Cannabis investing attracting much interest

Sherri Haskell, founder of the 'angel investment consortium' CannaAngels, said when the Marin County-based group was created a year and half ago, the concern was 'deal flow and quality.'

It turned out not to be a problem.

'We're attracting quality business opportunities,' Haskell said. 'We're getting referrals from investment-banking firms, hedge funds, sophisticated investors. We have events. Through our curation, diligence process, we show four presenters at each event,' with various technologies, such as for growing or energy management. 'We put together a post-funding mentoring facility. We are early-stage investors. An edibles company skyrocketed. They're closing their funding. They needed help with financial projections. We look at the strength of the team.'

For Emily Paxhia, who founded Poseidon Asset Management with her brother, Morgan, in 2014, the results were similar.

'One of the things I found so amazing about cannabis is that there's no weakness in demand,' Emily Paxhia said. 'You don't have to work very hard to find people who are interested in it. You have to work to get through regulatory hurdles to make it accessible to everybody.'

Haskell and the Paxhia siblings were speakers at North Bay Business Journal's first North Coast Cannabis Industry Conference, held at the Hyatt Vineyard Creek Hotel & Spa in Santa Rosa on May 9.

'Morgan and I lost both our parents to cancer,' she said.

When her father was sick with cancer in 1996, a hospice nurse mentioned cannabis. Her father was taking several medications that were making him nauseated. The cannabis, made legal in California for medicinal use in 1996, helped.

'It gave us that compassionate lens through which we viewed cannabis this whole time,' she said. 'For us, investing in it is very much about making it accessible to a broader scope of patients and individuals and providing capital to businesses that are trying to move the industry forward. We owe a debt of gratitude to all the farmers and businesses in this state since 1996. That's when things started to change. We have been focused on a diversified portfolio of companies, including some land up north.'

There are 'amazing ways that cannabis can be consumed,' she said. 'We look for ways to support the business of cannabis,' including a data-analytics company called Headset, based in Seattle. In January Headset raised $2.5 million from Salveo Capital, Hypur Ventures and Poseidon Asset Management.

'If you have an edibles brand, you can access information about how different edibles are selling across the state, which products sell better on a Friday afternoon or Monday morning. That helps people market their products.

'We have also done some things in HR and payroll solutions,' she said, 'to make it compliant and easy to do, to make running the business easier. California is working hard to stand up for cannabis businesses. We have that huge hurdle of what is happening at the federal level (where cannabis is an illegal drug).

'We are trying to see pain points or gaps in services. We have a due-diligence checklist to get companies prepared. We do some debt investing, or convertible notes. Some cultivators or dispensary owners are not looking to give up equity, not able to get banking. They need expansion capital.

'It's up to us to surpass negative stereotypes,' she said. 'We are working to prove the naysayers wrong.

'About 50 percent of ancillary companies (working in cannabis industry, not cultivating) have some form of banking, and about 30 percent of cultivators. We are looking at a banking platform as a business opportunity.

'In Colorado (where cannabis is legal), as supply came online, it drove prices down. Outfit a business to be efficient in the long run.'

'I see a lot happening with premium edibles, and with pet (food) brands for cats and dogs.

Morgan Paxhia said, 'Looking across many states and into Canada, we are optimistic about California. There is fantastic opportunity, quality unrivaled here. Cannabis is transitioning from the unregulated or black market to a regulated market. There is tremendous infrastructure needed — compliance technology, data analytics, software solutions to make smarter business operators. Colorado is about 10 percent of the size of the California market. It is a great breeding ground for this technology.

'There is so much capital that needs to be invested. You have to be more than a check-writer, more involved with companies, as an adviser. We shepherd introductions between our companies, help people grow so they don't scale up too fast and lose control, or burn cash too quickly. We help people avoid mistakes. Most businesses are raising capital for growth needs. We make sure companies are set up well for the future — staffing, operations support, sales. This is a people industry.

'We look at scalability, profitability. We are looking to build an industry. We ask more questions than people are comfortable with. We ask for tax returns, how much (owners) are making.

'As smaller financial institutions and credit unions get more comfortable with complying with guidance that is out there for the industry, you see the number of institutions pick up. All that is solving is deposits, not other services. It's only one step in the right direction. In California, given the scale, it could be self-sustained banking. We are an audited fund. We only work with partners who have bank accounts. We cannot accept cash payments. We can provide strategic lending.'