The other week, I shared my thoughts on how investors should treat the cannabis industry, which basically was to approach it with a VC investment mindset.
One of the problems with this is that the time factor of public ‘venture capital’ could greatly hurt the investor depending on management decisions.
Take a look at what I mean below.
Above, I wanted to show just how much the ‘time factor’ can affect an investor’s position. Whether you’re looking at US MSOs or Canadian LPs, not all are created equally.
Unlike public markets, VCs can bake into their investments anti-dilutive clauses to avoid specifically what you’re seeing above. These clauses allowing them to size up their positions in following rounds or just flat-out not being diluted.
However, had you been bullish at the end of 2020 in hopes of change via a Democrat-led presidency, you could have very well been diluted immensely. While the companies above all chased various strategies in the name of growth, survivorship or just compensation, dilution is not your friend if you’re a buy-and-hold investor.
While the VC investment mindset might make sense going forward, it’s still incredibly important to make sure you’re backing the right horse(s) along the way.
Until next time,
Paul Cerro
Personal Twitter: @paulcerro
Cannabis Twitter: @SOWresearch
Fund Twitter: @cedargrovecm
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