Brandon David of Investing in Cannabis interviewed Matt Hawkins of Dallas-based Cresco Capital Partners, a private equity fund that focuses solely on the legalized cannabis space. Since 2014, the firm has deployed over $25 million, with its first fund closing out in March 2017 and capital raising currently in progress for a second, $50-million fund.
The fund gives high-net-worth individuals and family offices access to a diversified range of opportunities, including cultivation, retail and ancillary, targeting those that offer best-in-breed management teams and disruptive opportunities in large markets. Investments have included Ebbu, with its proprietary cannabinoid technologies, Harvest Cannabis Company, which owns two dispensaries in San Francisco, and Harborside, a Bay Area retailer and cultivator operated by FLRish. PROHBTD Media, a new investment for Cresco’s second fund, is a dominant player in the cannabis media space and an example of the growing number of ancillary opportunities as the industry matures.
Future investments will include software and branded products, said Hawkins. There will be less focus on indoor grow facilities as outdoor operations, with their lower production costs, will win out when cannabis becomes commoditized. Discussing the geography of cultivation, he acknowledged the lower labor costs in equatorial regions but countered that Northern California’s climate reduces cooling costs.
Hawkins observed that while cannabis is still a venture capital asset class due to the regulatory risk, the space offers private equity investors access to cash-flow-generating companies and, in many cases, a public market exit point. The eventual entrance of institutional capital into the space will only help the industry, but for now, private capital still has an edge—although there will never be enough to take advantage of all the opportunities.
To hear the whole conversation, be sure to listen to the podcast:
