How would you invest $100M?

By Alex Halperin
Jan 5, 2021

In recent months, special purpose acquisition companies, or SPACs, which function as “backwards IPOs,” have become the darlings of the cannabis world and the broader economy. However, a recent report that Casa Verde Capital, a SoCal investment fund co-founded by Snoop Dogg, has raised a $100M fund, underscores that traditional venture capital is alive and well in cannabis.

With U.S. pot stocks on a tear and legal REC coming to New Jersey, with more of the northeast likely to soon follow, WeedWeek asked two senior insiders how they would put $100M to work. Casa Verde did not respond to a request for comment. 

Joe Caltabiano, a co-founder of Illinois based multi-state operator (MSO) Cresco Labs, who’s currently evaluating opportunities, said he’d deploy the money in three focus areas: 

  • Operating companies with plans to go public. Of the options Caltabiano discussed, the most stable are established companies, typically MSOs, looking to raise a last round of capital before they test the public markets. Verano Holdings, which recently announced plans to go public at a $2.8B valuation would have been a prime example. Caltabiano said there are perhaps a dozen more companies that might fall into this category including MSOs Ascend Wellness Holdings and PharmaCann.
  • Distressed operating companies. These companies have valuable assets, such as underexploited licenses, but lack the management teams and/or capital to maximize their value. Caltabiano said they include companies with dormant or underexploited licenses in states like Florida, Massachusetts and Pennsylvania. Some of them have burdensome debt structures.
  • Brands that need capital to scale. This opportunity largely refers to California brands that have a strong feel for consumer tastes, “especially the mega consumer” and often solid distribution, but need capital if they’re going to expand into other states. “Those customers exist in every market” and some of those brands really resonate with that consumer, he said but they’re “Letting the world pass them by” by not going national. Casa Verde, he suggested which has credibility from Snoop Dogg, may be in a strong position to work with these brands.

Matthew Nordgren, founder and managing partner of Arcadian Capital, a cannabis investment firm which has invested in about 50 companies and is raising its own $100M fund, described an investment approach more focused on the ancillary market.

  • Hedge and diversify. Nordgren argued that with an abundance of strong companies in an industry that is still growing at a rapid pace, the challenge for investors is more about balancing a portfolio correctly than finding one or two companies to invest in.
  • “Nobody has won any category” In many cannabis sub-sectors, Nordgren said there are several companies that can make the case that they’ll be the ultimate winner. For example, among data firms, he believes the most promising players are BDSA and Headset, both of which “have an equal chance of being extremely successful.” Arcadian has invested in both.
  • Expect M&A Arcadian sees about 1,000 deals a year and many of the candidates are emphasizing both the potential for organic growth and M&A opportunities. This creates the opportunity to consider a company as both a standalone $10M deal or as part of a $30M-$40M deal.
  • Look out for “institutions” In the next six to 18 months, Nordgren anticipates more institutional players entering the industry, by which he means major mainstream companies and institutional funding sources, both of which largely remain on the sidelines. In the short to medium term, he said cannabis tech companies, for example, need to be thinking about whether it makes sense to compete with Silicon Valley or be acquired by its bigger players. And investors should pay attention.
  • It’s still early on the consumer side. Nordgren said a similar dynamic applies to multi-state operators in that one could make the case for several to become dominant players. However, he said that for consumer facing companies the picture is less clear for investors, since consumers don’t yet understand the experience brands are going to offer them, especially once more cannabinoids come into play. “It reminds you how someone like Steve Jobs felt back in the day,” Nordgren said, referring to when Jobs understood how to bring together existing technologies into a product like the iPhone.
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