With new companies – both cannabis and mainstream – entering the hemp and CBD market every day, it may be difficult for investors to know where the best investment opportunities exist.
But there are also more places to get guidance than ever before.
For example, Brent Williams founded hedge fund and consulting firm Highwater Financial in Nashville, Tennessee, to give investors the opportunity to participate in the growing cannabis market.
Williams will share his insights about the global marketplace during the Hemp Industry Daily Investor Forum at the NoCo Hemp Expo in Denver on March 28.
Hemp Industry Daily caught up with Williams to get a preview on assessing opportunities in the global hemp and CBD market.
Right now, the biggest investments are going into the vertically integrated operations.
The hemp industry is going to be the fastest-growing sector of the cannabis industry. With all the different uses of it for drinks, for makeup, for health and wellness, for everything down to feminine hygiene products, CBD is going to be in high demand.
So, the direction that these larger companies are going to get thousands upon thousands of acres is definitely the business-savvy way to go. It gives them the ability to scale and have the kinds of supply and distribution contracts necessary for them to grow and increase their revenues.
Considering regulatory pressure and uncertainty from the FDA, is it wise to invest now, with an eye toward future rulemaking?
I feel like the CBD genie is so far out of the bottle that the government will have a very hard time putting it back.
So, coming back and saying, “All right, you can’t do anything with this until it’s regulated,” is not really much of an option right now.
Investing in it now is where the people that will get the highest returns are going to be, but it’s a lot more volatile than it will be once it becomes a more mature industry.
We’re going to see higher highs and lower lows.
What are the opportunities for investors in the industrial applications, such as textiles and construction?
There are opportunities, but there’s not a lot of cultivation land for that kind of hemp.
Hemp Inc., one of the largest hemp processing plants in the country, has an industrial processing plant in North Carolina. But they don’t have it operational because they can’t find anybody that’s willing to grow that kind of hemp.
That strain of hemp pays a fraction of what the CBD producing varieties pay right now.
Growing the industrial fiber is much easier, costs a lot less, requires less manual labor and can be harvested with machinery.
So, as the price falls for the CBD-producing hemp and everything starts to level out, more farmers will likely switch over.
Are there investment opportunities in ancillary hemp and CBD businesses?
The picks and shovels of this industry are where a lot of the dividends will be paid.
They’re the companies that may not grow a lot and gain a whole lot of market share but still constantly have sales and will be more stable when the industry stabilizes.
One of the private companies, Bish Enterprises, is doing exactly that, providing conversion equipment for existing farm equipment and providing new equipment.
One of the most obvious opportunities right now is to create a feasible and affordable drying system for hemp, because drying it quickly to avoid mold is an issue that a lot of farms are facing.
What are the opportunities in Europe?
Europe is the No. 1 investment outside the U.S. that I communicate with my investors.
They already have the infrastructure set up to be able to produce industrial hemp and are very quickly growing in the CBD-producing realm.
That’s a very large population that, just like America, already uses the product.
Some of the large Canadian companies are taking advantage of that and the quick evolution of European laws.
Aurora Cannabis is one of the largest land owners of hemp in Europe. They own about 4,000 acres under contract, and they have the option to expand to 7,500 total.
France is one of the key countries in Europe that’s been producing for a long time, along with Estonia.
What other areas of the world are particularly hot for investors currently?
There is a lot of development and growth in Central and South America, and there will be a massive increase in the amount of hemp production in that area.
Hemp and cannabis grow so nicely and naturally in the tropics that the cost of producing is going to be so much less than it is in Canada or America.
What makes a smart investment?
Most of the industry looks good on paper right now.
If you look at most of the press releases coming out right now, they’re so borderline fraudulent and grandiose that it’s absurd.
So, No. 1, find a company that has revenue, that has something tangible to be able to back their investments and that is not looking for initial round of funding.
No. 2, look at the team behind it. There are a lot of very high-end, experienced team members coming over from Coke or Ford or Twitter.
We’re past the point of just having a good pitch; you have to have a good team.
Finally, look at the ability to scale in different locations. Right now, my favorite U.S. investments are real estate and dispensaries.
Do you have any words of caution for investors?
When looking at valuations of publicly traded companies, put them all on a level playing field in the cannabis sector.
Don’t compare them to tech, don’t compare them with the Dow Jones averages.
Compare them in the industry to find the outliers that are overpriced and to find the outliers, that are underpriced.
If you have one company that is selling at a significant discount over the rest of them, do a little research because it might be a good buy.
This interview has been edited for length and clarity.
Laura Drotleff can be reached at [email protected]