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Cannabis Financing Shows Early Signs Of A Rebound, Even As Stocks Wallow Near All-time Lows

Cannabis stocks are still wallowing near all-time lows, but the amount of capital raised in the space is bouncing back.

From the beginning of the year through Feb. 7, pot companies have raised US$1.2 billion of capital compared to US$886 million in the same period of 2019, according to data from Viridian Capital Advisors.

The growing availability of debt-based financing seems to be driving the increase. Year-to-date, about 30 per cent of the capital raises have been debt compared to 19 per cent a year ago.

“This is a trend with sustainability as debt financing provides a lower cost of capital for operators relative to the dilutive effect of raising equity with weak share prices,” Viridian said in its cannabis deal tracker published Feb. 12.

Notably, the number of raises is still tracking below last year’s number, at 36 versus 52. This implies that investors are more selective but also more willing to shell out large amounts of money when they find a prospect they like.

This funding is primarily going to public companies as investors seek liquidity in turbulent markets, Viridian said.

ARCVIEW FUND

A new fund from cannabis investment and research firm Arcview Group aims to expand the financing options available to early-stage private companies.

Arcview has facilitated investments since its inception in 2010, helping its network of about 600 accredited investors place more than US$270 million in over 200 companies, but this is its first foray into running its own fund.

The Arcview Collective Fund will be led by Chief Investment Officer Jeanne Sullivan, a co-founder of tech venture capital firm StarVest Partners, and Chief Executive Officer Jeffrey Finkle, co-founder of Odeon Capital Partners. They will help to advise the fund’s members, who will vote on its investments.

“This is a hybrid between an angel-type gathering and a traditional venture fund whereby the investors are limited partners but they also have general partnership status,” Sullivan said.

The fund will start small, targeting about US$10 million in assets under management, and has attracted more than 40 investors to date: “Tech investors, fintech players, senior partners at investment banking firms, several attorneys, private investors and more and more women,” she said.

The latter is a key focus for the fund. Three of its six investments so far are in female-run companies, including CBD brand Fleur Marche, California-based Garden Society and Altopa, which makes the Oblend botanical-oil mixing device.

Sullivan said the recent collapse in cannabis stocks was “an appropriate correction” and believes some private companies are now undervalued. That said, she also sees founders who are still seeking “out-of-control valuations.”

“It’s Darwinian: if they don’t fix that, then they’re not going to win because people will walk away,” she said.