#22 - Buyer Beware! Check These 4 Things Before Buying a Weed Stock
In this episode we explore 4 common overhangs which can weigh on Cannabis Stocks. Most of these things are unique to small cap and venture investing.
- Overhang: Factor which negatively impacts a stock (typically short to medium term)
- How this helps answer "Is This the Right Time to Buy"?
1. Cap Table / Share Structure
- Understanding the importance of the cap table
- Why previous rounds of financing matter and the "Game Theory" involved
- How warrants and cheap paper can drag on a stock
2. Share Unlocks
- Unlocks can create a huge overhang, real or perceived
- How Mergers & Acquisitions create large unlocks
- Resource for US MSO unlocks: https://www.statesidecannabisinvestors.com/calendar
3. Timing
- Examining two low volume seasons: Summer & Tax-Loss Period
- Debating if timing matters for fundamental investors
4. Capital Raises
- Why capital raises drop the share price
- Why capital raising is actually not a bad thing in the long-run
- What to look out for (straight equity vs debt vs warrant coverage)
- How to Predict a Future Capital Raise
**Note: Episode was recorded prior to MedMen/Pharmacann being called off (but the concept still applies)