Are You Overlooking Critical Market Analysis In Your Cannabis Investments?

In a rapidly growing industry fraught with unique challenges, cannabis businesses must master the art of risk management to ensure long-term success. At Benzinga’s recent Cannabis virtual event, Titans In Finance, industry expert Henry Miller, vice president of originations at Pelorus Capital Group, shared essential strategies for navigating the complex cannabis market.

Evaluating Market Conditions

Miller emphasized the critical importance of thorough market evaluation. “It’s important to balance immediate capital needs with sustainable strategies for growth,” he stated. Without a deep understanding of both current market conditions and potential future developments, businesses may struggle to survive.

Miller highlighted the unique complexity of the cannabis industry, where state-specific regulations and market dynamics can significantly impact operations. “When assessing risk, you need to track what’s online or coming online in each individual state. The reality is, in another industry, if you start a business, you’re a U.S. company. In cannabis, you are very state-specific.”

Geographic and Market-Specific Analysis

A key takeaway from Miller’s discussion was the importance of geographic and market-specific analysis. Cannabis ventures must consider the distinct regulatory environments and market demands of the states in which they operate. “You need to underwrite your business to what it might be doing two years from now, making sure that you are still positive cash flow at that point,” Miller advised.

He noted that while new markets might present significant opportunities, they also come with inherent risks. “Look at where the state you operate in is in its lifecycle. Who would you be competing against, and when are they coming online?” Understanding these dynamics can help businesses better navigate the complex environment of the cannabis industry.

Balancing Capital Needs and Long-Term Viability

Miller also discussed the importance of balancing immediate capital needs with long-term viability. He pointed out that while securing capital is crucial, ensuring that the chosen capital structure supports sustainable growth is equally important. “There’s an optimal capital structure where if you take on the wrong type of financing, it may work in the short term, but long term, it doesn’t set your business up for success,” he explained.

By focusing on a balanced approach to financing, cannabis businesses can better position themselves to weather market fluctuations and achieve sustained success. This approach involves carefully considering the equity and debt financing mix to support current operations and future expansion.

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Cannabis rescheduling seems to be right around the corner. Want to understand what this means for the future of the industry? Hear directly from top executives, investors, advocates, and policymakers at the 19th Benzinga Cannabis Capital Conference, coming to Chicago this Oct. 8-9. Get your tickets now before prices surge by following this link.

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