Interest in who is investing in the marijuana industry is mounting rapidly, and not without a reason.
Over the first five weeks of 2018, the Viridian Cannabis Deal Tracker registered $1.23 billion in investments in the cannabis industry, Viridian Capital President Scott Greiper told Benzinga. This compares to $178 million for the first five weeks of 2017, implying a growth in investments of almost 600 percent. Even more interestingly, the amount of money that came into the industry in January alone is pretty close to that seen over the entirety of 2016, when investments totaled $1.29 billion.
Benzinga has been reporting on the largest deals in the cannabis industry, but the aggregate data provides a different and interesting perspective.
Over the first five weeks of the year:
- The cannabis industry saw 65 capital raises, more than double from last year;
- Nine of these raises surpassed $50 million;
- 87.6 percent of these raises were equity-backed, up from 70 percent last year;
- The average raise size was $19 million, compared to $5.9 million in the first five weeks of 2017;
- About 72 percent of the raises were conducted by publicly traded companies, down from 76 percent last year;
- Seventy-five percent of the total dollars raised went to public companies, up from 71 percent last year;
- Private companies still received more than $300 million, six times what they got in the first five weeks of last year; and
- Most of the investments went to cultivation and retail companies.
“Investments in cultivation and retail this year have been driven predominantly by the Canadian players,” Viridian Capital Advisors’ Vice President Harrison Phillips said.
Interest rates for debt-back raises are declining slowly but steadily.
“Historically, it was mid-to-high-teens; today we are seeing far lower interest rates, especially for companies with a long operational histories or strong balance sheets,” Phillips said. “We’ve seen some debt-back raises now done with interest rates in the mid-to-high-single digits. That shows material improvement in the comfort levels of the investors getting into the space.”
Largest Capital Raises
The largest, single capital raises for the first five weeks of 2018, as measured in dollars:
- Hydropothecary Corp HYYDF: $121.1 million
- MedReleaf Corp MEDFF: $107.6 million
- Privateer Holdings: $100.0 million
- Organigram Holdings Inc OGRMF: $93.4 million
- Aphria Inc APHQF: $91.9 million
As evidenced by these large capital raises and the figures shared above, the number of deals and size of each tranche has been on the rise.
“This has been happening pretty consistently from late 2016 through 2017,” Phillips said. “This reflects the necessity to scale cannabis businesses, to get some kind of advantage, and to explore strategic opportunities, both through acquisitions and international expansion.”
One raise that didn't make it to the top five for the first five weeks of 2018, but that's still quite noteworthy given the size and the fact that the company trades in the New York Stock Exchange, was that of Innovative Industrial Properties Inc IIPR, which recently completed an $83.7 million underwritten public offering.
Who Is Investing In Cannabis?
Just like the nature and size of investments, the types of investors getting into the cannabis industry is also evolving.
“We are seeing a steady maturation of the capital markets around the cannabis industry,” Phillips told Benzinga. “Early on, it was almost entirely high net worth individuals -- and maybe a few family offices -- investing in the cannabis space. Now, we are seeing more family offices getting involved, more high net worth individuals, more professional investors getting involved.”
Many of the people running large institutional investment funds are getting into the cannabis industry with their own money.
“They are not necessarily investing in behalf of the firms they work with. We also know several private equity and venture capital groups that are out of the cannabis space, but actively looking for ways to play. And there are other big financial groups that are highly interested,” Phillips added, pointing out that many of these investors are still figuring out the regulatory framework and different sectors and opportunities in the cannabis space.
Another interesting trend is the mounting interest among debt financing funds. Some of these firms are looking to get into cannabis through diverse asset-backed lending investments –- things like equipment leasing.
“Similar to how entrepreneurs get into the cannabis space and get involved in businesses that are similar to those they were working in, outside the cannabis space, we are seeing the same on the investment side,” Phillips said.
Photo Credit: Javier Hasse
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