Benzinga - Robert Hoban, co-chair of the Cannabis Industry Group, highlighted the importance of due diligence in the rapidly expanding cannabis market.
While attending the Benzinga Cannabis Capital Conference in Miami earlier this month, he discussed the two sides of due diligence — one for the company seeking capital and the other for the lenders and investors.
"By getting an established due diligence checklist, I can evaluate my company, I can see where I stand when I go approach the outside world for a capital raise," he said. "So it helps internally to understand where you are in real-time."
In a market characterized by a higher proportion of lending compared to equity investment, the need for a comprehensive risk assessment is more critical than ever, Hoban says. However, traditional financial analysis falls short in the cannabis industry, with about 40-50% of due diligence being missed, he claims.
To address this issue, Hoban, along with Giada de Carcieri, formerly of New Frontier Data, and Dotun Malik, founded Citrus C Trust — the first and only credit rating system that manages and assesses risk for lenders in the cannabis industry.
Hoban explained the need for such a system, saying, "They miss a lot of relevant facts, what they call components, market trends, consumer behavior, local government trends, federal government trends. They ignore completely how companies are situated in the global cannabis supply chain."
Citrus C Trust aims to provide a more comprehensive picture of risk for both borrowers and lenders in the cannabis space.
Hoban believes that their system can address many of the shortcomings in traditional due diligence, especially as it relates to the unique aspects of the cannabis industry. This is particularly important because, as Hoban pointed out, "You don't see a lot of lawsuits and defaults like you do in other industries because the lenders tend to work more with their clients or their borrowers."
By creating a specialized credit rating system for the cannabis industry, Citrus C Trust is looking to bridge the gap in risk assessment and due diligence. With a better understanding of the risks involved, both borrowers and lenders can make more informed decisions, ultimately contributing to the continued growth and success of the cannabis market.
This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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