CANNAINVESTOR Magazine October / November 2016 - Page 62


Will the Purse Strings Loosen in the Near Term?

In the near term, it’s possible the upcoming national election may have a similar effect to what was seen in 2014. After Colorado’s first recreational stores opened their doors in January 2014, there was a dramatic increase in financing in the sector. According to S&P Capital IQ, in Q4 2013 there was a total of $31.3 million raised in 14 deals for private and public cannabis companies. Contrast that to the dramatic change in the numbers in the next quarter. According to the same source, in the first quarter in 2014 there were 59 private and public transactions in the cannabis sector that raised close to $260 million, an increase of over 700 percent.

On November 8th, there are nine state measures for cannabis legalization with perhaps the most important being the vote for recreational legalization in California. In addition, the residence requirement for ownership of Colorado operations goes away in January. “We have seen a significant increase in interest for investment in Colorado and California operations in the last quarter,” stated Traylor, “the next six months could be critical for taking the cannabis sector to the next level.”

Financing in 2017?

In addition to these factors internal to the sector, the financing environment for cannabis next year may be shaped by a number of external forces, including the broader U.S. financial markets and global economic growth. The U.S. exchanges are all near or at their all-time highs. Many experts are predicting a 10-20% correction in the near term. If that happens, it could have a significant effect on interest in investment in the cannabis sector. In the market meltdown of 2008, investment in high risk sectors like biotech dried up due to the resulting risk aversion. It’s possible a significant correction in U.S. markets could result in a large drop in investment in a high risk sector like cannabis.