2019 Was a Transformational Year for the Cannabis Sector and the Days of Easy Capital Are Over
Heading into 2020, The Importance of Having a Strong and Proven IR Firm Has Never Been Greater
Cannabis stocks have (hopefully) bottomed. It’s most likely the U.S. multi-state operators (MSOs) have with the Canadian licensed producers (LPs) having a little bit left to go. Now more than ever company messaging to the capital markets — or investor relations — will be of utmost importance. As the majority of poorly ran/poorly capitalized firms make their way to zero bid, the Investor pool will need to see real facts, research, and logical opinions to see who the winners will be.
Choosing an IR firm is more of an art than a science. Although we most likely won’t end up working together given the size of the industry, I would like to share some insight I’ve picked up over the past 15 years in the space in order for your company to succeed in their IR strategy.
The first thing to do is look up an IR firm’s Alexa ranking at Alexa.com and compare it to its competitors. I’m talking about the sites they use for marketing, not a corporate site. For Circadian-Group.com we utilize TheCannabisInvestor.ca as our marketing platform and its ranking far exceeds any credible, comparable firm.
Secondly, review their social media pages to see that they’re large and active. This is an area where we see the most fibs happening… the best thing to do is look at the last 10 Facebook/Instagram posts and see that there’s a decent amount of activity (comments, likes & shares). This somewhat proves the followers are real. You can take it one step further and do a random sweep of their followers and look for a large percentage of them with no followers themselves as well as being based in typical click farm areas of the world such as India, Philippines, etc.
2. Firm Owners/Salespeople That Seem Like They Spend All Their Time Hounding You For a Sale
This is probably the most telling sign that a firm is ineffective. Successful IR firms turn down clients weekly and sometimes daily, so if a company spends all their time hounding sales leads they most likely have no inbound deal-flow, and therefore are probably not that good (to be polite). This may be counter-intuitive, but you might as well throw your money in the garbage. It’s one of the best tells in the industry — even if its strokes to the ol’ ego of the CEO.
3. Well Known in the Industry By People That Matter
Does the firm make the investment to sponsor industry events? Do they make the effort to collect business cards for the email database? Do they know financial writers/reporters personally? Do they have a receptive audience of institutional and retail investors? These are all important questions and separates the wheat from the chaff, the posers from the performers.
For this one, you need to use a bit of intuition mixed with some strategy. Ask pointed questions and ask for some direct introductions at the same time as looking out for fake name dropping.
4. Track Record
This one most CEOs already know about, but it’s worth doling out a few tips here. Many firms claim other’s successes/deals or were a small, inconsequential part of a larger IR program. We hire some of these guys as subcontracts at Circadian/The Cannabis Investor, in a support capacity but should be avoided for “general contractor” status.
The other end of this spectrum is full out lying about a past client to nab a gig and elevate their status. If you find this to be true (lying or being deceptive) by checking out references, run the other way. If it was a TSX or TSXV company there will be a supporting press release of the agreement and if it’s an American SEC reporting company there will usually be a PR, an 8K or it will be in the financials/filings. If you can’t find evidence of a claim they can’t be trusted and are most likely ineffective.
5. Unsuccessful by Association
Check an IR firm’s past client roster for companies with regulatory issues as well as the firm and its principals — A quick google search is all you need.
If a company associated with an IR firm has had past issues, even if the IR firm was not directly involved, there’s a chance they may be under increased surveillance by regulators which could put a cloud over your company.
Just being associated with shady companies in the past can put a dark cloud over their tenure with you. It can come in the form of Investors shunning your stock, or even worse, a short attack from an activist short seller — guilty by association is a real thing.
6. Too Many Clients, Too Many Similar Clients
This is one of those counter-intuitive ones as well. People will all crowd around a bin at Costco just because there’s a huddle of people; the same goes for IR firms with a ton of clients (who are most likely paying retainers under the average industry rate). You get what you pay for!
CEOs tend to look at firms with a ton of clients and want to be involved in the action! The problem is they’re competing for finite Investor eyeballs, and the problem is compounded further when the firm has too many closely related companies in a very near vertical.
To avoid this, look for IR firms with no more clients than they have employees, Circadian Group has averaged roughly 0.5 – 1x employee to client ratio to keep a high level of attention on what matters; doing actual work to elevate our clients status’ in the financial community.
Don’t automatically take the low bid, that’s my 2 cents.
I’m sure I’ve forgotten a few important tips but we’ll send out a follow-on article in the new year.
If you would like a free investor relations audit by one of our origination analysts, please feel free to contact us directly at email@example.com.
Happy Thanksgiving, Christmas & New Year!
Move Over Curaleaf, There’s a New MSO in Town and it’s Set to Hit The Street Soon
Get the full details here so you don’t miss out on the next potential 10 bagger.