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There’s a paradox when it comes to retail investors: many startup-related deals are out of their reach (partly for their own sake). But laymen have also been targeted by new programs hoping to attract their bets and savings. Are retail investors taking more risk than they should? Let’s investigate. † Anna
Opium for the masses
I am by no means a stock market expert. But writing lately for Marketingwithanoy about cannabis and psychedelic startups, I found that some fledgling companies in these verticals are trading markets I’d never heard of. I mean, I’d heard of “pink sheets” – in “The Wolf of Wall Street.” I just didn’t think over-the-counter securities were something startups would ever use. It seems that needing money for drugs makes you creative!
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I have nothing against innovation, even when it comes to fundraising. But the fact that publicly traded cannabis companies — many of which have gone public with nascent earnings more reminiscent of startup stats than mature company results — have seen their market caps crash is probably no coincidence. And looking at the period of hype surrounding their public debut, it’s hard not to wonder how many retailers have been burned.
We’re not just talking about the most obscure exchanges either. Nasdaq-listed cannabis companies such as Akanda and Tilray have also seen their value plummet.
My perception that we are seeing a new crop of companies focused on psychedelics following in the footsteps of cannabis companies is not mere speculation. “There is an unwarranted rush from founders to list their cannabis and psychedelics companies on the stock exchanges,” VC Bek Muslimov told me.
Muslimov is a co-founder of the specialist investment company Leafy Tunnel and he sees a danger in hasty listings. “In this endeavor, founders and management teams bypass private finance markets made up of professional and diligent investors such as VCs or growth capital funds,” he told me in an email.
The problem here is not that private investors are missing out on juicy opportunities. The problem is they would have refused to invest in the first place. Not because they don’t invest in cannabis – few do. But Leafy Tunnel is one of them, meaning the point of view here matters.
What Muslimov objects to is cannabis and psychedelics companies going public when they would not have met venture capitalists’ criteria to be funded. “Unfortunately, this could lead to a situation where companies with poor business fundamentals and insufficient maturity are listed, allowing them to tap into private investor funds.”