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Current Cannabis Investor Sentiment

It is helpful to place the current tight conditions in the cannabis equity markets in a historical context.

Cultivation & Retail, historically the most significant sector for equity financing, accounted for only $14M (1.6%) of equity raised YTD in 2022 compared to $1.9B (52%) in 2021. We expect this trend to continue for several reasons:

The MSOs have been able to use equity in acquisitions, one of their primary needs for new capital.

The Tier 1 MSOs have strong cash positions and are expected to be free cash flow positive in 2022 and 2023, eliminating any pressing need to issue equity in a down market.

Greater availability and better pricing of debt is a further restraining factor.

Investment/M&A, which is chiefly composed of SPAC IPOS, have also fallen deeply out of favor. They made up only 9.9% of 2022 YTD compared to 16.1 % in 2021 and are likely to represent a lower percentage in future periods due to Increased SEC scrutiny and poor performance of de-SPAC’d stocks.

The Real Estate Sector, which is composed of cannabis lenders and sales leaseback providers, has been a beneficiary of the sector rotation in 2022. Riding the trend towards greater use of debt capital, this sector has accounted for 47.3% of 2022 equity issuance YTD compared to only 7.6% for the comparable period in 2021. Given our expectations that meaningful legalization will remain elusive and stock prices will have difficulty rebounding in the overall market downturn, we think this sector will continue to benefit.

Software/Media companies have also taken a bigger piece of the financing pie, accounting for 22.0% of YTD raises vs 7.1% in the previous year. We believe this trend is likely to continue as MSOs look to improve the efficiency and compliance of newly built and acquired operations.

Agriculture Technology is down YTD but we forsee a resurgence in demand as MSO’s build out operations in newly opened adult rec states.

Show Notes:

Josh Kincaid, Capital Markets Analyst & host of your cannabis business podcast.

Episode 977 The #TalkingHedge…

Your Cannabis Business Podcast.
​Covering cannabis products, reviews, business news, interviews, investments, events, and more.

Music Info:
Song: Beat | Keep On | 2020
Artist: Milochromatic Beats
Song: Dark Trap Beats Hard Rap Instrumental | Gang | 2018
Artist: LuxrayBeats

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Josh is not an investment adviser. The Talking Hedge is long gold and silver. Listeners should always speak to their personal financial advisers. This is only entertainment.


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