Cannabis fund pitches weed at New York’s Waldorf Astoria

It was high times at a high society hotel when a new cannabis-focused private equity fund took its fundraising pitch to a big agricultural conference at New York’s Waldorf Astoria.

The High Times Growth Fund aims to raise $200 million to $300 million to invest in the legal marijuana industry, which is projected to reach sales of $2.6 billion in the US this year. Twenty-two states allow medical use of the drug, and Colorado and Washington have legalised recreational sales.

"I don't see any way this isn't going to be, from a dollar value, one of the larger if not the largest crop out there," said Ben Zaitz, a longtime dairy farmer and agricultural investor who is a partner in the fund. By comparison, the USDA estimates US corn farmers will take home $49 billion this year.

Addressing a ballroom of investors at the Global AgInvesting conference amid presentations from Macquarie and Deloitte, Jordan Lewis, another partner, said: "Hopefully this is the beginning of a change in acceptance of cannabis in the agriculture industry and elsewhere."

Mr Lewis, founder of Silverpeak Apothecary in Aspen, Colorado, and Mr Zaitz have joined Michael Kennedy, general counsel of High Times, the New York magazine that has long advocated for legalisation, to tap into what Mr Lewis called "one of the most promising and least understood opportunities in agriculture and medicine in my generation".

The fund will invest in start-ups and existing businesses in three areas: growing and selling cannabis, plant genetics and propagation, and associated services.

The partners plan to use Silverpeak's vertically integrated retail and growing operation as a model in places such as Nevada, where medical marijuana recently became legal, as well as in other states that legalise recreational use in future.

“Our role is to get the cannabis industry to step up and meet the requirements of the recreational market,” said Mr Zaitz. “If this is the next agricultural sector, how do we create the supply chain that exists in rice or dairy to deliver a high-quality product in a renewable, sustainable manner with traceability?”

In addition to capturing a larger slice of a legal pot market that Arcview, a cannabis investor network, projects will reach $10 billion by 2017, the High Times partners are eyeing other opportunities. Genetic testing will be used to identify strains that compete with other drugs such as sleep aids, on which Americans spend $22 billion every year.

“That will persuade the rest of the doubting Thomases that this is a viable and valuable opportunity,” Mr Kennedy said.

The fund was conceived at High Times, where, Mr Kennedy says, following votes to legalise cannabis in Colorado and Washington in 2012, the phones began ringing with entrepreneurs looking for seed money for their businesses. The magazine is not an investor.

The budding industry has been plagued by a lack of capital because most banks are wary of doing business with anyone who handles a drug that is still illegal under federal law. That has left many state-sanctioned businesses, including Silverpeak, dealing in cash.

More than 80 per cent of cannabis related start-ups are self-funded by their founders, with just 3 per cent of funds coming from venture capital and 5 per cent from angel investors, according to Mr Lewis.

“Our natural lifespan without access to capital was getting constrained,” he said. “This will fill that vacuum and provide resources to ourselves and other entrepreneurs.”

The partners struck their deal over breakfast at the Four Seasons in Denver during the annual Cannabis Cup, an industry expo, on April 20th – a day marijuana aficionados celebrate as "4/20".

Their enthusiasm for cannabis is tempered with a dose of realism. Half of Colorado’s medical marijuana businesses have shuttered in the last five years, Mr Zaitz said – a statistic Mr Lewis also cited in his presentation to the conference.

“If we build a good business with a good management team then the market will reward us,” said Mr Zaitz, but he added: “To think this is some kind of a gold mine isn’t a good bet.”

Financial Times