lenders disinterested in participating in this high-risk environment.
“Before, people would lend money and they would just charge a higher interest rate than a bank would because [cannabis] was a higher risk loan. [Others] wanted a high interest rate and an option to convert to shares in the company, and even those companies have pulled out — at least the ones I know.”
Maurer added that the type of ongoing investment he still sees is when a lender comes in and invests in retail operations, an arrangement where the venture receives an advance. Then the retailer assigns a portion of their future revenue to repay the advance, plus interest.
“Some clients I have, have a combination of these quasi-factoring arrangements and private lenders,” says Maurer. “But with private lenders of course, the interest rates are just astronomical because you can’t get money anywhere else.”
He also explains that in this current climate, companies seeking expansion capital should be weary. “If you’re operating and need to borrow money to expand, that seems pretty risky. We’ve seen all these companies that have multiple production, cultivation, or retail sites and they still go bankrupt; they’ve overextended themselves,” he relays. “I would say the more prudent thing to do would be to save up the money and then expand.”
The cannabis attorney concluded by saying that if a company finds they need to borrow, his advice would be to look long and hard at the terms that are being given and what it will mean if the company’s future revenue does not come out as projected.
To read the full article, please visit the Grow Opportunity website.
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