Chart: Year-To-Date Cannabis Investment Activity Up 40 Percent Over 2018, But It's Slowing
Cannabis industry capital investment in 2019 hit $10.4 billion through Week 40 -- a 40 percent increase over 2018 -- but the previously hot investment activity has cooled in recent months and is now running at what one analyst called a more “normal” pace of growth.
This comparison of public and private capital investments from 2017 to 2019 -- along with other new marijuana industry data and analysis -- is available in the November update to the 2019 Marijuana Business Factbook.
While total capital raised is up 460 percent ($8.5 billion) from 2017 to 2019, recent activity has slowed: The total capital raised from 2018 to 2019 increased by only 40 percent ($2.9 billion).
By comparison, capital raises through Week 40 were up 300 percent ($5.6 billion) from 2017 to 2018.
During September 2019, the number of raises was up over the same month in 2018, but the average size and total capital raised were down year-over-year.
But analysts say slowed investment isn’t unexpected after a period of rapid growth.
“Current conditions are closer to normal; the prior year or two of almost unlimited capital to burn without showing profits was abnormal,” said Craig Behnke, equity analyst for MJBizDaily’s Investor Intelligence.
Behnke noted that many cannabis companies, even those that have raised significant amounts of capital, have yet to produce earnings or cash flow.
Rather than raising cause for concern, the slowdown is a natural part of the investment cycle.
“Investors being more judicious and pressing companies to focus on profitability is actually a sign of a healthy, rational capital market,” he said.
And the competition for resources forces companies to run more efficiently, as evidenced by the layoffs.
Another factor playing a role in the investment slowdown is the type of investors entering the space.
As marijuana investment has become more mainstream, traditional investors have increasingly brought their money to the table.
With traditional players come traditional expectations -- those that rely on tangible results.
Here’s what else you need to know about cannabis investment:
- From 2018 to 2019, the number of year-to-date capital raises during the first 40 weeks increased 6 percent, from 459 to 487.
- Through Week 40 in 2019, the average size of a capital raise was $21.3 million, up 31 percent over 2018’s average raise of $16.2 million.
- Cultivation and retail have been the driving sectors behind marijuana capital raises and mergers and acquisitions throughout 2019.