As the cannabis industry celebrates another anticipated record-breaking sales day on 4/20, multiple factors are aligning to indicate that a surge of new cannabis investors may be preparing to enter the space, according to KEY Investment Partners.
“In the early days of the regulated industry, it was primarily high net worth individuals and family offices investing in cannabis,” said Pete Karabas, Founding Partner at KEY Investment Partners. “Today however, we are seeing a far broader range of investors interested in the space, including institutional investors who have actively been educating themselves on the cannabis sector over the past couple years, however have not yet invested. Institutional investors will start to jump into the space in 2022 as the regulatory framework takes shape.”
KEY estimates they have seen about double the level of interest from institutional investors to date in 2022 as they experienced in 2021. In addition, the firm continues to see an increasing number of inquiries from companies seeking capital. As an example, KEY recently led a round of funding with multiple institutional investors for North Carolina-based Open Book Extracts. Karabas said that multiple factors are driving this surge of investor interest, including:
- The global macroeconomic environment has been highly volatile making it difficult for investors to allocate capital. The cannabis industry offers many investment opportunities that are high-growth and show recession-resilient characteristics.
- New states that are legalizing medical and recreational cannabis have the benefit of being able to look at the existing regulatory framework of other states (who have already legalized cannabis) as they determine how they will regulate cannabis. It is clear that for many states this is now a question of “when” rather than “if”.
- The stigma surrounding the cannabis industry continues to decline with each passing day.
- Cannabis legislative reform is one of the few political issues today that, generally speaking, is supported by both sides of the aisle in one form or another.
“Most institutional investors have been educating themselves on cannabis and watching from the sidelines over the past few years – once there is further clarity on the regulatory front, they’ll be ready to jump in,” Karabas said. “Investors have now watched the cannabis industry grow, develop and change shape through what many would consider unprecedented economic times. Cannabis has only been ‘mainstream’ since the end of 2018, and since then has continued to outperform growth expectations even in a volatile macroeconomic and political environment in the United States.”
Karabas said that very few investment opportunities currently offer the same growth opportunities as the cannabis sector, and that a recession-resilient, high-growth industry is appealing during times of economic uncertainty. The uncertainty created by the convergence of the pandemic, inflation and now the war in Ukraine, combined with the growing number of states legalizing cannabis and the corresponding jobs the industry creates is increasing investor interest like never before.
“A lot of people have been talking about how cannabis is becoming mainstream in U.S. culture and we completely agree with that assessment,” Karabas said. “We believe that we will look back on 2022 as a pivotal tipping point for the industry, and that increased institutional investment will be a key indicator that we have reached that tipping point.”
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