September 21, 2015

Benefits of an Investment Fund in the Cannabis Industry

It’s certainly possible for savvy individuals to navigate this avalanche of information with a lot of time and work. For others, though, an investment vehicle such as a diversified investment fund could be the key to mitigating the risks of cannabis investment.

There are tremendous opportunities to be had in the legal cannabis industry. If you’re reading this then you’ve probably seen the numbers: $2.7 billion market value in 2015 behind 74% growth in 2014 with an ancillary market that could be three times the size of the market of the plant itself. These enormous positives obviously come with some challenges, and while all investments involve some degree of risk cannabis investment definitely has some unique hurdles. How can a new investor make sense of the variance in state and local regulations (or lack thereof), 280e, and the trials of an emerging market? It’s certainly possible for savvy individuals to navigate this avalanche of information with a lot of time and work. For others, though, an investment vehicle such as a diversified investment fund could be the key to mitigating the risks of cannabis investment.

Benefits of a Fund:

Diversification

A diverse investment portfolio is important with any kind of investment. With the uncertainties and exploding competition in the cannabis industry, diversification is a necessity. Companies now are generally looking for minimum commitments anywhere between $50,000 to $200,000 so someone looking to invest $200,000, for example, will not be able to participate in enough investments to achieve real diversification. Spreading the risk among 8-12 companies would be ideal, and pooling money together in a larger funding vehicle allows for that without individually having to put up a million dollars or more.

Term Sheet Negotiation

Investors aren’t the only ones that see the opportunity in cannabis. The individual companies see the coming years as more lucrative than anyone else, and they have put in the sweat equity to prove it. Consequently their valuations often reflect a lot of potential value that can be much higher than actual current value. Individual investors – again around that $50,000 to $200,000 point – might not have the negotiating power to secure a better valuation which means their dollars would purchase less equity and/or lower return. Once again, pooling money into a larger fund creates advantages, this time in leverage. A single entity controlling a large investment amount will have more negotiating power than several smaller individuals.

Expertise/Resources

One of the things that makes the cannabis industry so potentially lucrative is that it touches so many other industries: software development, technology, agriculture, retail sales, research, etc etc. It would be very difficult for an individual to amass expertise in all of these fields along with having the financial experience to evaluate the business side of each company. Additionally laws across the nation are constantly shifting. Researching and vetting companies and keeping up with the industry is a full-time commitment, and vehicles whose principal occupation is investing in this sector exist to handle this work.

Deal Flow

There are good companies in the cannabis industry, but finding them can be like looking for a needle in a haystack. You often have to sift through hundreds of companies to find ones with the idea, the team, the experience, and the plan to make investment worthwhile. Research, going to conferences, making connections, and being a public enough face that good deals search for you is yet another enormous commitment of time and money.

Considerations of Investing in a Fund:

Management Fee

Expertise, travel, accountant fees, and legal fees are necessary expenses and with investment vehicles these costs are paid by the investors, usually in the form of either a budgeted fee or 2% of committed capital.

Decision Making Authority

In addition to the management fee, the benefits listed above come at the cost of some authority as to which companies will be selected. Individuals obviously have 100% of the decision making power with their dollars, but once money is committed to a fund some of that is ceded to the firm. This may not be a negative, however, as the investor is able to rely on the firm’s industry knowledge and expertise.

Illiquidity

Committed funds are not liquid investments. Once the capital is called it is often working – and inaccessible – for a period of three, five, eight or more years. Investors should understand this before putting money into a fund.

As mentioned earlier, individual investment is absolutely possible, and groups like the ArcView Investor Network take care of a lot of the research and deal flow legwork – for a cost. Folks with the time to commit, a large amount of money, and a larger appetite for risk are certainly able to have an impact in funding in the cannabis space. For those with interest and capital but without the time and the expertise there are already several options to help you participate in the industry without sacrificing your piece of mind.

August 18, 2015

Recapping the First Salveo Capital Investment Summit

Salveo Capital hosted its first Marijuana Investment Summit last Wednesday in Chicago. A packed room of curious individuals spent the day learning about the potential opportunities and potential pitfalls of investing in the legal cannabis industry.

In the opening address managing principal Alex Thiersch spoke on the enormously bright future for those who get into the industry now, before the ground floor has even been built. His talk ranged from the fledgling nature of business infrastructure, to the very recent influx of individuals with past successes in non-marijuana industries, to the changing demographics of the cannabis consumer.

Though the industry experienced 74% growth in 2014 and legal cannabis sales represented a $2.7 billion market last year, Alex said that these numbers were only the tip of the iceberg. This "green rush" could be an amalgam of the gold rush, the oil boom, and the end of alcohol prohibition all in one.

Scott Miller, Salveo Capital's Chief Financial Officer, then presented on the state of the legal marijuana market. He outlined the history of the marijuana business in the United States from the Marihuana Tax Act of 1937 to the Controlled Substances Act, all the way up through the Colorado medical and adult use markets of today. He described how these laws shaped the market today, and how the transition to legality has played out so far.

Scott spoke both as a member of the Salveo Capital team and as someone who has personally been researching investment in the cannabis industry, and gave an investor's look at the qualities of the companies and the types of deals available right now.

Director of Communications Eric Atienza spent the next session walking through the current federal and state legal landscape, and briefly projected how that landscape might change over the next few years. He spent time going over the implications of the Cole Memo and the FinCEN guidelines before touching on the Rohrabacher Amendment to the House spending bill, and bills currently in committee in Congress.

He then went into a quick breakdown of the current states with medical and adult use laws, and which states were the most likely to adopt new legalization laws through 2016.

The final presentation of the morning featured managing principal John Dohm explaining the benefits and considerations of investment as an individual versus as part of a larger investment vehicle. From liquidity to diversification to negotiating strength, John described the differences between various ways of investing in marijuana.

He also touched on a few of the other firms in the space, and the pros and cons of those models versus those of a committed fund.

The afternoon session opened with an introduction to the Salveo Capital team and a breakdown of its particulars. Alex and fund attorney Gary Jungels went over the history of Salveo, its accomplishments, and its legal structure. Three of the best up-and-coming companies in cannabis finished the day, showcasing the increasing sophistication of the cannabis space and the sort of savvy, professional, successful individuals that are now entering the marketplace.

The goal of the Salveo Capital Marijuana Investment Summit was to answer questions about investment in the burgeoning marijuana industry. At a time when there's so much change happening at the state and federal levels, and when there's such a dearth of information available to potential investors seminars like this can do much to allay fears and build the financial base of the legal cannabis industry.

July 14, 2015

Salveo Capital To Host Marijuana Investment Summit

This Summit will outline not only the tremendous potential of cannabis, but will also outline the legal and business pitfalls. The Salveo team will spotlight the difficulties of investing in cannabusinesses and will highlight the ways savvy investors are overcoming the hurdles of such a young market. Additionally, representatives from businesses from several sectors of the industry will be on hand to provide a glimpse at the best of the companies fundraising in the marijuana space.

The Salveo Capital Marijuana Investment Summit is an invitation-only event open only to accredited investors. Contact us to inquire about an invitation to learn about investment in the cannabis space.

We like to talk about the spectacular development of the last few years as a “green rush,” but what we’ve experienced up to this point is merely a sign of what’s to come.

-Alex Thiersch, Salveo Capital Managing Principal

The Salveo Capital Marijuana Investment Summit will provide attendees with the knowledge to confidently invest in the next great American industry.

With an astronomical 74% growth rate in 2014 legal marijuana is the fastest growing industry in the United States, and while its current $2.7 billion market value sounds impressive it’s only the beginning. As legalization spreads to new states, as markets begin to open, and as the federal governments eases its restrictions the limitless opportunities of this nascent industry will be revealed.

Opportunities to build dominant, national brands; to have a hand in constructing an industry from scratch; to get in before the ground floor is even constructed.

As with any investment there are risks and challenges. This Summit will outline not only the tremendous potential of cannabis, but also the potential legal and business pitfalls. The Salveo team will spotlight the difficulties of investing in cannabusinesses and will highlight the ways savvy investors are overcoming the hurdles of such a young market. Additionally, representatives from businesses from several sectors of the industry will be on hand to provide a glimpse at the best of the companies fundraising in the marijuana space.

The Salveo Capital Marijuana Investment Summit

When: August 12, 2015

Where: Salveo Capital HQ in Chicago

Contact for more information

Topics will include:

A Green Rush? More Like a Green Explosion - The legal marijuana market is ready for an explosion unlike any we’ve seen in our lifetime. From growing and selling the plant to cannabis tech, research, and development, billion dollar ideas are being hatched right before our eyes. Right now there is an opportunity to invest in one of the most exciting and profitable industries of all time, but this opportunity won’t last forever. Even now, the clock is ticking.

The State of the Marijuana Investment Market: The Good, the Bad, and the Ugly - Think investing in marijuana is easy? Think again. The industry is fraught with bad investments - from entrepreneurs with a lack of business acumen, businesses with unreliable and untrustworthy employees, to an unsophisticated and cash-based infrastructure. In this talk we address the many problems that accompany any attempted foray into the market.

Risky Business? The Legal Risks of Investing in Legal Marijuana - Is there any risk of prosecution? Seizure of assets? What truly are the risks of investing in marijuana? The Salveo legal team walks you through the state of the law, the latest developments, and the risks (or lack thereof) of investing in legal marijuana.

To Fund or Not to Fund? The Benefits of Working With an Investment Fund in the Marijuana Market - So you’ve decided you want to invest in marijuana - Now what? In this presentation we discuss the pros and cons of investing in a diversified fund versus an individual company. We will also explore the landscape of different investment vehicles available.

Salveo Capital is a noted thought leader in cannabis investment and has been featured as such in publications such as:

June 29, 2015

5 Hurdles For Cannabis Businesses

Legal marijuana is the fastest growing industry in the United States and is a market already valued in the billions. Despite this incredible growth there are still a number of concerns for entrepreneurs and investors interested in entering the space. These are the five biggest issues facing businesses in the cannabis sector.

Federal Prohibition

Though twenty-three states have legalized medical cannabis, including four that have legalized regulated adult-use, marijuana is still federally illegal. It is listed in Schedule 1 of the Controlled Substances Act which puts several limitations in place regarding research, interstate commerce, and of course federal criminal liability. The federal government, however, has taken steps in recent years to guide enforcement toward criminal elements and away from state-legal cannabis businesses. The Cole Memo and FINCEN guidelines indicate that the Department of Justice is reflecting this focus, and the House of Representatives recently passed a spending bill which prohibits the Drug Enforcement Agency from using funds to interfere with state marijuana programs.

Section 280e of the U.S. tax code, however, is still a large barrier and there are movements in place to except legal businesses.

Banking

Because of the federal prohibition the banking industry has been reluctant to enter the cannabis space, meaning that businesses that touch the cannabis plant are restricted to cash transactions. Though a few banks have tried working in the space, several have exited citing the high costs of compliance. This restriction results in businesses with no bank accounts keeping large amounts of cash on location, paying bills in cash, paying employees in cash, and paying taxes in cash.

It also means that young companies are often unable to receive business loans, though firms like Salveo Capital are stepping in to provide funding for businesses touching the cannabis plant.

Stigma

These two issues can change as public attitudes change. Marijuana legalization is supported by a majority of Americans, with medical cannabis programs receiving a nearly 80% approval rating in swing states. Despite this progress stereotypes and stigmas still exist, and are an impediment not only to legalization efforts but also to expanding the marijuana market to mainstream consumers.

Though there will always be a space for marijuana-forward brands, for the industry to attain legitimacy and expand beyond its countercultural niche it must rehabilitate its image.

Bad Actors Affect Entire Industry

This image problem is made worse since any bad actors reinforce stereotypes for everyone in the industry. When the biggest security concerns are a business’ own employees it makes legislators skeptical of the seriousness of the industry, and makes investors hesitant to enter.

The long marijuana prohibition has resulted in a lot of people who are looking for reasons to reject legalization. Cannabis professionals have to be more responsible than counterparts in other industries, and must be hyper-compliant with existing laws. Additionally industry leaders must not only welcome regulation, but should take an active hand in crafting it.

Lack of Traditional Business Experience

Many in the first wave of legal marijuana entrepreneurs may have had experience in cannabis, but as the industry grows it's shown a need for more experience in business. Passion can successfully launch a store but a long-term, sustainable, growing business requires strategic planning and the kind of knowledge and savvy that only comes with years of experience. One of the biggest misconceptions about the cannabis industry is that it's an entirely new animal. It isn't. It's a new application of business models that have existed for decades and the companies most willing to leverage that experience and combine it with entrepreneurs with experience in cannabis will be the most successful going forward.

Overcoming these obstacles will not be simple. It will take hard work, planning, and dedication. It will involve fording a river of legal, social, and financial challenges. On the other side of the river, however, will be one of the most lucrative and transformative opportunities the country has ever seen.

June 22, 2015

Salveo Capital Joins the ArcView Investor Network

Cannabis-focused private equity firm Salveo Capital has joined the ranks of The ArcView Investor Network. The ArcView Group has been a powerful presence in the marijuana industry from providing detailed market research to advocacy to pairing great ideas with the funding to make those ideas reality. ArcView shares Salveo Capital’s goals of building a modern, professional, forward-looking cannabis marketplace, and we look forward matching our knowledge and experience with that of the ArcView network to build a long-lasting and sustainable cannabis industry.

The ArcView Investor Network has helped raise over $40 million for 53 companies in the cannabis space. We at Salveo Capital look forward to partnering with ArcView as we work toward our goal of funding the future of marijuana.

June 15, 2015

Salveo Capital Sponsors Americans for Safe Access

Salveo Capital is sponsoring Americans for Safe Access, a nationwide medical cannabis organization that focuses on patient education and patients’ rights. The company appreciates the work that ASA has done aiding patients across the country, and supports ASA’s goals of ensuring access to cannabis for therapeutic uses and research.

ASA’s patient-first approach focusing on safety, legality, and responsibility reflects Salveo’s own commitment to building a sustainable, professional cannabis industry. Additionally, Salveo believes in the efficacy of medical cannabis, and in its potential to improve the lives of millions of people in the U.S. living with debilitating illnesses. ASA stands up for cannabis users that need it the most – patients in need of access to medicine – and does it smartly and compassionately.

“We don’t know everything yet about medical cannabis,” said managing principal Alex Thiersch,” but we know that it works.”

Thiersch is a member of the ownership group of Salveo Health & Wellness, a medical cannabis dispensary opening later this year in district 14 serving Fulton, Hancock, Henderson, McDonough, and Warren counties. He recently spoke as part of the Know Your Rights panel at the Illinois Medical Cannabis Patient Summit hosted jointly by ASA and the Epilepsy Foundation of Greater Chicago. He focused on the civil protections available for card-holding cannabis patients granted by the Illinois medical cannabis pilot program.

March 27, 2015

Salveo Capital Exhibiting at Marijuana Business Conference and Expo

Salveo Capital will be exhibiting at the spring 2015 Marijuana Business Conference and Expo in Chicago, IL May 19-21. Managing principals Alex Thiersch and John Dohm will be available to talk about where the industry is going, and how Salveo is funding the future of marijuana.