In 2017, sales of medical and recreational cannabis in the United States were nearly nine times higher than Oreo cookies and almost on par with Americans’ collective spending on Netflix subscriptions. Annual cannabis retail sales continue to grow year-over-year as new markets emerge and more states legalize medical and recreational marijuana. Sales in 2018 are projected to increase by roughly 50% from 2017, on pace to reach $8 billion-$10 billion by the end of the year, while sales in 2022 are projected to top $20 billion, representing more than a 200% increase from 2017.
With the total demand for marijuana in the United States, including the black market, reaching around $52.5 billion, it’s no wonder that investors plan to provide more than twice as much capital to cannabis businesses in 2018 than in all previous years combined. However, with the risks of investing in a cannabis company, many investors instead target ancillary weed businesses, making it possible to invest in a cannabis company without investing in the cultivation or distribution of cannabis itself. One such fund is Merida Capital Partners.
Having deployed $50M in capital to 17 cannabis-related companies in the last year and a half, Merida Capital Partners is one of the leading PE firms targeting the growth drivers underpinning the rampant development of the cannabis industry. Investing in later stage ancillary weed startups rather than seed rounds, Merida focuses on cannabis cultivation technologies, and products and services that seek to evolve cannabis as an agricultural or recreational consumer natural, a natural plant-based medicine, or a constituent in pharmaceutical development. The fund invests mainly in four verticals, being “medical cultivation, cultivation infrastructure, data and technology services, and pharmaceutical development,” which spans from laboratory testing services, data collection software to packaging — products/services driving value in the cannabis supply chain.
As the cannabis industry continues to grow, with nearly 30 states having added some degree of legality in the last decade, cultivation operations are similarly growing in size, discipline and complexity. As a result, the companies that Merida believes will drive real value are those innovating or enhancing operational efficiency and transparency, so cannabis organizations can remain competitive and sustainable. Merida’s successful investments is rooted in their philosophy of investing in stable revenue generating growth companies with well managed teams, who have “successfully crossed the fragmentation gap” of the cannabis industry, as they put it. In other words, the companies that Merida works with have demonstrated more than just proof of concept or high growth potential or running small scale business, but are positioned to capture a leading market share of the industry, implement Capex-light models, and already provide enterprise level services to cannabis cultivators. Merida’s mission is to accelerate the respective growth curves of these companies. “We look for products that have large potential markets,” Baruchowitz, the managing partner, says. “We don’t want a small brand or niche product that might not grow at the rate the market grows.”
Recently, Merida has focused on two key investment areas: 1) compliance validation and 2) data analytics; the prior, which critical to cannabis companies so they don’t risk losing their license to operate, and the latter, which will improve visibility into an increasingly mature and complex industry, helping industry leaders and cannabis operators make informed decisions.
Examples of companies include Simplifya, which makes software that works with individual cannabis cultivators seed-to-sale software to help them stay compliant with regulations through industry-leading self-audit and reporting tools. New Frontier Data is a data analytics and business intelligence company that provides comprehensive analyst reports and real-time data for operators to run their cannabis business.
Other notable companies that Merida has invested in include KushCo Holdings, a leading supplier of cannabis packaging and production logistics and GrowGeneration, an industry leader in commercial equipment sales in 12 different locations. Both of these companies have had significant increases in stock price from their launch since Merida has stepped in (KushCo increasing from $2/ share to $5.75/share as of Dec 2nd, and GrowGeneration from 2.30/share at launch day to their peak of $5.30/share in October 2018).
The Fund’s management team has extensive operational experience in cannabis-related companies and regulatory processes. Combining such operational experiences with successful private equity track records and decades of experience in the traditional industries of technology, real estate, structured finance and banking makes Merida management a perfect team to invest in the fast growing cannabis industry. Merida’s management team has over 95 years of combined experience making direct investments and helping to successfully drive value in operating companies. Their extensive cannabis experience lends them an informational edge in analysis of the many opportunities they see in the space. Team members have founded cannabis cultivation operations and won licenses in several of the most highly regulated states in the United States. Their investment experience and direct product knowledge help give Merida Capital Partners an edge in how we drive shareholder value.