Insights from a Successful Investor in the Cannabis Industry

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Lumino spoke with David Bonnier, founding partner of Enexis AB and as an investor, he sees the unique potential for businesses and creative innovators to grow in the cannabis industry.

How long have you been in the industry?

Been engaged in the cannabis industry since 2018.

What were you doing before you join?

Prior to entering the cannabis space, I spent 12 years in the hedge fund industry as a dedicated short seller. Prior to that, I spent 6 years at Deutsche Bank, focusing on business development.

What was the thought process that drove you to the industry?

In my prior job as a short seller, the bubble in public cannabis stock valuations is what initially drew me to look at the industry. I spent months analyzing the industry, talking to companies, analysts, researchers, consultants and friends in the business to assess the opportunity. My conclusion was that whilst public cannabis stocks were overvalued at the time, the underlying industry trends were attractive and very early stage. That’s what drew me to engage the sector.

Based on your previous investment experience — what skills and experience have you bought forward with you that have been useful?

Critical company and valuation analysis, robust due diligence process, and willingness to take risks. Moreover, I have a natural contrarian inclination — i.e. the curiosity to question consensus thinking and status quo — which is what initially drew me to become a short seller. This quality is equally applicable to the cannabis sector. While the trend may be clear for those who have engaged in the sector, we are met with constant roadblocks. For example, when we set up our investment company, a number of service providers (legal, auditors, etc.) would not work with us given the controversy around cannabis.

What was the attraction to this space?

What’s not to like? We’re engaged in an industry that can help improve the quality of life for millions of patients.

Moreover, it’s a growth industry with favorable valuations, post-market correction. I can’t think of any other industry that has similar qualities. Can you?

What were your assumptions/expectations before joining this industry?

We had expected to allocate at least half our capital to direct investments in North America. But it turns out that the majority has been allocated to opportunities in Europe. So effectively, we’ve been positively surprised by the opportunity set on this side of the Atlantic. That said, the industry here is still very young and at least 4–5 years behind North America, so we hope to see even more European opportunities going forward.

Where did you get your information and research before you joined?

Most of our information came from primary sources, such as talking to companies, analysts, researchers, consultants, and friends in the business.

Now that you’re in the industry what is it actually like? What are the actual challenges?

There are always challenges in breaking new ground, especially for cannabis and cannabis-related products which have historically been stigmatised. Therein lies the opportunity.

For example, in 2018 the Swedish Medical Agency attempted to classify all CBD products as medicine, irrespective of dosage. However, the decision was overruled by The Swedish Administrative Court, thereby providing a legal basis to market CBD as a food product. Out of dozens of new subsequent CBD players, Enexis invested in two companies that not only proactively complied with the new marketing guidelines but also engaged regulators to further improve industry standards.

The Medical Agency refused to engage in a dialogue. Instead, it paradoxically issued a trading ban on the two companies, arguing that their products could be “interpreted” as medicine, even though they hadn’t been marketed as such. Let that sink in. The companies have naturally appealed. And while the agency’s argument lacks credibility, it has nonetheless delayed the companies’ growth plans, which in all likelihood was probably the Agency’s ultimate goal.

What advice would you give to anyone looking to get involved in the industry?

Have patience and thick skin. Also, do your homework!

While there are a lot of great companies emerging across Europe, there are also a great number of questionable companies too.

Where do you see the industry going?

In football terms, we believe Canada is playing its second half, the US its first half, and Europe is still singing its National Anthems. Europe is years behind North America, but we think it will follow the same path — at a faster pace.

Who is Enexis?

Enexis focuses on investing in companies involved in plant-based medical, wellness, and industrial applications. Enexis co-sponsored a medical cannabis survey in Sweden showing that two-thirds of the population were in favour of expanding access.

“The new survey conducted by Novus shows that 65% of respondents think that doctors should be allowed to prescribe cannabis if other drugs do not produce the desired effects. In the group of 30–49-year-olds the proportion is even higher at 72%. Only 18% of respondents were critical to medical cannabis, while 17% stated they did not have a view. Most critics responded that cannabis is a drug that should be avoided.

The results confirm that the changing attitudes towards medical cannabis around the globe is spilling over into Sweden. Indeed, we hope this can be a step towards better access for Swedish patients, including much needed
formal educational and training programs for doctors.”

June 25th, 2020, Enexis Press Release

Click here for the Swedish press story.

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