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🎙️ Podcast: Toby Chanudomchok (@mayortoby) – Cannabis Investor (HF background)
Toby is a SF-based investor with 17+ years at a Hedge Fund focused on small-cap growth companies before heavily investing in Cannabis. We talk through his portfolio, investing, opportunities, & more
Tweets from @mayortoby:
📖Always Learning. Toby believes in thematic investing, before SaaS was a high multiple sector in the early 2010s, he was buying SaaS companies at ~3x revenue and selling around ~6x revenue (which is now ~23x revenue on average). One of his larger bets was Five9 (which we spoke about when the Zoom acquisition was still on..Toby had written a memo on this acquisition making sense two years ago), which went from small cap to large cap over the lifetime of his investment. He believe you make the most money when there’s multiple expansion (perception and sustainability of profits).
♟Simple strategy. As a long-term investor, he keeps a simple strategy — buy good/great companies and hold. His criteria includes large and growing TAM, strong management teams, high margins, high return on capital (ROC), capital efficiency and have moats. He looks at Cannabis as a generational opportunity, where the expected returns are 300-500%+ return opportunities. The fundamentals are there and he’s comfortable buying and holding U.S. Cannabis stocks.
🎁 Which Institutional Investors can own Cannabis stocks. While most large institutional investors ($1B+ AUM) can’t invest in cannabis today, smaller funds that are closer to their LPs and/or can buy companies that can trade with lower daily volumes (i.e. hard to invests in companies with $10M average daily trading volume when requirements are $50M+). It’s not about getting into names, but rather liquidity/getting out. Toby views this as a gift right now, where you can own these names before 90%+ of institutional investors are allowed to. Compliance departments play a huge role in funds being able to own Cannabis stocks.
🏀Fundamentals. The fundamentals remain strong, earning estimates continue to go up and while it doesn’t make sense, there are structural reasons why.
👣Own Tier 1 MSOs. Toby is a big believer in owning the Tier 1 MSOs (Curaleaf, GTI, Cresco Labs, Trulieve, Verano) as those companies are at or close to $1B in annual revenue, still growing, and trade at attractive multiples. He believes the risk/reward profiles of those names are very attractive. In an emerging space like Cannabis, bigger is better is the philosophy that he subscribes to. We discussed how the market leader in Cannabis is likely to be a $100B+ company.
Tier 2 MSOs. Although he believe most investors are best suited to own the Tier 1 MSOs, he does mention owning a few Tier 2 Cannabis companies — Ayr Wellness, TerrAscend, and Columbia Care. He likes the management team and believes in their strategies.
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