For certain communities, cannabis has consistently held significant importance. Although the market appeared to be undergoing a period of adjustment at the beginning of the previous year, its classification as an essential business during the pandemic – alongside increased demand – spurred substantial growth within the industry. Initial indications of this trend were observed in our cannabis investor survey conducted in May 2020.

Currently, TechCrunch has gathered insights from five prominent investors involved in various facets of the cannabis sector. These investors were selected from our TechCrunch List of highly recommended investors and other reliable sources. We presented each investor with a consistent set of six questions, and while their perspectives shared common themes, their specific strategies differed. According to these investors, the outlook for the majority of cannabis-related businesses remains positive, despite ongoing challenges.

Morgan Paxhia, managing director at Poseidon Investment Management, expressed the following sentiment: “The year 2021 has the potential to be exceptionally strong for our sector. We anticipate a significant increase in capital investment due to accumulated demand, favorable public market conditions leading to more initial public offerings, a surge in mergers and acquisitions, and the emergence of novel, innovative startups. We are also witnessing opportunities related to social equity, primarily fueled by private investment rather than inadequate regulatory frameworks. It promises to be an exciting period!”

• Morgan Paxhia, managing director, Poseidon Investment Management
• Emily Paxhia, managing partner, Poseidon Investment Management
• Anthony Coniglio, CEO, NewLake Capital
• Matt Shalhoub, managing partner, Green Acre Capital
• Jerel Registre, managing director, Curio WMBE Fund

Morgan Paxhia, managing director, Poseidon Investment Management

Considering 2020 proved to be an exceptionally successful year for the cannabis industry, what guidance are you offering to the companies within your investment portfolio as they move into 2021?

Our consistent recommendation is to maintain a strong focus. While our sector experiences market fluctuations, deal instability, and valuation volatility, it’s crucial to minimize distractions and concentrate on core objectives. Green Thumb Industries (GTI) serves as an excellent illustration of a team demonstrating this focus; they have consistently followed their strategic plan, unlike some competitors who have pursued questionable acquisitions and diminished shareholder value. GTI’s continued progress and positive outcomes are a testament to this approach.

In what ways is the COVID-19 pandemic reshaping the cannabis industry?

The year 2020 prompted many companies to concentrate on internal improvements due to travel restrictions, limited capital availability, and broader economic uncertainty. This internal focus has resulted in significant operational enhancements for numerous businesses. However, others benefited from a temporary boost that proved unsustainable, and they are now facing increasing challenges.

We anticipate 2021 could be a remarkably positive year for our industry. We foresee a substantial increase in capital investment driven by accumulated demand, a robust public market facilitating more initial public offerings, considerable mergers and acquisitions activity, and the emergence of innovative new companies. We are also observing a growing emphasis on social equity, fueled by private investment rather than flawed regulatory frameworks. It promises to be an exciting period!

With investment opportunities spanning retail, software-as-a-service (SaaS), and research, which segment of the cannabis business do you believe presents the greatest potential for growth in 2021?

We are optimistic about specific state-level markets. For instance, the newly established adult-use markets in New Jersey and Arizona, along with existing markets like California and New York that are poised for further expansion, present attractive opportunities.

The SaaS sector also holds considerable promise, as several companies are achieving significant scale and attracting broader attention. Internationally, Mexico represents a key opportunity, as it is the largest federally legal market set to open in 2021. This market has been underestimated by many, but we recognize its potential and are proud to have contributed to this significant advancement.

Given the history of inequitable and racially biased drug enforcement in the United States, what steps can startups and investors take to address these injustices as legalization expands?

The industry as a whole – encompassing established businesses, entrepreneurs, and investors – must actively develop solutions to this issue. Current regulations are inadequate and often worsen the problem. We have dedicated considerable time to analyzing this area, observing both governmental missteps and the questionable motives of certain investors.

We are identifying a collaborative and straightforward approach that should appeal to capital providers. Further details will be forthcoming.

Who are some of the key figures and companies driving innovation and success in the cannabis space – including companies, founders, and cultivators?

• My sister, Emily, is a co-founder and an exceptional leader! She demonstrates true leadership in this industry on multiple fronts.
• Ahmer Iqbal, CEO of Sublime – Ahmer assumed leadership during a difficult period and, despite limited resources, successfully revitalized the company into a leading player in the California market.
• Jason Wild – He is not only a discerning investor but also demonstrates unwavering commitment by investing significantly in his own convictions. Beyond Poseidon, I am unaware of anyone else in this industry who invests as much of their personal capital in ventures they believe in.
• Coleman Beale, CEO of Bastcore – For those interested in the resurgence of industrial hemp in the U.S., Bastcore is a prime example. This technology-focused hemp-processing company is revitalizing the U.S. textile industry by utilizing domestically grown hemp for materials like denim.

Emily Paxhia, managing partner, Poseidon Investment Management 

Considering 2020 proved to be a remarkably successful year for the cannabis industry, what guidance are you offering to your portfolio companies as they move into 2021?

This year marks a significant shift, as the industry is beginning with considerable forward momentum – a situation we haven’t experienced in some time. Both January 2020 and 2019 presented challenging bear market conditions for cannabis, creating substantial obstacles. However, due to the dedicated efforts of prominent companies like GTI, TerrAscend, Curaleaf, Trulieve and Cresco, we are observing a resurgence of interest in the sector. We are advising our portfolio companies to capitalize on this favorable trend and utilize this period to expand their operations. Now is not the moment for hesitation; it’s a time for aggressive advancement to clearly distinguish the robust companies from those that simply benefited from temporary market enthusiasm.

In what ways is the COVID-19 pandemic reshaping the cannabis industry?

The COVID-19 pandemic underscored the valuable contributions of cannabis to society, particularly in the areas of wellness, employment opportunities, and revenue generation through taxation. While many established and rapidly expanding industries experienced significant contraction this past year, cannabis demonstrated continued growth. Consumer spending on this category remained consistent even amidst economic uncertainty, indicating that cannabis is now considered an essential purchase for many households nationwide.

Illinois provides a compelling example: the industry’s tax revenue helped preserve over 300 government positions. This illustrates a concrete benefit of legalizing and regulating cannabis, as opposed to allocating public funds to oppose it. Given the financial pressures states will face following this pandemic, maximizing tax revenue will be crucial for all.

With investment opportunities spanning retail, SaaS, and research, which segment of the cannabis business do you believe holds the greatest potential for growth in 2021?

I am particularly optimistic about the future of California’s market. It has historically been a challenging environment, understandably deterring many investors. However, I am very confident in the operators who have persevered, exercised caution, and established a strong foundation for dominance in this substantial market. Cannabis technology is poised for significant expansion in the coming years. As additional key states legalize, competition throughout the U.S. will intensify, and these technology providers will thrive by strategically partnering with and scaling alongside leading businesses.

Is your firm considering investments in startups focused on psilocybin mushrooms, as legalization or decriminalization progresses across the United States?
We have determined that maintaining a focused investment strategy is most effective for our performance and returns. While we recognize the potential of psychedelics for assisted therapies, many underestimate the differences in monetization between psilocybin and cannabis, or even traditional pharmaceuticals and consumer packaged goods. Unlike pharmaceutical medications, psilocybin requires only small doses to achieve lasting benefits. Furthermore, mushrooms are relatively easy to cultivate and are naturally regenerative. We anticipate a trend of individuals taking greater control of their health and wellness, leading to increased at-home cultivation of mushrooms (psilocybin, adaptogenic, etc.). For instance, Personal Plants is an example of this trend.

Given the history of inequitable and racially biased drug enforcement in the United States, what steps can startups and investors take to address these injustices as legalization expands?

Yes, we are currently developing a new investment fund specifically designed to support equity applicants. Access to capital is essential for the advancement of equity-focused businesses. Additionally, investors can serve as valuable connectors for founders and offer guidance on fundraising strategies and the preparation of data rooms.

Who are some of the key figures and companies driving innovation in the cannabis space – including companies, founders, and growers?

• Cy Scott, CEO, Headset — He understands the critical importance of accurate, timely data in our rapidly changing industry.
• Kyle Sherman, CEO, Flowhub — He and his team are pioneering a vision for the future of cannabis retail through their software solutions.
• Erich Pearson, CEO, Sparc — He has dedicated a decade to the industry as both a patient and advocate, and was instrumental in establishing a biodynamic cultivation facility in Sonoma County.
• Morgan Paxhia, co-founder, managing director of Poseidon — The most insightful and purpose-driven investor I know within the industry.

Anthony Coniglio, CEO, NewLake Capital

Considering the exceptional performance of the cannabis industry in 2020, what guidance are you offering your portfolio companies as they move into 2021?

We maintain a strong focus on disciplined investment choices, even with a substantial number of potential opportunities. Our current portfolio is demonstrating consistent organic growth. All of our tenants are meeting their rental obligations, providing NewLake with dependable cash flow, and we are beginning to see scheduled rent increases as our investments approach their first anniversary. Despite the recent increase in COVID-19 cases, cannabis has proven to be a resilient essential industry that has continued to thrive.

The prominent multi-state operators are consistently reporting robust revenue growth, expanding profit margins, and strong cash flow. We anticipate this positive trend will continue, especially with the implementation of recently approved cannabis initiatives in various states. We are dedicated to keeping our portfolio companies informed about current market trends and responsibly managing our investors’ capital.

A diversified real estate portfolio offers a measure of security. We firmly believe that diversification is a crucial element of a successful, long-term investment approach. Our strategy centers on diversification across tenants, geographic locations, and property types. Identifying the ultimate winners within this sector is challenging even in favorable conditions. The current economic uncertainty, combined with the evolving regulatory environment, further complicates this task. By spreading our investments across a variety of tenants, we lessen the potential impact of any single tenant default on our investors.

In what ways is COVID-19 reshaping the cannabis industry?

The pandemic spurred a significant advancement for cannabis legalization in the United States when the government classified cannabis as an essential business – placing it alongside vital services like hospitals and grocery stores.

States with legal adult-use cannabis have experienced substantial tax revenue increases due to heightened sales during the pandemic, highlighting the industry’s value to state and local economies. Just as the end of prohibition was influenced by the government’s need for revenue, we may see a growing momentum toward federal legalization as states seek to maximize their financial resources.

Companies impacted by COVID-19 are falling into three distinct groups: (1) Thriving businesses – those that successfully adapted to the changing environment, identified new opportunities, and avoided rigid adherence to past practices; (2) Moderate performers – these businesses managed to maintain operations but lost market share to more agile competitors. We anticipate leadership changes within 6-12 months as owners and boards recognize the need for new leadership to revitalize the company; (3) Struggling businesses – some companies were unable to navigate the crisis effectively, due to excessive debt, revenue losses, or damage to their reputation during the pandemic. These companies generally struggle to restore the sustainable business model they had before COVID-19.

With investment opportunities spanning retail, SaaS, and research, which segment of the cannabis business presents the most promising growth potential in 2021?

We project that the approval of adult-use sales in New Jersey will initiate a chain reaction throughout the Northeast, generating over $1 billion in sales within New Jersey alone in 2022. We believe New Jersey’s voter approval will encourage coordination with New York, Connecticut, and Pennsylvania, establishing an adult-use region encompassing a population of nearly 45 million people.

In 2021, we expect significant investment in real estate and supporting infrastructure. Similar to the situation in Illinois following adult-use legalization, we anticipate increased demand for retail, cultivation, and manufacturing properties in New Jersey and neighboring states. We foresee the potential for over five million square feet of real estate to be repurposed for the cannabis industry in the coming years. NewLake is strategically positioning itself as the preferred provider of real estate capital for the industry.

Matt Shalhoub, managing partner, Green Acre Capital

The year 2020 proved exceptionally successful for the cannabis industry. What guidance are you providing to your portfolio companies as they move into 2021?

We consistently emphasize the significance of financial prudence and maximizing output with limited resources. Within a rapidly expanding sector, it's simple to become preoccupied with continuous recruitment and ongoing capital spending. The cannabis financial markets have experienced several periods of fluctuation over the past five years, and the most astute businesses have adapted their strategies to avoid overextending themselves and becoming overly dependent on anticipated future funding.

In what ways is COVID-19 reshaping the cannabis industry?

The classification of cannabis as an essential service in most locations has been notably impactful. In numerous areas, obtaining cannabis products is now considerably easier than getting a haircut, a development I wouldn’t have predicted. Coupled with evolving policy discussions within the U.S., this situation has the potential to attract a new range of investors to the industry.

With investment opportunities spanning retail, SaaS, and research, where do you see the greatest potential for growth within the cannabis business in 2021?

Our investment portfolio, distributed across our two funds, encompasses a variety of sectors within the industry. In Canada, we are particularly optimistic about cannabis retail and companies concentrating on 2.0 products. In the U.S., we are primarily focused on businesses demonstrating a track record of successful implementation and a robust presence in states currently transitioning, or likely to transition, from medical cannabis to adult-use markets in the coming years.

Is your firm considering investments in psilocybin mushroom startups as legalization (or decriminalization) progresses across the United States?

We would certainly evaluate such opportunities, although we recognize that while the cannabis and psychedelics industries share some similarities, they also present distinct challenges that could affect our investment decisions.

Considering the historically unjust and racially biased nature of drug enforcement in the United States, what steps can startups and investors take to address these inequities as legalization expands?

We believe it’s crucial to continue advocating for the release and record expungement of individuals with non-violent cannabis-related offenses. Numerous cities and states are exploring ways to assist those disproportionately affected by decades of drug enforcement in entering the legal cannabis market. We feel it’s important for investors like ourselves to support these entrepreneurs in launching and growing their businesses.

Could you highlight some prominent leaders within the cannabis space – companies, founders, or growers?

We are significant investors in and strong advocates for Fire & Flower. They are the leading cannabis retailer in Canada, and we believe their business, and Canadian retail generally, is currently undervalued by investors.

Jerel Registre, managing director, Curio WMBE Fund 

Considering 2020 proved to be a remarkably successful year for the cannabis industry, what guidance are you providing to your portfolio companies as they move into 2021?

While we have not yet made any investments, our strategy centers on prioritizing the needs of the customer. The medical cannabis sector experienced growth during the pandemic by emphasizing both safety and the well-being of patients. The core principle of the Curio WMBE Fund is to replicate the patient-focused care approach established in Curio’s primary Wellness Center.

In what ways is COVID-19 reshaping the cannabis industry?

COVID-19 has accelerated a focus on patients and customers within the dispensary environment. Changes in operations, ranging from practical adjustments like redesigning spaces for social distancing to more significant implementations such as curbside pickup and delivery services, are yielding valuable insights into patient and consumer preferences that will continue to influence the industry.

With investment opportunities spanning retail, SaaS, and research, which segment of the cannabis business do you believe offers the greatest potential for growth in 2021?

The Curio WMBE Fund strongly believes that a dispensary model focused on clinical needs will best serve both patients and consumers, and therefore we are concentrating our efforts on the dispensary marketplace. We also maintain that our dedication to supporting and empowering diverse entrepreneurship within the cannabis industry will reveal the untapped potential for expanding the market by fostering an inclusive atmosphere that benefits both the cannabis business community and patients/consumers.

Is your firm considering investments in psilocybin mushroom startups as legalization or decriminalization progresses across the United States?

The Curio WMBE Fund is dedicated to increasing access to specific medical cannabis treatments through a carefully considered, clinically focused retail approach. We currently have no plans to invest outside of this defined scope.

Given the history of inequitable and racially biased drug enforcement in the United States, what steps can startups and investors take to address these historical injustices as legalization expands?

The industry continues to struggle with a lack of diverse representation, hindering its development into a robust and mainstream economic force. Startups can contribute to the healthy growth of the market by committing to the development of diverse leadership within their organizations, and by establishing strong business relationships with companies that are diversely owned and led, or that share a commitment to increasing diversity among industry leaders and stakeholders.

Investors should actively seek opportunities to support diverse founders, with a particular emphasis on African American and Hispanic entrepreneurs, and members of the communities most negatively affected by the industry’s past.

The Curio WMBE Fund demonstrates its commitment to these principles by actively seeking opportunities to collaborate with and invest in diverse-led or owned businesses, with the goal of supporting entrepreneurs who aim to own a dispensary modeled after our successful Wellness Center.

Could you highlight some prominent leaders in the cannabis space – companies, founders, or growers?
For anyone interested in learning about the positive impact cannabis can have on the lives of patients and consumers, I recommend visiting Curio’s website.