Grupo Flor’s CEO, Paul Henderson, was a panelist at the Southern California Cannabis Investment Forum where he and top industry leaders shared their collective wisdom with 250 plus people. Now with legal adult-use cannabis sales in California less than three weeks away, Paul Henderson shares his top 5 Takeaways from the SoCal Cannabis Forum for those cannabis companies looking to attract investors:
- Proof is in the Pudding
Raising money from a business plan is very difficult, especially if you are asking for a high valuation. Get started and bootstrap your business so you can provide “proof of concept” in your business model.
- Bring on Legal Eagles
Get lawyers involved early and often. Fundraising adds a layer of complexity and the way the businesses are set-up from a legal standpoint matters. Securities laws can easily be compromised without owners realizing it, putting themselves and the company at risk.
- “Touch” vs. “No-Touch” Companies
“No-Touch”companies are generally involved in providing a product or service to the cannabis industry, but are not directly involved with the cannabis plant itself. Investors are typically more comfortable with investing in these types of businesses that provide soil, technical support, testing labs, hydro shops and more. However, more and more investors are getting comfortable investing in “Touch” companies. These are the cultivators, distributors, producers of concentrates, or any company that “touches” the plant in some way.
- Due Diligence is to be Expected
Many investment groups are entering cannabis from other industries and you’re not going to get a pass because you’ve been operating a cannabis business. Term sheets, investment decks, historical financials, local and state licenses, pro-formas, use of proceeds budgets, PPM, appropriate disclosures, and offering paperwork prepared by law firms are all examples of what it’s going to take to complete a deal. Start this process as early as possible to make sure you have a complete packet to present. Most operators wait too long before they realize they need financial backing, or discover that they don’t have the necessary paperwork, putting their companies at risk.
- Don’t set out to build a business to quickly sell it.
This is not a get-rich-quick deal. Many of these operations are capital intensive and require strong fundamental management skills. Focus on efficient and low cost operations. There will eventually be consolidation and successful companies will get acquired.