I’ve talked a lot about cannabis already this year. And that’s because it is one of the best performing sectors of the market.
That is unlikely to stop anytime soon. With all political and economic stars aligning for the industry, almost all of them stand to have a strong full 2021.
But that doesn’t mean you can just pick at random.
In fact, there’s a new player that sounds too good to be true coming to market. And that’s because it is.
They say it is best to make a dramatic entrance to any party. Arrive an hour late and everyone will take note.
For a cannabis company entering the market while pot stocks are peaking, AFC Gamma Inc. (NASDAQ: AFCG) is definitely going to turn heads.
But dramatically late and dangerously late are two different things. AFC is arriving dangerously late to this one.
AFC Gamma is a private finance company.
Technically, it is getting listed this week as a real estate investment trust. But its main business is to lend money to cannabis companies: growers, manufacturers and distributors.
It lends them money to grow their operations and expand their footprint.
With so much potential for growth in this industry, what could be wrong with that?
Frankly, five years ago, that would have been an amazing opportunity.
The number one problem cannabis companies have, besides growing and selling a plant that is technically illegal according to the federal government, is their restricted access to capital.
Pot companies have not been able to secure loans from banks in the U.S. because of federal law. They aren’t even allowed to really go public and raise capital in the U.S. Though, there’s a loophole, which many have taken advantage of to date by raising capital in Canada before trading in the U.S.
Nonetheless, raising capital and financing operations remains challenging to many cannabis companies in the U.S.
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AFC Gamma aims to solve that. Unfortunately, the company started too late and is going public in the wrong year.
The company was founded just a few months ago, in July of last year. To be fair, it has already grown into a large player for its late start, with deals totaling $135 million.
But that’s not what makes AFC Gamma late to the party. I have no doubt that other cannabis giants of the future are just now setting up shop in a garage somewhere.
No, it’s the specific segment of the pot industry AFC is attempting to capture that’s problematic.
You see, cannabis investing is all about regulations, legislation and measuring the political winds. That’s one reason it still scares many potential traders. But it is a fact all pot companies deal with.
With a new Congress already looking into decriminalizing and even legalizing weed, that bodes well for the industry as a whole, right?
It certainly is why many pot stocks have soared these past few weeks:
But this major catalyst that is spurring on the rest of the industry is actually a dagger in the heart of AFC Gamma.
You see, the very least that this Congress is likely to do is open up the banking system for cannabis companies. It could go all the way to legalization at the federal level. But that’s a discussion for another day.
This catalyst, opening up the banking system, is the opposite of what AFC likely wants. That means competition from banks and other lenders all across the country.
It means fighting for deals in a market where it currently has the pick of the litter.
And finally, it means this newcomer in the loan business is likely to get boxed out of the best rates and the best deals.
The company is set to begin trading tomorrow. And while it could have a number of early enthusiasts to jump on board right away, I’d recommend you steer clear.
When the only catalyst you have is a negative one that could significantly impact your business, it’s not a good bet.
And when you’re so late to the party there’s no food or drinks left, it’s not a fun experience.
That’s where AFC Gamma is now.
As I mentioned, the pot sector has a lot of tailwinds coming ahead in 2021 that should help it become of one of the top sectors to be in.
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To your prosperity and health,
Joshua M. Belanger