As downward pressure on Cannabis stocks continues, private equity activity in the sector is reaching all-time highs. Private market placements in early-stage companies developing medical technology offer long-term investment horizons that align with future legalization prospects and maturation of consumer sentiment, while facilitating scientific innovation. As such, these private companies appear protected from the growing pains of a young and emerging sector which continues to suffer from stock volatility.
Since its high point in 2018, the Global Cannabis Stock Index has declined more than 80%, going from a price of 180 to 28. The vast majority of these public equities are concentrated in the US and Canada, whose entrepreneurs, investors, and political activists did much to generate the modern cannabis industry. But this was to be followed by a market bubble that would eventually burst once the reality of obstructive and slow-changing regulations as well as the inevitable occurrence of operational missteps kicked in. Even so, public adoption of medical cannabis has only continued to grow and exponentially more ventures are being formed. Much of this has taken the form of new consumer brands and production facilities (which, in turn, has led to a glut of brands and an oversupply of cannabis). The sustained interest in cannabis is positive for the sector but has also brought with it a lot of retail money chasing temporary trends, which contributes to volatility in stock prices.
However, one could make the case that all of this is to be expected from a totally new and disruptive industry segment that has revolutionized so many areas, not least, medical and pharmaceutical products. And now that the grounds have been tested and critical lessons learned, there is a significant opportunity for quality-seeking investors and serious entrepreneurs and scientists to capture the great opportunities of the cannabis industry.
Óskare Capital believes that this new and sustained wave of cannabis wealth creation is going to take place in the medical and pharmaceutical private markets. Here we find a host of companies developing products, technologies, and services that are undergoing rigorous testing and adaptation to market preferences, which will be realized in the coming years. This wave of companies will form the basis of the vital infrastructure required to fully exploit the potential of medical cannabis and the health benefits achievable via the endocannabinoid system. European countries, despite being later to the table than the US and Canada with regards to recreational cannabis, are taking the lead in creating responsible medical cannabis regulations and the continent is expected to be the global leader in this space during the next decade.
With the medical and pharmaceutical sector having a stronger emphasis on R&D and data-driven decision making, there is a huge amount of potential upside in terms of innovation, value creation, and accumulation of knowledge and expertise. The acquisition of GW Pharmaceuticals by Jazz Pharma for $7.2bn in 2021 and Pfizer’s $6.7bn acquisition of Arena Pharmaceuticals is just the start of this potential being realized.
Óskare Capital has also found that valuations in the private markets are much more grounded in fundamentals such as good and protectable IP, mature management teams, and growing consumer bases, and much of this can be attributed to the fact that private capital is largely institutional and not prone to the same volatile patterns of retail investor money.
Óskare Capital is the leading provider of investment solutions into the private medical cannabis markets and we encourage everyone who wants to partake in this next wave to contact us at email@example.com. Visit our website or connect with us on Linkedin for more information.