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investment advisor at Canaccord Genuity Wealth Manage- ment in Toronto. He likens the early days of the cannabis markets to the dot-com era, when any stock with “canna- bis” in its name was likely to make money. Those days, he says, are behind us — and with them the model of the visionary CEO, like Linton, with a background in cannabis rather than more mainstream corporate experience. “With the speculative money moving out of the sector, the survivors are the companies with strong management teams that have shown they can execute and generate real revenue and grow the business,” Kadey says. “In the cannabis space, that’s been especially challenging, because of the legal environment that these companies have been operating in.” Kadey points to former hedge fund manager and cur- rent Jushi CEO Jim Cacioppo, who has strong experience in the distressed debt world, as an example of the experi- ence he’s looking for. Finding strong cannabis companies, especially with regulation evolving and new players constantly entering the market, requires higher levels of due diligence, says Kadey. “It’s definitely not a space where you can just rely on your research department, read a report and make a recommendation.” His wealth creation portfolio has iden- tified — and is sticking with — five or six U.S. companies. An international game That Kadey’s cannabis portfolio is focused exclusively on the U.S. is telling. “Investors have known for a while that, long term, this is really an international game,” says Rishi Malkani, a partner in Deloitte’s M&A transaction servi- ces group in Toronto, and the lead partner managing the firm’s cannabis practice. “Canadian companies need to understand what the most attractive international markets are, and start making plays there. We’ve seen a lot of this already, with several of our Canadian companies branching out into \\\[the U.S.\\\], Europe and Israel,” among other places. Campbell’s fund is invested in some Canadian com- panies but has increased its U.S. exposure “because, based on population alone, that market is 10 times the size of ours.” There are 220 licensed producers in Can- ada, almost 50 of which are publicly traded, he says. “Only about 15 in the States would qualify as large, multi- state operators, so there’s huge opportunity there.” Volatility, he says, will continue until cannabis is legal- ized south of the border — or at least until the SAFE Act passes, “which will open the door to institutional investing. When that happens, the sector will go on a tear it’s never had before.” In the meantime, he’s interested in the ability of Can- adian companies to partner with international counter- parts. He points to recent partnerships between London, Ont.-based Indiva and edibles company Bhang, based in Miami, or Kelowna’s Valens GroWorks’ recent announce- ment of an exclusive licence to distribute Seattle-based SO_RSE’s water-soluble emulsion technology, used to infuse products with hemp extracts. Deloitte reported more than 700 M&A transactions in the cannabis space in 2018 alone, and Malkani expects to see activity continue in the coming years, both within Canada and internationally. “The common consensus is investments “With the speculative money moving out of the sector, the survivors are the companies with strong management teams” 700 The approximate number of M&A transactions in the cannabis space last year Source: Deloitte that there are far more Canadian cannabis companies now than there will be three or four years from now.” Investors, he says, seem to be more focused than they were previously on revenue and, to some extent, earnings and margins. Strong intellectual property and trademarks are also appealing. “They seem to be looking \\\[at companies\\\] with a clear strategy, especially an inter- national strategy, and management that has the ability to execute on that strategy.” Malkani says consumer packaged goods companies will move in to capitalize on consumers’ interest in cannabis-based beauty products and edibles, while tobacco and alcohol companies, like Constellation, will continue to try to get into the game to avoid losing market share. M&A activity will see a sharp uptick when canna- bis is legal federally in the U.S. Edibles are exciting... According to Deloitte, the introduction of edibles and related products is projected to add about $2.7 billion to the market, mostly by way of attracting new consumers — the “can- nabis curious” — who see edibles as safer, more conven- ient and more socially acceptable than smoking, and who wouldn’t likely buy cannabis from under-the-table providers. Campbell concurs. “The introduction of edibles will give us mass adoption. These are the people who prob- ably were never going to buy some dried flower, roll it up and light it on fire. This could be the 40-something soccer mom who comes home at the end of the day and has a \\\[cannabis-infused\\\] beverage in order to unwind, rather than having a glass of wine.” The real opportunity, he says, lies in the companies who can build recognizable, go-to brands: Who will be the Red Bull of cannabis drinks? 24 JOSÉ ANTONIO LUQUE OLMEDO / ISTOCKPHOTO ADVISOR.CA 23