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ORIGINAL POSTED FEBRUARY 17,2015 Medical Marijuana Company Woes Illustrate Obsession With Hockey Stick Growth Curves

 

ORIGINALLY POSTED FEBRUARY 17, 2015

It looks like the Medical Marijuana bubble has lost its buzz.  By my admittedly quick tally, it looks like 19 companies have raised about $25 million recently in Canada.  Even omitting Tweed ($15 million of the total) 18 companies raised an average of over $500k!!  The Financial Post referred to it as the dot-bong bubble. 

All this of course is absolutely predictable: speculative sectors overshoot, contract and then expand again, older and wiser. As seen in Colorado, MMC  is going to be huge.  Meanwhile, the “me-too” players get rolled back and wait for the next hot thing, or disappear.  If they survive, they re-emerge, announce they are getting into whatever’s next, and if their timing is right, speculative investors and their advisors leap aboard with gusto.

Investments in resource prospects carry the chance that they will unearth a million-ounce deposit or a gusher.  A tech investment carries the chance that their app or website will garner lots of followers and one of the big players will in turn swallow it up: probably not, in fact, almost certainly not.  Yet start-up and early stage companies looking for a slower growth and a safer trajectory are ignored.  Small industrials generally find it very hard to get support.

I am absolutely biased.  I’m starting up a publicly-listed wine company.  Observing the enthusiasm for the MMCs, I anticipated a warm reception from the investment community – look at the investment appeal shown for intoxicants!  And with wine, no worries about directors being arrested or denied entry, or Hells Angels stealing your stuff.  Not the case.  The presentation would be warmly received, people would get the concept, like the team……. then lean back and say “ but where’s the hockey-stick?”  “EPS growth is too slow.  Operate 5 wineries, not 1.  Sell 10 containers of wine, not 1.” Sigh.

I’m not whining, and we are raising the money we need elsewhere.   I understand that advisors know their clients, and if they are speculative investors, they accept high risk..  However, I don’t think that companies with reasonable goals should be rejected, just because “there’s no hockey stick.”  There may not be the highs(very occasionally) and the lows (usually), but sometimes, kind of boring can be very rewarding.