Investors have shown renewed interest in U.S. cannabis companies after they were designated “essential” businesses during the coronavirus pandemic by most states, allowing them to keep their doors open.
In addition, marijuana companies have more shown fiscal discipline by cutting costs. The renewed flow of investor money – demonstrated by a flurry of funding deals over the past several weeks – has been crucial for cash-starved cannabis companies.
Marijuana investors stopped writing checks late last year because many companies were spending vast amounts of money to gain market share but failed to show a profit. That caused their stock prices to crater.
“Had they not been able to access capital, they would have been out of business by now,” said Robert Hunt, principal of California-based investment group Linnaea Holdings.
“Now, they’ve lived to fight another day.”
In August, cannabis companies raised nearly three times the amount raised through equity deals in July, according to figures provided to Marijuana Business Daily by New York-based Viridian Capital Advisors.
Of the $2.6 billion raised in the first half of 2020, about 99% of it went to North American cannabis companies, Viridian’s data shows.
The first-half haul was down sharply from nearly $8 billion a year earlier, when investors were more willing to pump money into marijuana businesses.
Investment dollars have recently come from family offices, established business executives such as former Starbucks CEO Howard Schultz and institutional investors that include the largest pension fund in the United States, the California Public Employees’ Retirement System, or Calpers.
In addition, many publicly traded marijuana companies whose stocks were hammered in 2019 have seen a rebound in their prices after remaining open during the pandemic.
“Even though all of the headwinds still exist, the belief is now they’re solvable because they’re starting to see decent returns,” Hunt said.