Throughout the world of business, mergers and acquisitions have seen a steady decline. This is due to the liquidity crunch and slowing economic machinery. With fewer people willing to take risks, investing in early-stage businesses has taken a major hit. Investments are down, and the cannabis industry is no different.
Due to the sheer amount of capital needed to support a large agricultural business, investments in the cannabis sector are especially thin.
The latest data does, however, show that in spite of the lockdown and quarantine, cannabis sales have enjoyed a healthy uptick. For the liquid investor, bold decisions could spell attractive payouts down the line.
So, where should this kind of investor be looking? What are the investments to look at in the cannabis sector?
Investing in cannabis ‘pick and shovel’ businesses
As Strain Insider has mentioned time and again, investing capital upstream with producers and manufacturers is a regulatory maze. And once businesses make it through the licensing, audits and so on, success is far from guaranteed.
The number of marijuana growers in Canada, for instance, is so saturated that the price of cannabis has been steadily decreasing since 2010. This data is great for consumers, but not so much for producers looking for big returns.
With so much competition, the typical business model hinges on slow-moving technical developments. Companies like Aurora, Canopy Growth and Aphria are constantly on the hunt for improving efficiency and quality in every way possible.
These improvements needn’t be major either.
Lowering the cost of electricity, hydro, harvesting equipment or commercial real estate by even a few cents could have huge payoffs for cannabis companies. This is simply due to the size of each company’s marijuana growing operation. Conversely, falling beyond the technical curve could spell huge losses.
This analysis reveals some intriguing pieces of information for those interested in the cannabis business.
The first is that the first tier, that of cannabis cultivation and harvesting, is already dominated by battle-tested incumbents. Not only have they built a moat via a brand name, but they also enjoy a major head start in terms of capital invested. This leads to the second piece.
During Berkshire Hathaway’s annual shareholders’ meeting, Warren Buffett discussed the merits of businesses that don’t require too much capital to get started. The irony, of course, is that the Oracle of Omaha has famously invested in industries that do the exact opposite.
This fact can be seen in his investments in the textile, agriculture and energy sectors. Each of these investments demands constant inflows to maintain.
The other side of this bet would be the tech industry.
As the cost of building powerful, scalable software needs fewer and fewer moving parts to execute, companies building such software need far less capital over the long-term. These kinds of companies are all the more advantageous in current times.
Shifting to being a remote-first company is far easier for the Zooms and Facebooks of the world than firms like General Motors, for instance.
In a recent update on its strategy, Canopy Rivers, the investment arm of Canopy Growth, revealed some of the trends that it has been seeing. It wrote that ‘the impacts of COVID-19 were already starting to show, with PitchBook data showing both the number of deals and overall deal size decreasing amid economic uncertainty.’
The investment company also indicated that the average asking price for companies had been cut in half.
Perhaps the most interesting insight, however, is the drastic change in the types of businesses that are approaching Canopy Rivers. Pre-pandemic, which is defined as before March 16, the top three types of cannabis companies included production and cultivation, consumer products and accessories as well as retail and distribution.
These days, the demographic has changed dramatically.
Source: Canopy Rivers
When looking around the market, the growing interest in technology startups is mounting. The FANG stocks, Facebook, Apple, Netflix and Google, have barely been affected by the pandemic. Though this may soon change, clearly many in the startup community are taking notice.
Another reason that these kinds of cannabis companies are flourishing has to do with the difficulty for cultivators to get a stamp of approval. Though virtual visits are becoming more and more popular, the EU-GMP certification process has been brought almost entirely to a halt.
As Strain Insider reported back in May, companies that have earned this certificate will enjoy an oligopoly until the audits resume.
Investing in the third wave of cannabis
The cannabis industry has grown in fits and starts. The most notable epoch came shortly after Canada legalised the recreational use of marijuana. Firms like Aphria and Canopy Growth, both of which had been highly active in the medical space, profited from the shift in regulations immensely.
However, for more than a year, these bullish trends have faded.
The bear market cannot be blamed on COVID-19 exclusively, either. In fact, during a time when most businesses were in lockdown, many states around the world identified cannabis dispensaries as ‘essential.’
There were also many innovations that will likely stick around long after the pandemic concludes. This may include curbside pickup, delivery services and other advantages.
For entrepreneurs, it is in these types of services that they will profit from. As mentioned above, purchasing hectares of land to grow your own cannabis plants isn’t good business.
But as the sector has evolved and competition upstream has become too fierce for new entrants, derivative services will become essential. As competent as Canadian cannabis companies are, it likely won’t serve their bottom line to try and compete at this level.
Put otherwise, the legacy thinking that huge grow sites will inevitably generate outsized returns is over. In the past, money sloshed around, and investors, usually with very little interest in cannabis, used base metrics to define success.
This strategy worked, but only because of the frothy nature of the market. It now appears that this kind of strategy no longer holds water.
In a May newsletter from Dutch medical growers, Bedrocan wrote the following:
‘In the end, it really did not matter if these investments made strategic sense or not, for the investors of these companies, the opportunistic hedge funds, were purely interested in executing a financial trade, normally with a retail investor at the very end, who had been led to believe that the cannabis hype was all worth it.’
Final thoughts on cannabis investments
Concluding, the cannabis market may have successfully shaken out the profiteers and grifters.
Although COVID-19 has accelerated the bearish trend, the entire sector has been dropping for the past 18 months. It’s still a minefield for investors, but identifying the companies who survived the boom and bust, enjoy liquid runways and have earned trust by playing by the rules is key for allocating capital.
The cannabis industry is clearly here to stay, and, in its current mature form, hopefully, the third wave of investment can avoid the pitfalls of previous hedge funds.
The post How to Identify the ‘Third Wave’ of Cannabis Investments appeared first on Strain Insider.
Is Uniswap Governance Centralized? New Report Finds it Could be Controlled By Binance
Uniswap made a shrewd move by airdropping millions of tokens and launching its own liquidity pools to reclaim what SushiSwap had taken from it in just over two weeks. It has propelled the platform back to the most dominant DEX as total value locked approached $2 billion while that on rival SushiSwap has dwindled.
Uniswap made it clear that 40% of all UNI tokens would be allocated to the team, investors, and advisors, with just over half of that going to the latter two. The Glassnode report has delved into this and alludes that the protocol falls far short of true decentralization.
Token Allocation and Storage Anomalies
Liesl Eichholz, who penned the report, questioned the distribution of these tokens, which was supposed to take place over four years. However, the public schedule for vesting has not been announced.
She added that it was even more concerning that these tokens currently appear to be fully liquid and are presently held in regular Ethereum addresses with no transfer restrictions.
Why aren’t these vesting tokens under some kind of timelock?
— Liesl Eichholz (@liesleichholz) September 24, 2020
The term ‘vesting’ has been used loosely by Uniswap, and this method of storing the tokens effectively gives the team and investors admin rights over the protocol, the report added.
“The Uniswap team and investors have allocated themselves an immense proportion of the total supply of UNI tokens. The pie chart feels more reminiscent of a 2017-style ICO than a 2020-style fair launch,”
The report continued to criticize Uniswap governance, noting that in order to submit a proposal, at least 1% of the entire UNI supply needs to be possessed, and 4% of the total supply, or 40 million tokens, is required to reach a quorum.
The report stated that only 15 addresses control at least 10 million UNI, four of which are reserved for the governance treasury, and one is the airdrop distributor address. Of the remaining ten addresses, nine of them contain part of the team and investor token allocation.
Assuming the team and investor allocation will not be touched, that leaves one address which currently has enough UNI to submit a governance proposal. That address is owned by Binance, holding around 26 million tokens.
“This means that even though the governance treasury will be unlocked in less than a month, currently only Binance – a centralized exchange in direct competition with Uniswap – has the power to propose uses for these funds.”
The report concluded that community-led governance is essentially impossible for Uniswap for the time being.
Dave Portnoy Says Bitcoin is a Big Ponzi Scheme But He’ll Be Back
Just months after making a grand entrance in the cryptocurrency space, the Barstool Sports Founder Dave Portnoy reaffirmed that he’s out of the field. In a recent podcast with Anthony “Pomp” Pompliano, the controversial day trader justified his exit by claiming that Bitcoin is a giant Ponzi scheme.
Portnoy’s Controversial Bitcoin History
Portnoy has become one of the most influential and controversial faces of legacy market day trading. Earlier this year, he declared that he’s “coming to Bitcoin,” which attracted lots of attention. Even the Winklevoss twins offered their help to educate him on Bitcoin.
However, his controversy quickly followed him in the vigilant cryptocurrency field, where the community rapidly spotted his pump and dump techniques. After buying several altcoins and claiming a loss of $25,000, Portnoy said that he’s out.
In Pomp’s recent podcast, he reaffirmed that he doesn’t own any digital assets as of now. He went even further by asserting that Bitcoin is “in my mind one big Ponzi scheme.” He argued that “you get in, and you just have to not be the one left holding the bag.”
Interestingly, though, his 2020 purchase of Bitcoin wasn’t the first. He admitted that he bought about $50,000 worth of BTC during the parabolic price increase in 2017 at about $15,000. When asked if he still holds the coins, Portnoy said that he lost the hardware wallet.
Lack Of Accountability Is A Problem, But I’ll Be Back: Portnoy
One of the most notable features regarding Bitcoin has been the anonymity of the creator – Satoshi Nakamoto. Although the pseudonym is well-known and disputed, and some people claim to be Nakamoto, the true identity remains a mystery to this day.
Portnoy believes that this is a problem. He argued that if he ends up losing money or being scammed, he prefers to know who’s the person behind the entire operation. With Bitcoin, though, this “lack of accountability” raises concerns that he’s not comfortable with. Nevertheless, he noted that he’s planning to get back into BTC:
“I’ll get back. I’ve been saying that I’ll be back into Bitcoin. I don’t know when, but I’ll be back.”
He argued that the community and mostly the memes attracted him the most in the first place, and it’s what he misses the most.
China’s Blockchain-Based Service Network (BSN) Integrates Tezos
- The popular blockchain company Tezos has become the last integrated network into China’s ambitious Blockchain-based Services Network (BSN).
- Developers can employ the Tezos protocol through BSN’s global public city nodes and portals for a “simplified development and deployment experience.”
- All three global public city nodes, namely Hong Kong, California, and Paris, have integrated with the Tezos Blockchain in both mainnet and testnet.
- Developers wanting to utilize the Tezos blockchain need to set up an account on BSN’s website and head towards the “permissionless services” section.
- Upon choosing the preferred public city node, developers need to “create a new project” and “choose the chain” (mainnet or testnet).
- After seeing the new project’s creation based on the Tezos blockchain, the next step is to insert Project ID, Project Key, and Access Address from the Project List.
“All APIs provided by Tezos can be accessed in similar ways, and the original data format will be returned.”
- China’s BSN was released earlier this year after some delays prompted by the COVID-19 pandemic. It enables developers to build applications, smart cities, and even digital economies on top of it without participants having to design a new network from scratch.
- Prior to Tezos, BSN integrated other popular blockchain companies starting with Chainlink’s oracle.
- BSN also integrated the Chinese-based platform NEO to accelerate the adoption of the blockchain technology in the country.
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