Major players in the burgeoning cannabis industry seem to be channeling the 1990s with references to the pot business as “the new tech” and an admission that the market for cannabis stocks might be overinflated and ready to burst.
To the first point, Carol Bartz, former Yahoo! CEO from 2009 to 2011, recently discussed her investment in the California cannabis startup Caliva on CNBC's Squawk Alley. She finds the comparison to tech twenty years ago is about because there is “so much growth potential, so many ways to change people’s lives, and so, I’m in.”
Cavila, located in San Jose, boasts of being the #1 dispensary in the nation and features a wide variety of marijuana products bearing such colorful names as Alien OG, White Buffalo, and Kosher Skunk.
Now on the Board of Caliva, Ms. Bartz suggested that cannabis also resembles tech because of myriad applications for the product. Ms. Bartz conceded that she’s not only an investor; she’s also a customer. Having had her knees replaced, she appreciates the pain-relieving creams that she uses daily.
When asked if the CBD industry might not be a better bet than a pure cannabis company, “given the Farm Bill, [and] a lot of big box stores poised to dive in,” Ms. Bartz admitted CBD is a vital part of the industry, but said she is swayed by “the combination of CBD and THC” which she said “is much better than just pure CBD.” She touted Caliva’s focus on developing quality products “from seed to sale.”
When asked if she was taking a portfolio approach to marijuana products, Ms. Bartz said she had made one significant investment: Caliva. She said she had done her due diligence visiting apothecaries, and decided that Caliva was the best, not least of all because of the strong quality of executive management, which she said compared well with tech.
She admitted that the regulatory red tape is extensive, but regulatory requirements help protect customers who need to “know what they are getting,” which is certainly not true when marijuana products are bought on the street. A more difficult issue is taxes which add about 37 percent to the customer’s cost. High taxes, she said, are not the way to help “a new market come to life.”
Of course, no discussion that mentions tech in the ‘90s would be complete without a reference to the bubble bursting. The Canadian company Canopy Growth suffered a shock to its share price recently when it missed on earnings. Its CEO, Bruce Linton, discussed the situation with Yahoo! Finance and admitted to a bubble in the cannabis market.
However, Mr. Linton expressed no fears for his company, reminding the audience that even when the tech bubble burst in the ‘90s, there were companies like Google that remained sound investments.
Will either Caliva or Canopy prove their staying power the way Microsoft, Apple, Google and Amazon did? The fundamentals are strong. Cannabis is a product the public wants. As prohibitions are rolled back, the legal market will expand. Success or failure may well hinge on a factor that no savvy investor fails to investigate, and which Ms. Bartz said sold her on Caliva: the strength of the management team.