Where will the cannabis investment opportunities be in 2023? The Cannabis Investor Series Sponsored by PodConx is back for the Fifth year. This year, the Series will again feature the cannabis industry's top investors, reviewing how the current macroeconomic cycle is affecting the cannabis industry, what to expect in 2023 and sharing investment opportunities and strategies. In today's episode, Dan Humiston is joined by Matt Hawkins the Founder and Managing Partner at Entourage Effect Capital Produced by PodConx MJBulls - https://podconx.com/podcasts/raising-cannabis-capital Dan Humiston - https://podconx.com/guests/dan-humiston Entourage Effect Capital - https://www.entourageeffect.com/ Matt Hawkins - https://podconx.com/guests/matt-hawkins Recorded on Squadcast - https://squadcast.fm/
Where will the cannabis investment opportunities be in 2023?
The Cannabis Investor Series Sponsored by PodConx is back for the Fifth year. This year, the Series will again feature the cannabis industry's top investors, reviewing how the current macroeconomic cycle is affecting the cannabis industry, what to expect in 2023 and sharing investment opportunities and strategies. In today's episode, Dan Humiston is joined by Matt Hawkins the Founder and Managing Partner at Entourage Effect Capital
MJBulls - https://podconx.com/podcasts/raising-cannabis-capital
Dan Humiston - https://podconx.com/guests/dan-humiston
Entourage Effect Capital - https://www.entourageeffect.com/
Matt Hawkins - https://podconx.com/guests/matt-hawkins
Recorded on Squadcast - https://squadcast.fm/
CI5 Entourage
Dan Humiston: [00:00:00] Matt Hawkins, the co-founder and managing partner at Entourage Effect Capital.
Matt, welcome back to the show.
Matt Hawkins: thanks for having.
Dan Humiston: Well, I'm glad you could carve out some time today because with so much uncertainty in all the markets, it is an especially challenging time now to know when to make a cannabis investment. And you have so much experience in investing, not just in cannabis, but you do have over eight years of cannabis investing.
So I'm a, I'm assuming you've lived through a bunch of economic cycles. How does the cycle we're in right now compare to others?
Matt Hawkins: It's pretty funny you, you mentioned the, the cycles and you know, we talk about it a lot, but how, dog years it feels like we've been investing and it's only since 2014, so it's, but we've already lived through at least two, if not three pretty significant downturns. This one is different for a couple of reasons.
One, there are macro issues in play now outside of there's a lot of uncertainty with what's happening. [00:01:00] the economy, inflation, interest rates, et cetera, et cetera. And all of that does impact, know, money that's flowing into cannabis cuz it's usually from high individuals family offices.
mainly retail investors on the public side. us though, it's, it's a huge opportunity because on this We're closer than we've ever been to some type of legislation, whether it's the Safe Banking Act or if we get lucky, some type of quasi legalization, you know, in the next few years.
So at some point, the companies that we invest in out of our third fund, which is, larger scale opportunities, whether it's in a single state or, or multi-state. plant touching or not. know, we see those being the first opportunities for rerate and exits when institutional capital enters.
And so it really doesn't frighten us. In fact, on the contrary, it excites us because it's evaluations of reset and it gives us a real good chance to come in [00:02:00] At meaningful discounts to where things were just a, a year or two
Dan Humiston: Yeah, you mentioned valuations and There was a period of time where valuations were really high. In fact, a lot of people would say they were over overvalued. Over the last 18 months, valuation pendulum has really swung in the other direction. Do you feel that there's been an overcorrection and cannabis companies are now undervalued?
Matt Hawkins: Without a doubt. , there when Biden got elected and then the Senate flipped to the Democrats, that there was this, fervor of. something's gonna happen really quick. And, and, you know, we had this huge spike. well, obviously that didn't happen and when things kind of got normalized, the value just started shrinking, shrinking, and it went and it went the other direction.
So absolutely feel like that there are some amazing buy opportunities publicly and private.
Dan Humiston: Well, let's talk about your company, Entourage Effect Capital, which is [00:03:00] invested in over 60 cannabis companies. You're currently deploying capital from Fund three. Can you tell us what type of companies you're investing in and where you feel the best opportunities are right now?
Matt Hawkins: Sure. as I said, just, you know, a couple seconds ago about the scale building opportunities. I mean, that, that's really what our main focus is, is we look. As many sectors as we can in the industry and look for the leaders of those sectors. know, whether it's the, single state in a, in a new and upcoming state that has licenses to go into others.
You that's an opportunity for us if their management team has excelled and they've become a leader in that state. ancillary plays where, know, they need growth capital to, enter a new state, bring on new customers, et cetera. as long as we see a pathway to them becoming a dominant player, then that's where we're gonna put our money.
We're writing bigger checks than we ever have now, because this fund is a little more substantial and we've got more firepower with co-invest opportunities for our existing investors [00:04:00] that we feel like this is really the last chance that private capital's gonna have to invest ahead.
institutional capital because once things change it'll be like just the, any other industry where institutional capital gets all the deal flow.
Dan Humiston: Yeah. You know, it's funny two years ago when we spoke during the Covid, we were all excited about cannabis being. deemed
essential service and there was so much hype, like you said, after the election and it seems almost unfathomable that that. People would not consider , this is such a good investment right now and take advantage of some of these really good valuations.
Let's switch to an earlier stage, companies. know you have a, relationship with the ARC View Venture Seed fund. Can you explain the mechanics of that relationship?
Matt Hawkins: Well. Sure. I we're a majority owner of Of the Argue Group, and so as a result of that, you we have the ability to co-invest [00:05:00] with Art Argue Ventures and the seed. on an unpromoted basis, which gives our investors a free look at the, at the really early stage stuff too, which is great because we do have a carve out in fund three for those early stage deals, which is a really important piece know, of nesting in cannabis because there's still, it's still a nascent industry even though we've been around, 2012, arguably when, and Oregon, Washington went legal, that's only 10 years. And so there's new technologies, there's new companies, there's new products that are being developed almost on a daily basis. and we don't have the, time and the wherewithal to look at every single venture deal that comes across our desk.
So we rely upon Jeff Finkle, his team to be our source for those early stage. And it's been great. I believe we've made like four investments with the art view group in, in our third phone.
Dan Humiston: Yeah.
it seems like a great like feeder program for you. Like you, like you said, you don't have to spend a lot of time going through decks. and Jeff does a great job over there [00:06:00] of, of sifting through and talking to people about their business, maybe helping them make themselves more presentable,
that's an essential service, but it's very time consuming, which clearly your team has other things that you need to focus on, so it's probably great. To have that in your quiver before I let you go, There's a lot of investors out there right now that are just on the sidelines.
not, they're not sure what to do, but they realize the potential with cannabis investments right now, but they're just uncomfortable doing it on their own. What are some advantages of investing with entourage effect capital?
Matt Hawkins: It clearly our track record and longevity. I mean, we, we know all the players in the industry. very few deals get done on things that weren't sourced by us. I mean, we can actually source and put together deals that no one else has the ability to do, simply because of the relationships.
I mean, I like to say we know where all the bodies are buried in the know, we [00:07:00] know who the good actors and the bad actors are, and so that's when it gets rewarding. And so we do feel like we have that ability to hand that benefit to our investors because, you know, we've worked hard.
Dan Humiston: Yeah, well I think your reputation Precedes you, and I think if you're not in the, already investing in the cannabis industry, entourage effect capital is a company that you may want to. Consider working with, and we'll have all of the information in the show notes. So if you're a cannabis company that's looking for funding or you're an investor looking for a firm to manage your investments, just click the links in the show notes to connect with somebody from Matt's team.
Matt, another year. It's always good to have you on the show. Thanks for doing this.
Matt Hawkins: And I appreciate Dan. Thank you bud. Take care
Dan Humiston: too.