The Big Story
A High Growth Industry? Or A Budding Mania?
Holland was famously gripped by “tulip mania” in the 1630’s when, in what is considered by many to be the first speculative financial market, prices for certain tulip bulbs escalated to such a level that a single rare bulb could cost a year’s wages. Not surprisingly, the craze was not sustainable, and by early 1637 bulb prices collapsed. Who would have thought that a simple plant could drive such speculative investment? On second thought, maybe it is not too hard to imagine. We may be living through our own mini-mania, as the past couple of years have seen a torrid pace of deals and sky-high valuations involving a different plant. Not tulips, but cannabis.
According to CapitalIQ, there have been over 500 transactions involving U.S. based cannabis-related companies in just the past 12 months. That amounts to a pace of almost 10 mergers, acquisitions or capital raises per week, as operators and investors try to capitalize on the burgeoning U.S. pot market. While still illegal under U.S. federal law, a number of individual states have passed legislation permitting the use of marijuana for medical and industrial uses, and, more recently, for recreational use. The recently passed Farm Bill also legalized commercial hemp for certain uses, but punted oversite of cannabidiol (CBD), the non-psychoactive ingredient in cannabis, to the FDA, which promptly stated that it would not allow CBD to be added to food or drink without prior approval. New York City also announced that it would be cracking down on edibles and drinks that include CBD.