We spoke with Robert Jappie, friend of the company, legal-
expert, and new partner of Cannabis Law & Regulation at Ince.
We asked Robert about his take on investing during this time,
plus expert advice on what to look for in an opportunity.
Harriet: What are some of the key insights that you feel those in the industry could learn from this crisis?
Robert: I think it’s important to note that this is a sustainable industry, that normal people could be attracted to not just people wanting to work in it but customers too. Being able to provide products that are high quality and bring value to peoples lives is important, this is a situation where people are going to be looking after themselves more and more, and if you can produce products that are helping people and getting the cannabis oils that they need, then that’s really important.
Harriet: Why as an investor should you be particular about where a company is domiciled and the impact it may have long term?
Robert: A lot of the best locations to grow and cultivate today are what would be considered high-risk jurisdictions. This is a global industry so I don’t think there’s anything for investors to be afraid of, I think they just have to make sure that they’re doing their due diligence on the company and make sure that it’s a long term investment and not a short term investment.
Harriet: That actually leads me on to my next question, what is the standard kind of due diligence that our prospective investors should undertake?
Robert: Obviously you want to look at the licence, make sure that your cultivating company has a licence, the length of the licence is really important because if a licence is granted on a one-year rolling basis then that may be cause for concern, but if you have a long licence; four or five years that’s a really good asset to build investment around. You want to look at the financial projections of the company; what are they based on, how have they reached these figures, sometimes it’s good to get an independent assessment whether the figures are correct and the rates of the financial projections have been calculated in a reasonable manner. At least a couple of years ago there were a lot of companies coming out with mad evaluations, but I think attitudes have changed now. You need to have a realistic evaluation of what companies are actually going to achieve in the next four or five years.
Harriet: Banking in the cannabis industry is a popular topic. Many cannabis companies, including us, have experienced issues with UK banks, they seem sceptical due to market infancy and stigma around cannabis, what are your thoughts?
Robert: I think the big banks here in the UK don’t have an appetite for the sector yet, I think the Federal Prohibition of cannabis in the US could probably factor but if the big banks won’t help I think you have to look for smaller providers who can tolerate higher risk. There are some really good banks around that are supportive of the CBD and cannabis sector so I think it’s something you have to work quite hard on, but I think it works well when you find a quality provider where you can be completely honest with them, I think that’s a good opportunity to build a long term relationship on and I think that’s what businesses are after.
Harriet: Eco Equity is a pre-IPO company that might be seen as being less of a risk because of the market being temperamental at the moment, would you suggest investing in a pre-IPO or sticking with the stock market?
Robert: There are still some really good opportunities to be found pre-IPO. I think the way the big cannabis companies that are already listed stock prices are going, they’ve still got further down to go, so perhaps not so attractive at the moment. A number of these companies that have already IPO may be having difficulties with cash flow as well so I think that’s probably a bit risky, it’s not something I would be doing… going to look for a listed company right now. Pre-IPO again, as long as you do your due diligence I think there are really great opportunities around.