Over the years, I’ve had the privilege of working with some amazing people who have built socially responsible businesses from the ground up. I’m talking everything from solar developers in California to organic farming operations in Canada. And nearly every one of these businesses went on to become very successful.
I take much pride in this. Not just because I’ve been able to help investors make a lot of money, but because the capital I helped raise made it possible for these companies to provide social, economic and environmental benefits to our global community. And that’s very important to me. This is actually the reason I got into the legal cannabis industry.
There’s no doubt that an investment in the legal cannabis industry is a socially responsible investment. By investing in this industry, we are facilitating the end of the drug war, while making it possible for sick people to get the medicine they need without the risk of getting arrested.
The greatest ally we have in the fight against prohibition is our ability to contribute to local economies. Job creation and tax revenues are what allows this industry to grow and prosper. Not just good intentions. I don’t say this to be brash, but it’s merely an observation of truth.
Your chances of success can be significantly impacted by your ability to raise large amounts of capital — especially as the industry has become so competitive. Even the big money is moving in. You may have read about Cowen & Co. moving into the space, heading up its first investor conference devoted solely to cannabis. Cowen has been around since 1918 and generates more than $350 million a year in revenue. Now it is looking to invest in cannabis.
The point is, the cannabis industry is no longer the exclusive niche it was a few years ago. The biggest market movers in the world have set their sights on this plant. And that means everyone from million-dollar angel investors to your average retail investor now wants to invest. However, this industry is also getting crowded. So when it’s time to raise capital, know that you don’t have the luxury of making bad decisions. If investors aren’t impressed with your offer, it takes just seconds to move onto the next person.
Time Is Precious
I’ve listened to hundreds of pitches from cannabis companies. While I know it can be difficult to stand in front of folks looking to write big checks, you must bring your “A” game.
In this space, most folks agree there’s a socially responsible angle to investing in cannabis. I don’t know a single cannabis professional or investor who believes cannabis should be prohibited under any circumstances. So if your audience is willing to hear your pitch, there’s no need to sell them on the negatives of the war on drugs or the profit potential of the industry. They already know this stuff. Now they want to know how you’re going to help them make some money.
You only have about 30 seconds to grab and keep their attention. Those seconds should be used to showcase the “big idea” or the “big promise,” which should be connected to a financial reward.
Last year, I met with a small cultivator in Washington. The company looked good on paper, but I never put up a dime until I meet with management. So we met in Spokane.
The CEO and COO showed up with great data for me to review, yet couldn’t convince me as to why I should invest in their company. I can read slide decks and Memorandums of Understanding (MOUs) anytime. I went to Spokane because I wanted to get to know management and feel comfortable with the folks I was considering investing money with. But I didn’t feel comfortable at all.
They seemed nervous the whole time, and when I asked specific questions, they had to go back through their papers and fish for answers. Bottom line: They were not prepared. If you’re running a cultivation company, you should know every minor detail about your operation and never need to double-check when a potential investor asks a question. Nothing will scare away an investor faster than watching a CEO become flustered after being caught off-guard with a question that he or she should be able to address without hesitation.
Meat on the Plate
While presentation is paramount when pitching your company to investors, the particulars still matter. It only takes seconds to grab the attention of an investor, but to keep them around, there must be some meat on the plate.
In other words, other than having your “big idea,” how will I know you can pull it off? These are some things investors are looking for in a quality investment:
1 Solid management team.
If there is no one on your team who has a proven track record, either get one on board or get someone outside the team with a proven track record to vouch for you by becoming a major investor or board member.
2 Skin in the game.
If you want me to pony up, I want to know that you’ve ponied up, too. If you haven’t shelled out a significant amount of capital for your own company, I’m not going to either.
3 Honest accounting.
Most investors know every accounting trick in the book. Be honest. Don’t make predictions that are “too good to be true.”
I know cultivators are busy people. But if you have an investor looking to make a sizable investment, it’s in your best interest to make time for them. Investors want to know you’re accessible.
In this business, everybody knows everybody. If that’s not the case for you, then you’re not well connected, which is seen as a liability.
Investors who regularly invest in this space know the major players. They know who is doing the big deals and who the gatekeepers are. Investors in this space will ask around about you. If no one knows you, or what you’re doing, there’s a chance you’re going to lose an investor or two.
Likewise, I’ve turned down deals because a company I was investigating was run by people who weren’t familiar with the industry's major players. Can you imagine if an app company was looking for investors, but didn’t know about a company called Apple and a guy named Tim Cook?
In addition to what investors are looking for, consider what you’re looking for. Just because you’re raising capital doesn’t mean you should accept any investment that comes along. You and your investors should be on the same page. For instance, if you’re a cultivator of organic cannabis, you don’t want an investor trying to pressure you into using pesticides or synthetic fertilizers because he or she thinks it will increase revenue. This is your company. Just because someone ponies up $50,000 doesn’t mean he or she gets to dictate the business’s direction. Chances are, you know a lot more about your business than someone who wrote you a check.
This column is not a complete list. If anything, it’s a starting point. As you begin raising capital, you’ll find that you must be flexible to lock in a new investor. This can mean staying up at night to talk to someone who’s in a different time zone or leaving yourself open to suggestions from investors who make rational and fair offers.
Raising capital for your business is one of the hardest things to do. It can be vexing and test the limits of your patience. But the hard work will be worth it once you have built up the capital to enable you to compete in an industry that will present one of the greatest opportunities of the 21st century.