In a de novo market, investment opportunity and risk are both at a maximum. Controlling known risks and evaluating industry structural concerns is a critical investor starting point.
Minimize Regulatory and Tax Risk
SAI seeks to avoid entanglement with onerous federal tax and banking regulations (such as 26 U.S. Code § 280E), which potentially impact cannabis growers and dispensers, and will likely adversely affect after-tax returns for investors.
SAI also believes that current US and state laws are producing a highly fragmented cannabis growing and dispensing market, with limited economies of scale or scope for meaningful brand promotion, and hence limited long-term pricing power.
Avoid Over-Capitalized Sectors
Growing and generic dispensing of cannabis-related products has seen an enormous influx of capital over the past few years which, in SAI’s view, depresses likely investor returns in this sector over the long run. Early evidence already shows ongoing pricing declines in established markets, and SAI believes that this trend will continue.
Concentrate On Proprietary Branding and Technology
SAI is focused on areas with high network capture, such as value-added digital media companies and extraction and dosing technologies with proprietary intellectual property. Products or services in these sectors can typically be sold nationally, and face increasing market power and scale returns as they expand.
Focus on Selective Cannabis-Related Real Estate Opportunities
While our expectation for investment returns from growing cannabis is low in the longer term, our market research has shown that the real estate associated with the cannabis industry is significantly outpacing traditional real estate growth. These investments are expected to provide total returns combining long-term asset growth and premium lease terms.