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Investment Checklist: Before You Invest in Cannabis

As more states legalize cannabis, the market continues to grow. Retail sales were expected to reach around $15 billion by the end of 2020, a 40% increase over 2019. Estimates show that total U.S. sales could reach as much as $37 billion by 2024.

With the market experiencing such significant growth, it’s catching the attention of investors. Just as you would consider an investment for any other business, there are several things you need to look at before you decide to invest in cannabis. Here are a few key things to keep in mind.

Check Out the Team

The success of a cannabis business isn’t just about the business itself. It’s also about the team running it. You’ll want to get a good sense of the people running the company and their backgrounds. What have they done in the past that could help them achieve success in the cannabis industry?

Another integral factor to look at is how the team interacts. There should be clearly defined lines of leadership. Too many businesses — cannabis or otherwise — fail because they lack a person in charge.

Read Over the Financials

The information you check out here will depend on whether the business is pre-operational or operational. Evaluating a pre-operational company’s financial data will likely be more challenging. Look at its projections and how detailed they are. Ask how it determined those projections. Did the company use real data or make its best guesses? Are the projections realistic? Ask about the business model. Finally, don’t be afraid to ask how much money the company needs and how it plans to use it. Knowing this information can help you decide if the business is a worthwhile investment.

For an operational business, you’ll have a bit more financial information to go over. Check out its current financial results. Look at how much of the revenue is recurring or one-time. What are the company’s growth rates? You should also take a close look at its cash flow, as well as the inventory turnover.

Evaluate the Products or Services

Speaking of inventory, you’ll want to check out a business’s products or services. Again, how you go about this will depend on whether the company is in the startup stage or if it’s already established.

If you’re looking at investing in a startup, find out what problem it’s addressing for its customers. Does its solution actually work? You should also find out who the target market is and what the company’s customer profiles look like.

For an established business, look at its current products or services. What does the mix look like, and does it offer opportunities for cross-selling or up-selling? Have the offerings changed over time? If so, why?

Are You Considering Investing in Cannabis?

While the cannabis industry could present a lucrative opportunity, the industry is complex. If you’re thinking about investing in it, you’ll want an accountant who understands how it all works.

www.mycannabisaccountant.com