Marijuana Business Magazine March 2019

Marijuana Business Magazine | March 2019 50 • Will hemp legalization prompt behemoth companies in the agricultural, retail and pharmaceutical sectors to drive small entrepreneurs out of the hemp market? For new hemp entrepreneurs such as Devereux, the Farm Bill hardly answered all the legal questions about hemp- derived CBD. “I thought it was legal in all 50 states now, but that’s not even clear,” Devereux said. “I don’t know that I thoroughly understand all the implications just yet.” ACT NOWON CROP INSURANCE Many of the changes promised in the Farm Bill won’t occur overnight. Crop insurance, for example, may take a few years to materialize—but it’s not too soon to begin looking into coverage. The Farm Bill makes hemp eligible for federally subsidized crop insurance. It’s an unattainable cushion for marijuana producers, who have no public assistance when a crop goes moldy, is destroyed by a tornado or doesn’t produce. Agriculture and insurance experts say the tantalizing prospect of government- subsidized crop insurance for hemp could be at least three to five years away. That’s because insurers must first determine average hemp yields before being able to craft insurance policies. Tyler Mark, agricultural economist Now that hemp is a federally legal product, the door is open for large institutional investors to enter the market and pump millions—if not billions—of dollars into hemp and CBD companies. Thanks to the 2018 Farm Bill, hemp companies that have relied on private equity or turned to Canada’s public markets to raise capital will have new direct paths to large funding pools in the United States. Major commercial banks, investment banks, hedge funds and pension funds that have been sidelined from betting on the space will soon have a host of new investment opportunities to consider. Hemp companies also should have an easier time going public in this country. But a question remains for hemp entrepreneurs: How can you tap the potential wave of investment dollars that appear headed for the hemp industry? Here are some top considerations from New York-based Viridian Capital Partners for firms as they prepare to go on their fundraising roadshow: • Focus on fundamentals: “Investors are putting their thinking caps back on, and businesses need to show them what they’re going to do to create sustainable value,” said Harrison Phillips, vice president at Viridian. Companies that don’t have their financials in order—or are predicting unrealistic returns—will be passed over by savvy investors. • Build your thesis: Beyond articulating where your business is headed, operators must be able to educate potential investors on what’s likely ahead for the industry. “Lay out a plan that gets investors into your mind,” Phillips said. “If an investor asks you why you’re investing so much into cultivation when at some point wholesale product is going to be available nationwide, you should have a really good answer with forecasts that are conservative and not just hockey sticks on a chart.” • Round out your executive team: Investors want to back operations run by management teams that have had success in the past. A board and executive team that blends industry expertise and experience leading successful companies outside hemp will have a big advantage luring the capital needed to scale and grow, Phillips said. At first blush, the investment opportunities for institutional investors appear promising. The Farm Bill is expected to usher in rapid growth as major consumer packaged goods (CPG) companies consider CBD-infused products in their portfolios and thousands of U.S. chain retailers hustle to stock the goods on theirs shelves. “It’s a booming market with a lot of opportunity,” said Smoke Wallin, CEO of Vertical Wellness, which is planning to launch an initial public offering (IPO) in the first half of this year. The business was formed in January after Vertical Companies—a Los Angeles-based medical and recreational marijuana company with multistate operations—spun off its hemp-based CBD assets. FINANCE: Race Is On for Hemp Companies to Raise Capital Start preparing hemp yield and production data now so you'll be ready to submit it when the time comes to shop for crop insurance. Photo by Media Collaboratory Day A New