For those not familiar with financial parlance, PE means one of two things, either it was the worst class you had in high school or the only class you got an "A'" in. Within the context of finance, PE means something very different. PE is an abbreviation for private equity, which encompass a group of investors and funds who invest in companies not listed on stock exchanges.
Private equity also includes angel investors and venture capital firms that look to invest in private companies with specific attributes. Angel investors invest in very small startups or in individual entrepreneurs, taking the most risk but having the highest potential for return.
Venture capital firms target companies that are more mature than those that angel investors would consider. They seek to invest in young, fast growing companies, or those that have a presence in emerging industries such as the cannabis industry.
On Wall Street, Private Equity is often regarded as “smart money” - due to their often astute research, highly competent management teams, and market timing ability. Profits on paper are not actual profits, so in order to make 'actual' money private equity firms need to eventually exit their positions.
One method of exiting a position is through the public markets. This means that some day these companies may be accessible to all investors. Additionally, many of these funds are seeking investors, so accredited investors (institutions and high net worth individuals) can get into the action right away. That being said, the following are some Private Equity firms in the cannabis industry that we’ll be keeping our eyes on, and think you should too.
Founded in 2010, Privateer Holdings bills itself as the first firm in the U.S. to focus solely on investments in the cannabis space. One of their earliest acquisitions was Leafly, a website and mobile app with strain and dispensary reviews. Since then, Privateer has launched the official Bob Marley cannabis brand - Marley Naturals. They also were the first American company to own a federally licensed producer of medical cannabis with their purchase of Canadian Licensed Producer, Tilray. Famed investors in Privateer Holdings include PayPal founder, Peter Thiel and Subversive Capital, a disruptive technology investment firm
Chicago based cannabis venture capital fund, Salveo Capital was founded in 2015 by lawyer Alex Thiersch. Prior to starting Salveo, Alex unsuccessfully attempted to obtain dispensary licenses in Illinois. So far, Salveo has invested in two companies, Headset and Front Range Biosciences. Headset provides data analytics and market intelligence software to cannabis producers, processors and retailers. Colorado based Front Range Biosciences is developing disease free plant cloning methods among other agricultural biotechnology projects.
Since its inception in 2013, Tress Capital has focused solely on advancing the cannabis industry through strategic investments with goals of both profit as well as environmental and social responsibility. Like Salveo Capital, Tress has also invested in enterprise resource planning firm Headset. Other Tress Capital investments include Baker Technologies, a customer engagement platform for cannabis companies and SC Laboratories.
Merida Capital Partners
Merida Capital Partners' team combines expertise both in private equity finance and in cannabis to find investments with fundamental growth opportunities. Their target allocation in regards to industry sub-sectors is 35% cultivation infrastructure, 35% data and technology, 15% pharmaceuticals and 15% medical cultivation. Their current portfolio companies include Steep Hill, a operator of cannabis testing labs, New Frontier Data and Grow Generation.
Casa Verde Capital
Perhaps one of the most famous venture capital firms in the cannabis space is Casa Verde Capital, due in part to its backing by marijuana activist and hip-hop star Snoop Dogg. Investments include Eaze, a California medical marijuana delivery service, cannabis packaging provider FunkSac, and cannabis culture media platform MERRYJANE. Outside of the cannabis space, Casa Verde is also an investor in ride-sharing platform Lyft.
Green Acre Capital Fund
One of the newest entrants to the private cannabis investment space is the Canada based Green Acre Capital Fund. The 25 million CAD fund intends to invest in 25-30 medical and recreational cannabis companies in Canada, the U.S. and internationally. Green Acre Capital seeks to vertically integrate with its portfolio companies, creating an eco-system to fuel growth and innovation. Investors in the fund include Canadian licensed producer, Aphria and York Plains Investment Corp.
To get an idea of the "what's hot", following the smart money, aka. private equity can be a great place to start. The interest of private equity in the cannabis sector speaks for itself. That being said, sub sectors that appear to be of particular interest to PE firms include media, technology and of course cultivation.
Check back soon for more coverage of private equity and venture capital firms doing big things in cannabis. Until then, subscribeto our free email newsletter and connect with us on social media to keep up to date on the business of marijuana.