Investing in inexperienced Cannabis start-ups: what you shouldn’t do!

Updated: Feb 11

Nascent spaces tend to have their bad actors, and cannabis is no different.

Investors should avoid taking chances on inexperienced teams and founders, because all too often, due to a bad actor or otherwise, these ventures underperform.

In 2022, several years into the cannabis market's maturation (stateside, at least), management teams are evolving. Companies serious about success brought in new and experienced leadership, and with that, executive team members who have the experience needed to scale operations. These new additions are now pivotal parts of the equation that see upcoming brands scaling their internal and external processes.

Before investing, look carefully at management teams and executive boards. Identify the seasoned executives with successful track records to back it up. Companies built for success attract successful talent.

Similarly, ensure that company executives, especially those in charge of a particular sector of their business, can adequately answer complex questions which you, as an investor, may have. Too often do we find inexperienced individuals at the helm of potentially upcoming companies, and these companies eventually implode due to a lack of knowledgeable management and/or how to properly execute their plan – if they even have one.

Unrealistic Valuations

Press releases are one of the most common forms of investor information. That said, they should not be relied upon as the sole source of company news. Press releases will bend the story to the company’s agenda and could potentially leave out key details an investor should know. We’ve seen this first hand; companies exaggerating every aspect of their operations and business in order to attract more capital, only to burn through that capital and have nothing to show for it at the end of season.

Financial reports help provide a complete look into the company's activity and the effect each move has on the bottom line. The prime parameters to assess should be profit and loss (P&L), the Balance Sheet (B/S) and the Cashflow statement (C/S).

An analysis into the the company’s monthly burn rate should also be made, in order to assess the accuracy and efficiency of the fund spending process.

These include not just an analysis into salaries, product costs and other administrative expenses, but also into the capital expenditure.

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