According to sources, entrepreneurs are focused on the launch of recreational marijuana in California, but another significant market, the entire country of Canada, will also be opening to adult-use cannabis. Deloitte estimates the market will be at least $5B in sales in 2018, with an ancillary market of associated goods and services that could add another $20B.
Marc Lustig, chief executive officer of CannaRoyalty, a company holding investments in about 20 legal marijuana companies in the US and Canada, is ready he says, for “the opportunity of our lifetime.” Lustig, who has worked in both the pharmaceutical industry and capital markets, believes that, “Recreational cannabis use could be as big as alcohol, and research will discover medically transformative effects.”
Indeed, a recent study at the University of New Mexico recently identified a strong correlation between enrollment in a Medical Cannabis Program and reduction of opioid use. The industry is far from saturated says Javier Hasse, a reporter who writes about Cannabis, “there is plenty of room for technological advancements and product differentiation.”
Launching his portfolio of investments three years ago, Lustig hoped to offer investors a place in the new economy, but mitigate their risk by diversifying the offerings along product type, geography, and financing types. CannaRoyalty focuses on brands and assets that will not become commoditized like the raw production of cannabis could.
The company invests in product manufacturers and processors, but also looks for ancillary businesses that don’t “touch the plant.” Two areas with the most potential according to Lustig. “Edibles and beverages get a lot of press,” he said, but there’s also money to be made in new machinery, like ones that pre-roll and pack cannabis joints.
Some CannaRoyalty companies are located in Canada while others are spread through the United States including holdings in California, Arizona, Puerto Rico and Florida. These partnerships may involve direct ownership through equity, or in other cases secured convertible debt or royalty agreements.
California is also a big part of this Canadian company’s strategy and the majority of CannaRoyalty’s US holdings are in located there. Lustig plans to continue investing heavily in California companies focused on product innovation and brand growth, and then bring developed consumer products back to Canada last month.
Lustig looks for investment opportunities in companies with a strong management team, and a differentiated product aimed at a broad audience. “We get ideas from all sorts of characters,” he said, “but what we are looking for is high quality products that the mass market will really want.”
The companies are indeed varied. In Vancouver, CannaRoyalty has a 20% ownership stake in Anandia Labs which does cannabis testing, extraction, and also uses genomics to create new plant varieties. In Toronto, the company has an equity position in Bodhi Research, which is looking into the use of cannabis for concussion and post-concussive treatment. CannaRoyalty’s company, Best Buds in the United States, is creating CBD-infused dog treats to help pets with pain and anxiety in dogs.
Lustig helps his portfolio companies create capital strategies and recently acquired a digital marketing agency to help develop product marketing and branding. He also helps the teams connect with each other – for example introducing a grower to a high-quality testing lab owner. So far the strategy seems to be working. Share price in CannaRoyalty has gone from $2 to $3 a share since it went public last year.
Market growth of course, is expected to continue, and Lustig hopes CannaRoyalty will thrive on both sides of the border.
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