Cannabis Investment Rises in 2017
By J.J. McCoy, Senior Managing Editor for New Frontier Data
As things start to warm up for the summer of 2017, there is a well-established and accelerating global trend towards full legalization which supports a long-term, positive investor outlook for the cannabis industry. Consumer, business, and political support for cannabis has increased significantly over the past 12 to 18 months, and even as some in the cannabis industry worry about how the Trump administration’s marijuana policy might eventually shake out, business keeps booming.
“Cannabis stocks significantly outperformed major indexes in 2016, fueled by speculative investment based on anticipated expansion of new legal markets,” said Giadha Aguirre De Carcer, CEO of New Frontier Data.
Before the election, stocks increased by 207.8% and continued to rise. Despite uncertainty after last November regarding any actions or effects from the new administration, the industry saw continued growth relative to Q4 2016 whereby cannabis stocks still outperformed other sectors. A comparison of cannabis stocks versus standard indices can be found here.
Given the latest changes to the political and social landscapes, investors are wise to examine which strategies seem best for entering the highly dynamic market.
A new report jointly published by New Frontier Data and Viridian Capital Advisers reviews in detail the factors which continue to drive the industry forward: “Investing in the Cannabis Industry: 2017 Edition” examines the landmark 2016 state election results, risks and obstacles in the current market, and pre-’16 stock market trends, while providing an analysis of capital raises and M&A activity, sector focuses on biotech and pharma, and a summary of things to expect coming in the future of the industry. It also considers investment growth across cannabis industry sectors, the number of deals and total capital raised in the industry, the market impact under the Trump administration, and emerging trends between equity and debt investments. “Investors are beginning to adjust their risk tolerances with respect to cannabis, and are hungry for credible data associated with this sector,” noted Beau Whitney, New Frontier Data’s senior economist. “This analysis is a great example of how big data can help the investment community glean valuable information about trends and deal flows in the cannabis market.”
Located in Manhattan, Viridian Capital Advisors is a leading provider of financial data and analytics in the cannabis industry. In 2016, the Viridian Cannabis Stock Index gained 236.1%, outperforming such mainstream indices as the Russell 2000 (up 19.5%), the Dow Jones Industrial Average (up 13.4%), the S&P 500 (up 9.5%), and the Nasdaq composite (up 7.5%).
Based on the results of the 2016 elections, the cannabis industry is set to expand significantly over the next five years, and beyond. New Frontier Data estimates that in 2016 total legal cannabis sales in the U.S. reached $6.6 billion, with forecasted sales increasing to $24.1 billion by 2025.
“Investment activity in the legal cannabis marketplace continues to accelerate, both in terms of the aggregate amount of capital being raised and in the frequency of individual tranches,” said Viridian’s founder and president, Scott Greiper.
“According to the data from our Viridian Cannabis Deal Tracker, the flow of investment capital is beginning to focus in on certain key vertical markets in cannabis and the valuations and deal terms are starting to diverge among these verticals. The combination of New Frontier’s industry data and Viridian’s financial data in this report provides a very deep and comprehensive perspective on the investment opportunity in the legal cannabis industry.”
As John Kagia, New Frontier Data’s executive vice president of industry analytics, and author of the report, told Bloomberg this month, “With each new state that legalizes, that need for capital is going to be there,” said. “It will continue to represent a substantial investment opportunity for the foreseeable future.”
J.J. McCoy is Senior Managing Editor for New Frontier Data. A former staff writer for The Washington Post, he is a career journalist having covered emerging technologies among industries including aviation, satellites, transportation, law enforcement, the Smart Grid and professional sports. He has reported from the White House, the U.S. Senate, three continents and counting.