As the cannabis industry matures, investors are rethinking what makes a company attractive for investment. Early-stage funding has slowed dramatically, forcing businesses to prove their financial stability and ability to grow in an increasingly competitive environment.

These shifts come as key states continue to drive the market forward while others face hurdles that challenge growth.

Seth Yakatan, co-founder of Katan Associates, provided his perspective on what investors focus on when evaluating cannabis companies ahead of his speaking engagement at the Benzinga Cannabis Capital Conference.

Investors Focus on Cash Flow and Expansion

Yakatan pointed out that investors are zeroing in on two main areas when assessing cannabis companies: cash flow and growth potential. In an environment where early-stage capital is drying up, businesses with solid financial health and expansion plans are more likely to secure investment.

"Investors are seeking cash flow and growth," Yakatan said. "If companies are not looking for expansion capital to fuel growth into additional markets or to grow in core markets, it is very difficult to find dollars."

Catalyst States Leading the Charge

According to Yakatan, the cannabis investment landscape is particularly active in a handful of states that are driving industry momentum. These "catalyst states," as he called them, offer opportunities for companies looking to expand or consolidate their presence.

"Catalyst states (Missouri/New Jersey/Pennsylvania/Ohio/Maryland) are hot and will continue to blaze — no pun intended," Yakatan said. These states are emerging as key players, attracting both businesses and investors eager to take advantage of their growing markets.

California Faces Investor Hesitation

While some states present growth opportunities, Yakatan noted California is challenging for cannabis companies seeking capital. He attributed this to many investors’ negative sentiment toward the state, making it harder for companies operating there to access the funding they need.

"California companies will continue to find capital markets challenging as the anti-California sentiment continues," he said.

Yakatan's insights reflect the complex and evolving nature of the cannabis investment landscape. As investors become more selective, companies must adjust their strategies to align with these shifting priorities.

Photo: Courtesy of Branding Pot via Shutterstock