Cannabis Investors Have Warmed Up to This Part of the Market

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Nine months ago, we pointed to a pick up in interest in ancillary cannabis stocks. One of the big surprises to us in our eight years of covering the industry has been how long this has been in the making. For many reasons, investors have been more interested historically in direct cannabis operators than the companies that provide goods and services that enable these companies to operate. Some of the leading ancillary companies posted the highest returns in 2020, including GrowGeneration, which rose 881%, and Innovative Industrial Properties, which gained 141%.

Ancillary companies have attributes that make them potentially attractive to investors. Given that they don’t grow, process or sell cannabis, ancillary companies have three advantages over direct operators. First, they aren’t subject to 280E taxation. Second, many of them are able to trade on higher exchanges. Third, ancillary companies aren’t limited by restrictions on interstate commerce and can more easily achieve scale. In fact, the current state-by-state regulatory environment can create opportunities for ancillary companies to help their customers. Another advantage to investing in ancillary companies is that one can participate in the industry without having to pick the winning operators.

Over the past few months, we have seen several new ancillary investment options emerge. This week, AFC Gamma became the second cannabis-focused REIT to conduct an IPO, listing on the NASDAQ. Earlier this year, Agrify, a developer of grow solutions for indoor agriculture, went public on the NASDAQ as well. Earlier this month, Medical Outcomes Research Analytics conducted a reverse-merger with Helix Technologies and uplisted to the NASDAQ to create Forian, which is focused on data and analytics. urban-gro, which provides engineering and design services to growers, uplisted from the OTC to the NASDAQ as it raised $62 million in a public offering. In December, equipment supplier Hydrofarm conducted a NASDAQ IPO. Finally, while the deal hasn’t yet closed, WeedMaps is going public by merging with SPAC Silver Spike.

These stocks have generally performed well since going public or moving to the higher exchange, and trading volumes have been high as well. We expect that the success these ancillary companies have experienced is likely to encourage additional companies to consider going public. The dutchie capital raise announced this week valued the private company at $1.7 billion, reinforcing investor interest in the ancillary sub-sector.

We are encouraged to see the pick up in interest in ancillary companies, as we think it gives investors additional opportunities to participate in the growth of the industry. We also think that the capital being raised and deployed by ancillary companies will help make the industry more efficient as these companies innovate and create solutions to the challenges that operators face.

urban-gro engineers & designs high-performance cultivation facilities

With having built over 300 controlled environment agriculture facilities, spanning over five million square feet, urban-gro continues to serve MSOs as well as Canadian LPs who require GMP certification. The company, which now trades on the NASDAQ,  is seeing an insurmountable demand for sustainable controlled-environment agriculture facilities and has achieved revenue growth in 2020 despite the impact of Covid-19.

Get up to speed by visiting the urban-gro Investor Dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button in order to stay up to date with their progress.

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Alan & Joel

Exclusive article by Alan Brochstein, CFA
Alan Brochstein, CFA
Based in Houston, Alan leverages his experience as founder of online community 420 Investor, the first and still largest due diligence platform focused on the publicly-traded stocks in the cannabis industry. With his extensive network in the cannabis community, Alan continues to find new ways to connect the industry and facilitate its sustainable growth. At New Cannabis Ventures, he is responsible for content development and strategic alliances. Before shifting his focus to the cannabis industry in early 2013, Alan, who began his career on Wall Street in 1986, worked as an independent research analyst following over two decades in research and portfolio management. A prolific writer, with over 650 articles published since 2007 at Seeking Alpha, where he has 70,000 followers, Alan is a frequent speaker at industry conferences and a frequent source to the media, including the NY Times, the Wall Street Journal, Fox Business, and Bloomberg TV. Contact Alan: Twitter | Facebook | LinkedIn | Email

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