7 Tips on Cannabis Investing from an Industry Expert
The Plexus Cybermedia team recently had the opportunity to interview David Posner, current Chairman of the Board and Director of Nutritional High. Posner is also the former CEO (and an initial Founder) of Nutritional High, recently transitioning his role in the company as planned to best utilize his current expertise. Posner brings his experience in finance, stocks, capital investment, real estate, licensing, and more to the table as a part of the Nutritional High team. Since the inception of the company, David Posner has been focused on strategic investment moves along with a big picture business plan that is poised to bring the company to the forefront of its competition. Today, we chat with Posner to get his expertise on investing in the cannabis industry.
TIP 1: Study the segment of the market of the cannabusiness that you’re interested in.
First and foremost, understanding the sector of the cannabusiness that you’re looking to invest in is incredibly important. Read up about legislation, understand the political and economic risks. For example, in the extracts and edibles segment that Nutritional High is operating in, margins are extremely high in terms of profitability on the US side. But on the Canadian side, a lot of cannabusinesses are waiting on legislation to pass and are hoping that it falls on the right side so that they too can introduce their edibles and extracts products into the market at a profit. In contrast to that, the legalization in Colorado (and subsequent legalizations after that in other states) really cemented that extracts and edibles were going to remain a big part of the cannabis market in the US.
TIP 2: Get in on the ground floor of the industry to see the best return.
The obvious upside is that you’re getting in on the ground floor. These are the early stages of the cannabis stock market, which has really been around for about the 3-year range now. What we’re seeing today is that the companies that are currently growing, even in small amounts, are the ones that have succeeded thus far in what they set out to do.
TIP 3: Lower your risk by finding a small capital, big growth potential cannabiz that will be able to push their product into the marketplace.
Additionally, when investing, you’ll want to look at how much capital is needed for what the company is proposing they’d like to do. At Nutritional High, we veered away from the whole grow side of things because of the amount of capital it would take to become fully functional. For example, we recently purchased a facility in Oregon that’s about 5000 square feet. From that facility, we can supply the entire state and do everything that we want to do with our extracts and edibles processing strategy. And we can replicate this model in multiple states. Now, if we had wanted to do a grow, we’d be looking at something more in the 50,000 square foot range. So what costs us a million dollars to buy a 5000 square feet facility would cost us 10 million if we wanted to do a fully operational grow. So, you really want to understand the capital in this industry. And, this is another important thing, companies that have the means and confidence to actually go out and raise all that money — it’s great that they can, but it also puts a dilution on the stock. In short, you want to find a cannabis company that you believe can grow the fastest with the smallest amount of capital. They need to be able to get their product into the marketplace in a legal way and capture a stake of the market share within the next few years.
TIP 4: Invest in a stock and product/service that you truly believe in and respect.
As with any company that you buy stock in, you want to have respect for the company and see the vision behind their strategy. You also have to keep in mind that while the product is definitely important, it’s just one component of investing in cannabis. Specifically, in this market, it’s about getting the product INTO the marketplace too. Unlike traditional products where getting distribution deals and marketing are the major factors of being successful… cannabis requires a license to distribute a product. It’s an additional barrier to making it to market and making that final profit. So really, when investing, you should be looking for the companies that are licensed. It’s a huge bonus if they’re licensed in multiple states or multiple countries.
TIP 5: Research the company’s current track record AND ask about licensing.
To give you an example, Nutritional High officially received a license in Illinois. We were one of only 52 people to receive licenses in the state at the time. There were over a thousand people who applied for cannabis licenses. From this, we can gather that there are a lot of people who want to be involved in the industry but only a certain fraction that can successfully go through the regulated process to become involved. If you can successfully obtain licenses in multiple states, it’s showing proficiency not only in the application side but also in ultimately, getting your product into the marketplace.
TIP 6: Check out the management and leadership team to see their current business track records.
Absolutely. And this is a major reason why our roles have shifted as of late in the company. Our CEO, Jim Frazier, has dozens of years of experience in the chocolate manufacturing business. He’s built two massive companies from the ground up and really understands the ins and the outs of what we’re going to need on a daily basis here at Nutritional High. I’m not saying that a leadership team can’t be run by someone outside of the box, but you want to look at the people running a company and their track records. If someone has opened a company and sold a company (and done it a couple times) — you know that it isn’t just luck. They have the formula and they’re going to apply it into whichever industry they choose to move into next.
In addition to the leadership team, you also want to look at how the rest of a company’s team is shaping up. Are they bringing on talented people who are going to be able to push this thing forward? Are they able to instill the confidence in their investors as much as they are the team of employees working for them? Finally, are they going to be able to set their egos aside and do business as it needs to be done? For example, my transition from the CEO role was a result of me knowing that my skill set wasn’t what we needed at the time in that particular role. I only want to surround myself with people in business who are willing to do what needs to be done to achieve success at the end of the day.
TIP 7: Pick up the phone and CALL the leadership team of the business you’re choosing to invest in.
The final step in investing in cannabiz… is to take a few minutes and contact any cannabis companies that you’re truly interested in being involved with. The beauty of this industry is that companies are still small enough that you can get through to direct management or their leadership team. You don’t have that same benefit if you’re calling up the CEO of Apple or Wells Fargo before you invest your hard earned money. If you call us, we can talk you through our vision, what we’re working on behind the scenes, and you can really get a feel for what kind of people we are. I would highly recommend before investing that you pick up the phone to learn more beyond just the company’s “about us” webpage.