When we started Poseidon back in 2013 we had no data, no benchmarks for valuations, and a very limited opportunity set. We truly had a blank canvas as we went about investing our first fund. We tried to focus on good people and areas of the industry we felt were essential to building what would become the fast growing, multibillion dollar industry it is today.
Charts care of Echelon Partners
We had to build frameworks for valuations depending on what parts of the industry we were investing. We studied external markets as guides to considering inputs like TAM (total addressable market), profit margins, growth rates, to give us some basis of determining valuation. Today is a far different experience. There are dozens of analysts covering Canadian LPs and more and more covering US Operators and Ancillary companies. The quality of their work is quite varied with many exhibiting the biases of their investment bank sales team. Some firms adhere to the proper regulations there but this does not seem to be present with our colleagues to the north. We note this deficiency as a symptom and opportunity of an early-stage industry. For example, analysts defend Canopy Growth trading at 16X sales with a very weak fundamental business while only offering nominal credit to much stronger US companies. This behavior is further exacerbated by media like Jim Cramer on CNBC, who continues to give much air time and support to David Klein (CEO of Canopy Growth) than talk about the much bigger opportunities right in the US.
The fourth quarter of 2020 and the first half of the first quarter this year can largely be summed up by the typical ebbs and flows of retail enthusiasm. There are great companies in our space that were clearly cheap this