With the impending legalization of marijuana in Canada, many are interested in taking advantage of the industry boom by investing. However, accessibility to early-stage cannabis firms is limited to a group of investors like venture capitalists and accredited investors which 95% of Canadians don’t fit into.
In order to open the industry to a wider pool of potential investors, the Green Mountain Health Alliance and FrontFundr announced the launch of Canada’s first cannabis crowdfunding campaign. FrontFundr provided the crowdfunding project with a platform where interested parties can invest a minimum amount of $500.
PCMA caught up with PCMA BC Chapter member and FrontFundr CEO Peter-Paul van Hoeken to know more about this historic crowdfunding campaign. In this Q&A, he shares how the crowdfunding platform will help cannabis firms look for alternative sources of funding if help from banks and lending institutions is not available. He also talks about the foreseeable challenges for cannabis firms in the next few years.
Why is investing in cannabis a bright spot for investors right now?
With the legalisation of cannabis due later this year, it is estimated that the legal market could grow sevenfold, to $7bn in Canada. It is not often that a new category is opened up with such certainty, and so rapidly. Yes, people can grow four plants at home, but people can home brew, but do they? How many people have killed a spider plant? Yes, it is likely illegal products will still exist, but for most people, they would want to buy legally with a guaranteed quality.
Additionally, the latest ATB data stated that 43% of Albertans saw investing in cannabis as a good investment. We also see increasing activity among more traditional investment firms starting to look at investing in the emerging industry.
The online capital raising offering on FrontFundr enables smaller investors to gain exposure in the industry. Why is it important to open the industry to these investors (or as you say, investors who do not fit into the typical cannabis investor groups)?
It is about providing easy access to everyone to invest in the cannabis industry. For first time and smaller investors investment crowdfunding does provide a more straightforward option. Also, the minimum investment amount is typically lower. An investment in Green Mountain starts at $500. All the information is available online, including the investor deck and offering memorandum.
In the case of Green Mountain, they are offering webinars and opportunities to meet the team and ask questions. Once an investor has decided to buy, they do not need to find a dealer, they can register on the site, and within 12 minutes, they can complete their purchase. In addition, there is no charge to investors to purchase their shares on FrontFundr. Green Mountain felt it was important to open up their campaign to the Canadian public.
What is the target amount for this crowdfunding campaign?
The minimum target is $500,000. At the maximum, we expect to raise $1.2m.
What are your hopes for the cannabis industry?
Many banks are neither lending, nor investing in cannabis companies. This means cannabis companies have to look for alternative sources – crowdfunding has a role to play. With the banks not investing in Cannabis firms, their clients are unable to benefit from the growth of this new category. I hope that cannabis companies get the access to diversified sources of capital to grow. FrontFundr enables companies like Green Mountain to raise capital from a much more inclusive community of investors from the very beginning.
Are there any challenges you foresee in the near future?
For the big producers, they are very cash rich, and have built very high spec bunker style facilities. These high capital and high operational costs work while the end product prices are high. It is possible that with the lack of supply, prices could increase initially. Looking at the US, where recreational legalisation has been in place in states for a few years already, prices have been squeezed. It will be interesting to see how the higher cost of production remains profitable into the future. For the smaller producers, and of the 104 licenced producers, most are in this category and they will also struggle to reduce their production costs to maintain their margins, or even remain profitable. You are likely to see consolidation at this time.
This is why Green Mountain Health Alliance has planned for this eventuality. They capital cost for greenhouses is 75% less than the bunker style. The greenhouse design uses the latest Dutch technology optimised for the Okanagan climate. The efficient design makes the most of the free Okanagan sunshine, plus the sunshine is full spectrum, unlike the bunker electric lights, which leads to better quality product, and future proofs the 1,000,000 square foot of facilities that will be built.