Helping the Street understand the cannabis industry
‘There are few industries in the capital markets today where IR professionals can play a more important role than in the cannabis industry,’ says Walied Soliman, global chair and Canadian chair at law firm Norton Rose Fulbright. ‘IR professionals have a critical and important role in the development of the cannabis space in Canada and around the world. In an industry that is continuing to define itself, IR professionals get to shape the shareholder base and help investors get comfortable with the industry.’
This sentiment was echoed by every single interviewee for this publication. There’s a sense that investor relations professionals and agencies have an outsize role to play in terms of coaching senior management teams that may have limited exposure to the public markets, advocating for best practices around disclosure, communicating with a largely unsophisticated investor base, navigating complicated regulatory environments and working with analysts to create a vision of what a mature public market for cannabis companies looks like.
Many of these challenges are true for a lot of small and micro-cap public companies, but what makes cannabis unique is the speed of growth and the volume of work that takes place. For the largest cannabis companies in the world, there will be weeks in the year where the IR team will attend three to five conferences – akin to the annual conference attendance of some companies. For the smaller cannabis companies, their analyst coverage and market cap growth can change extremely rapidly, posing unique challenges around owning – or even identifying – a narrative for the financial markets.
Source: GMP Securities and Bloomberg
‘Working in the cannabis sector really does feel like dog years,’ says Nick Kuzyk, chief strategy officer and senior vice president of capital markets at High Tide. ‘This last year would be five years in any other industry.’
As of August 2019, High Tide picked up its first covering analyst, from Canaccord Genuity. Kuzyk says there are ongoing conversations with other analysts, but that they are as stretched as IR teams. ‘The one thing that is consistent is that every resource is maxed out,’ he explains. ‘Every analyst has too many names to cover. Getting coverage requires an analyst to expand his or her coverage or cut coverage somewhere else.’
For Tyler Burns, vice president of IR at Canopy Growth Corp, it’s also been a wild ride since he first started working with the company in 2016. At that stage, Canopy Growth Corp had operations at three facilities in Canada and was listed on the TSX Venture Exchange. It now has facilities in eight provinces in Canada, 12 countries around the world, a market cap in excess of $8 bn and is listed on the TSX and the NYSE. The dog years analogy rings true for him, Burns says.
‘The biggest part of the IRO’s job is education – constantly to our analysts and investors to get them up to speed on the sector,’ he points out. ‘At times the inflow of calls from investment funds in the 212 [New York] area code is… well, let’s just say that on Sundays I parse my days into 30-minute chunks because I have to explain the sector to so many people.’
High Tide is earlier in its public markets journey, having listed on the Canadian Securities Exchange in December 2018. Much like Burns, however, Kuzyk is focused on making sure the investment community has the information it needs.
‘Having a fact sheet and an updated slide deck every month is useful,’ Kuzyk says. ‘The number of stores we have, the number of employees and the number of permits we have is always changing. We try to provide current numbers to the public on our website so they can model our business. When you have this many retail investors, it’s about old-fashioned customer service: responding to emails and answering calls.’
This is also true for KCSA Strategic Communications, which has built a thriving cannabis advisory business. The firm will often staff the phones and field incoming queries from retail investors on behalf of their clients, according to Jeffrey Goldberger, a managing partner with the firm. He says acting as ‘an educated call center’ can be an eye-opener regarding the sheer volume of calls that come in.
Goldberger also notes that the cannabis industry is at a stage now where building a sophisticated investor relations function – whether by hiring in-house talent or working with an agency – will be a differentiator as analysts become shrewder.
‘In general, the role of IR is going to be differentiation,’ he says. ‘Those companies that treat investor relations with the respect it deserves – both internally and with respect to shareholders – will be the mainstays.’
