Private Equity a Smaller % of Equity Raises Despite Bigger Deal Sizes
The graph shows total equity capital raised by private companies (green bar) as a % of total equity raises during the first 20 weeks of each year. The orange line shows the average private equity deal size.
Private companies account for less than 1/2 as much of dollars raised YTD in 2021 than they did in the same period in 2018. The credit crunch that began in the last half of 2019 has substantially eased, however the effects are still being felt in the finances of private cannabis companies, who continue to face tougher market conditions.
The large institutional capital investors that have entered the cannabis market in the last year have invested in the largest and most liquid public equities.
Valuation multiples for large public cannabis companies reached historic levels in early 2021, spurring a record wave of issuances. Much of this cash was earmarked for acquisitions and remains on the MSO’s balance sheets.
We have previously commented on the significantly lower valuation multiples achieved by smaller public cannabis companies compared to their larger competitors and this discount has been even larger for private companies.
Investors should increase their allocation to private cannabis companies with strong market positions and prospects for profitability to take advantage of the favorable valuation and the possibility of an M&A takeout.