Investment dollars can be hard to come by in a tightly regulated, federally illegal industry. These firms are changing the game, offering operators of all sizes an opportunity to grow.
With rapid industry growth comes an inevitable need for increasing amounts of capital. Although investors have had their eyes on the budding cannabis market for about a decade, acquiring funds for scaling and expansion remains challenging. That’s really no surprise, since most investors are leery of sinking dollars into a sector subject to extensive oversight by state officials, taxing authorities, and potentially law enforcement.
From cultivators and dispensary owners to manufacturers, distributors, and marketers, industry insiders are accustomed to jumping through regulatory hoops in order to comply with diverse, and sometimes conflicting, state-market standards. Investors, on the other hand, have many opportunities to build wealth in sectors that don’t require constantly adjusting expectations. The potential returns in cannabis are great … but so are the risks.
Nevertheless, the industry overall has done remarkably well on the financial front. Globally, 544 companies attracted $5.3 billion in venture capital between 2014 and year-end 2019, according to Crunchbase. After a disappointing 2020 in which investment plummeted by 68 percent, TechCrunch trumpeted the American industry’s return to favor in 2021 with a 165-percent year-over-year increase in capital infusion. The average raise per transaction grew, as well, expanding from $7.5 million in 2020 to $19.9 million in 2021.
Of particular note, debt financing is on the rise. Total debt and capital raises topped $12 billion in 2021, according to Viridian Capital Advisors. Equity raises amounted to about $7.1 billion — a significant jump from the 2020 total of $2.7 billion. Debt raises amounted to $5.3 billion, up from $1.6 billion in 2020. The average debt raise of $48.1 million in 2021 was more than double 2020’s average.
Even for seasoned investors, navigating the cannabis market can be challenging, and many traditional funds and money managers don’t incorporate industry properties into their portfolios. More than fifty longstanding private equity, angel, and venture capital firms do, though, either exclusively or as part of a larger mix. This month, The mg List highlights fifteen of them.
Arcadian Capital Management
Venture capital; founded 2017
Assets under management: $167 million
Recent activity: funded CANN, Jane Technologies, Fyllo, Kadenwood, Creo
Arcadian is one of the most influential cannabis venture capital firms in the space. Headquartered in Los Angeles, the firm approaches the industry from a holistic perspective, prioritizing equity, collaboration, and servant leadership. “We want to serve. I think people in the industry see us as a friend who creates a safe space for like-minded individuals to come together,” said founder and Chief Executive Officer Matthew Nordgren. “Our goal is to bridge the gaps between all cannabis funds, making sure all investment firms are viewing the industry in the same way. Our effort is always inclusive; strength in numbers is the right way to be.” The company’s portfolio includes Agrify, BDSA, Greenlane, and High Times.
Casa Verde Capital
Venture capital; founded 2015
Assets under management: $145 million
Recent activity: led Cansativa’s $15-million Series B round
Casa Verde Capital was one of the first funds established to focus entirely on the cannabis industry. Cofounded by Managing Partner Karan Wadhera and his longtime friend and business associate Calvin “Snoop Dogg” Broadus Jr., the firm was conceived as a means for Broadus to become more involved in the industry beyond being a cultural ambassador. “No one has the same track record or portfolio as we do or our level of experience,” Wadhera said. “Right now, we’re getting really excited about developments coming out of Europe. Lots of legislation there is happening at the federal level, which removes that layer of regulatory ambiguity we have in the U.S.” The company’s portfolio includes dutchie, LeafLink, Eaze, Vangst, and Metrc.
Entourage Effect Capital
Private equity; founded 2014
Assets under management: $200 million
Recent activity: $10-million investment in Hound Labs
Entourage Effect Capital is fueled by belief in the cannabis industry and its continued potential. The team is excited about job creation, economic growth, and human health and development through the plant. “Prior to cannabis investing, I spent twenty years in Dallas working in private equity while managing several funds of my own,” said founder and Managing Partner Matt Hawkins. “In 2014, after Colorado, Oregon, and Washington passed adult-use legislation, I saw an opportunity to be a first-mover within the industry’s private-equity sector. Since then, Entourage has invested in more than sixty-five companies, many of which are now leading operators.” The firm’s portfolio includes Phylos Bioscience, Akerna, Terrascend, and BDSA.
Merida Capital Holdings
Private equity; founded 2016
Assets under management: $600 million
Recent activity: de-SPACed Leafly after raising $125 million for Merida Merger Corp.
Founded with the goal of targeting fundamental growth, Merida Capital Holdings focuses on cultivation technologies, products, and services. The firm is one of the largest funding cultivation operations, investing primarily in companies that have transitioned from startup to revenue-generating. “Merida isn’t just an investor,” said Managing Partner Mitch Baruchowitz. “We build companies. That means supporting entrepreneurs with the resources and guidance they need to succeed. Since we are led by former operators, we have a deep understanding of every aspect of cannabis, from seed to consumption, which is rare for an investment fund.” Merida’s portfolio includes Phylos Bioscience, Pilgrim Soul, and Cellibre.
JW Asset Management
Venture capital; founded 1997
Assets under management: $2 billion
Recent activity: participated in Fyllo’s $40-million Series C round
Founded by Jason Wild, JW Asset Management compiled a noteworthy performance record in the healthcare sector before entering Canada’s cannabis market in 2014. Wild turned his expertise to the United States market in 2018. The firm’s pharmaceutical experience sets it apart in today’s evolving industry: The team has navigated a variety of cycles and knows how to identify deals and pivot as necessary. “Our unique combination of healthcare industry knowledge and capital markets experience sets us apart from most firms involved in the cannabis investment space,” said Chief Financial Officer Jason Klarreich. The firm owns a majority interest in Terrascend and holds Canndescent and Pistil Data in its portfolio.
Poseidon Asset Management
Venture capital; founded 2013
Assets under management: $195 million
Recent activity: Fund I is one of the longest-running actively managed portfolios in the space
Founded by siblings Emily and Morgan Paxhia in 2013, Poseidon is focused entirely on the cannabis industry. The firm’s Fund I, now closed to new investors, is one of the longest-running actively managed portfolios in the space and includes Flowhub, Würk, PAX, Green Thumb Industries, and Headset. “When we launched Poseidon, we divided up the industry into subsectors, deciding what we thought would be investible categories and segmenting the industry to better assess opportunities,” Emily Paxhia said. “This process helped us dive into and analyze factors such as a segment’s total addressable market, margins, exit pathways, and access to capital, among other things.” Morgan Paxhia added, “In our early days, plant-touching companies struggled with access to capital, but that has completely reversed. Now, those groups have more access to equity, debt, and real-estate financing options.”
Venture capital; founded 2015
Assets under management: $200 million
Recent activity: led Artet’s Series A round with a $1-million investment
Subversive Capital is the single largest outside investor in Privateer Holdings, the private-equity fund with money behind Tilray and Leafly. The firm brings special purpose acquisition company strategy and thematic exchange-traded funds (including a new one for the metaverse) to a new generation of equity investors. “We are dedicated to social justice and social equity first and foremost,” said founder and Chief Information Officer Michael Auerbach. “We only invest in companies that share our values for a more inclusive cannabis industry. We also are long-term investors, as we do not see any exits until the end of U.S. federal prohibition.” Subversive has invested in brands including Pure Beauty, Doclight Brands, Aster Farms, and Fleur Marché.
Venture capital; founded 2015
Assets under management: $55 million
Recent activity: participated in $19-million Vangst Series B round
Phyto Partners provides debt and equity capital to private companies in the United States. The firm has deployed funds into thirty distinct portfolio companies since June 2015. “We saw a tremendous opportunity to capitalize on an industry that was missing all the foundational businesses like staffing, business-to-business marketplaces, and payment processing,” said analyst Evan Schnurmacher. “We also hoped the laws would eventually change, affecting positive social justice reform and providing cannabis as a medicine for millions of suffering people.” Today, Phyto’s investments spread across the industry and include heavyweights like Fyllo, Front Range Biosciences, and Mattio Communications.
Venture capital; founded 2017
Assets under management: $370 million
Recent activity: closed $150-million deal with ScottsMiracle-Gro
Investment and acquisition firm RIV Capital aims to build sustainable businesses through strategic relationships, drawing on its background in startups in the high-stakes tech industry. Although born in Canada, RIV now operates exclusively in the U.S. “No one knows what the future holds for this industry or what it will look like in twenty years,” said President and CEO Narbé Alexandrian. “That’s what makes it exciting, because the industry is still open for anyone to disrupt.” The firm acquired New York boutique dispensary Etain in March; High Beauty is among its portfolio holdings.
Pelorus Equity Group
Private equity; founded 2010
Assets under management: $264 million
Recent activity: $77.3-million debt financing for Harborside/Urbn Leaf/Loudpack combination
Pelorus Equity Group has been a specialist lender in the cannabis industry since 2016. Named after a navigational tool that helps ships maintain their course at sea, in 2018 the firm was among the first to launch a dedicated asset-backed lending vehicle for cannabis businesses, the first in the industry to receive an Egan-Jones investment rating, and the first to acquire an unsecured institutional bond. “Today, out of the $50 billion of commercial real estate for cannabis use, about $2.5 billion to $3 billion has been lent out so far, and we did 10 percent of that,” said cofounder and President Rob Sechrist. “That totals to about 3 million square feet and could make up as much as 10 percent of the entire country’s production.” Royal Emerald Pharmaceuticals and Growpacker properties are among the firm’s holdings.
Private equity; founded 2018
Assets under management: $240 million
Recent activity: preparing to launch third $100-million fund
Koach Capital is a U.S.-based real estate private equity firm. Founding partners Sandy Kronenberg and Rob Feldman are serial entrepreneurs with backgrounds in tech startups who turned their attention to cannabis after deciding the industry was growing too quickly not to get involved. The firm targets an internal rate of return of 17 to 25 percent and a 10.5-percent preferred return. “We’re very boutique, and we say no to a lot of people,” Feldman said. “Cannabis is a very tough market to be in, but we always do what we say and say what we do. We’re good to our partners, and we’re here to help grow together.” The firm focuses on limited-licensure states; its funds own properties in Florida, Illinois, Michigan, and Virginia.
The Arcview Group
Angel group; founded 2009
Assets under management: $10 million
Recent activity: $100,000 investment in Abstrax Tech
Founders Troy Dayton and Steve DeAngelo were longtime industry advocates when they conceived The Arcview Group, realizing supporting the evolution of the industry had to begin with economic growth. Today, the growing Arcview ecosystem operates four subsidiaries: Arcview Capital, Arcview Ventures (investing in seed- and early-stage companies), Arcview Management Consulting, and Arcview Events and Experiences. “Our approach is very well-rounded,” said CEO Jeff Finkle. “We have sister companies that perform research and due diligence, we help businesses raise capital as they grow, and we allow companies to promote themselves to the buying public through our thought-leadership events.” The group’s portfolio includes NorCal Cannabis Company, mood33, and Garden Society.
Viridian Capital Advisors
Investment bank; founded 2014
Assets under management: closed more than $250 million in financing
Recent activity: brought debt financing to one of California’s leading brands
Licensed by the Financial Industry Regulatory Authority, Viridian Capital Advisors connects companies to capital, debt, or equity investors or helps set them up for acquisition. Viridian’s Cannabis Deal Tracker has analyzed and reported on the latest deals every week since January 2015. “We bring all of the analytics,” founder and President Scott Greiper said. “It gives us tremendous knowledge on how to advise companies, investors, and acquirers, because we have the hard data of everything that’s occurred since 2015 regarding deal terms, structures, and valuations.” Viridian has served as the exclusive banker and/or provided funds for deals involving THC Design, NorCal Cannabis Company, and Texas Original Compassionate Cultivation.
Venture capital; founded 2014
Assets under management: $400 million
Recent activity: pending merger between SPAC subsidiary and springbig
Tuatara Capital aims to help operators adapt and prosper in a transformative industry. “We’ve had a pretty clear and singular focus from the onset: to provide a pathway for sophisticated investors to be able to deploy capital to legal cannabis,” said cofounder and Chief Investment Officer Al Foreman. The firm’s approach is hands-on: Advisors meet regularly with portfolio companies to assist them with strategic objectives and create a clear entry point into the industry. “From our institutional knowledge to our approach of building a firm focused on this emerging market, we’re well-positioned for the next phase of cannabis evolution,” Foreman said. Tuatara’s portfolios contain Slang Worldwide, Enlighten, The Parent Company, and Kiva, among others.
Private equity; founded 2013
Assets under management: undisclosed
Recent activity: funded Agricor/Botanacor/SC Labs combination
Tress Capital arose from a collaboration between a longtime cannabis advocate and a Wall Street expert. President and two-time cancer survivor David Hess began advocating for cannabis in 1995 after cannabis changed his life as he went through chemotherapy. “David brought the industry expertise and contacts, and I brought Wall Street,” said Tress cofounder and CEO Asher Troppe. “As a firm, we’re really about doing good while doing [financially] well. We have heart behind everything we do, and our deep knowledge of both plant science and investing allows us to succeed.” Tress’s portfolio contains a diverse collection of companies including Headset, Cannabis Now, and Omura.