CANNAINVESTOR Magazine September / October 2016 - Page 85

#5 A brand that can be bigger than the business.

This can sound like cliche but think about how it relates to cannabis. Right now there is a huge, churning, startup economy birthing new companies by the thousands. Some of those companies will do better than others. Certainly some will make a lot more money than others over the next couple of years, but I would suggest that this is not a marker you should be overly focused on as an investor. In 3 or 5, or however many years, but probably not too many, the federal rules will change and cannabis will be taken off the Schedule One Controlled Substance List. On that day, large, publicly traded companies backed by institutional finance, and institutional finance itself, will have a clear pathway into cannabis. Most of those companies are not going to set up a stand in a farmer's market or go through the pain of building a company from the ground up. They are going to target the most established brands and they are going to buy them at valuations that significantly overrepresent the current revenues of those companies. They are going to find a way to get to the front of the line because that is where they like to be, and they have the cash to make it happen. The acquisition market for well branded, well known and well loved cannabis companies on the day that cannabis becomes legal federally will be a huge win for investors who looked beyond revenues and early cash returns and focused on brands.

By Andrew Hunzicker and Sara Batterby