Wall Street Aims To Make Green From Legal Marijuana

Originally published on April 16, 2018 3:13 pm

There’s still legal uncertainty surrounding the marijuana business in the U.S. But that is not stopping Wall Street from dipping into the market, now that nine states and Washington, D.C., have legalized recreational use.

Green Table, a networking business, has been bringing together investors and marijuana entrepreneurs who are looking for funding.

Here & Now’s Peter O’Dowd speaks with Green Table partner Bill Marcusabout how he got into the pot business, which last year was worth $7 billion.

“We’re talking last year I believe it was close to $7 billion, and the growth rate is about 29 percent a year,” he says. “It’s one of the fastest growing industries in America.”

Interview Highlights

On what attracted him to the marijuana industry

“We are getting great traction. We only launched a year ago. We do it at beautiful locations or in states that are having critical opportunities like, for example, July recreational here in [Massachusetts]. That’s what attracted us here. We have institutional backgrounds in terms of capital markets. My partner Greg Schreiber and I have been working in capital markets our whole careers. … We’re Wall Street guys … and we noticed that there was an opportunity in the cannabis marketplace in terms of capital raising at the highest end, at the premium level, where people who have big checks to write — and we’re talking about private equity funds, ultra-high-net-worth individuals. They are mostly, some of them are trying to avoid the press, because they’re still — at the federal level [marijuana] is an illegal substance, but many of them are getting involved across state lines, within state and internationally.”

On marijuana becoming mainstream

“It is becoming mainstream, and in a lot of circles, especially in financial markets now, it’s a question of when, not if. And then that’s overwhelmingly reflected in the way Americans are being polled, and the dollars, the large dollars we are seeing. For example, in private equity, which is strictly related to cannabis, they started out with $5 and $10 million funds. We are now seeing $50 and $100 million funds just a year later coming to market. And that money is being doled out into larger and larger pieces, $5 and $10 million investments, regularly. The biggest client we took on for a capital raise last year was raising $120 million.”

On where that money is going

“It’s across the board, but mostly high-end and that means, for example, genomics. You know, one of the speakers we have from Oregon, they are the leading, one of the leading, companies that is taking the genomes of the different seeds, categorizing them — almost like a Library of Congress — to see which are the heartiest seeds, which ones show the most promise with Alzheimer’s and schizophrenia and testing. And so these are scientists. So you have biosciences, and we also have multi-state cultivation operations where they’re doing organic, where they’re putting their footprint across all of their plants, so there’s consistency, consistency in dosing. We have packaging companies that are going public, not just in Canada, but also in the United States, that are raising money just for branding and marketing because at the end of the day, this is becoming a consumer product just like your mainstream detergents and laundries and cereals. This is going to be something that’s going to become a mainstream consumer product in the next several years.”

On how the uncertainty around federal law is impacting investors

“I mean, we can tell you that the result is that they are [investing] and I think it’s because you know there’s always the risk-reward opportunity, right? So while there’s a gray area, while we were lucky that the Cole memo was just extended now till September and … while you’ve got these higher risks, the rewards are that the payoff on those risks is worthwhile.

“Some investors that are, let’s call it Wild West, very interested in all types of operations, touching the plant or not touching the plant. And that’s one of the categories, you know, ancillary businesses that don’t actually touch the plant. … Then you’re getting into the federal territory … growers, cultivators, dispensaries that are selling. Those are touching the plant. Those are riskier businesses from the standpoint that you’re talking the feds could come in, change rules, decide to prosecute, and so far they’ve been hands off for the most part. Then there’s the ancillary businesses. For example, the bottling or the labeling or the marketing. Those businesses are wishing a lot more appetite for it, because there’s no risk of the feds coming in. Now technically the way that I understand it — I’m not an expert, OK. We’re involved in the capital-raising business — but technically if the money that’s being used to pay for this touches the plant, there’s a trail there that could invite prosecution, but it has not happened yet.”

On why investors take the risk in such an inconsistently regulated industry

“Because the returns are there, and that doesn’t mean all of these operations are going to survive. You know, we are at the early stages still, obviously, in this industry where even the cultivators and the dispensaries that are making money hand over fist right now have huge tax bills that they’ve got to have collected. And then there’s price compression that is occurring with natural competition. This is particularly starting now, obviously Colorado and California. Between Colorado, California and Washington you have almost 56 percent of the North America business last year in those three states. And you’re starting to see that price competition, so you’re going to have weeding out. But there’s still a huge amount of money being made in this industry, and it’s evolving. And in some of those places you have state banking and you have credit unions. … But there is, some of our key investors are trying to find a solution to that and invest in that because it’s another opportunity. The banks that can eventually open up and take cannabis dollars are going to be very successful to have the natural flow.”

On lower than projected recreational pot revenue in California

“It’s not a concern to us because the investors that we work with are very sharp. They’re very shrewd. They don’t just throw money around. You know, these are very pedigreed individuals and institutions that know how to look at the risks like that, and they’re factoring in those price compressions and maybe lower-than-anticipated growth rates. So that’s one of the things that differentiates our company, is we work with very smart investors, and we put premium opportunities in front of them. So if we have a dinner with four companies presenting, we know that if we don’t put something in front of them of quality, we’ll lose their interest to get these investors who are flying in from all over the world. So they are very smart guys, and they know how to recognize those values and risks. They’ve been doing this for years. They’re not newbies.”

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