Investment

Are family offices investing in the cannabis boom? Some

Last week’s successful initial public offering of a cannabis equipment manufacturer has piqued investor interest in the sector. Family offices are among them, but most are holding back given continuing concern over the sector’s long-term robustness.

Californian-based Hydrofarm Holdings Group, which makes hydroponics equipment for cannabis cultivation, saw its stock soar after its US listing last Thursday, raising around $170 million on debut. 

Investor enthusiasm towards Hydrofarm along with heavyweight institutional backing – Morgan Stanley and Stifel underwrote the listing – suggests the cannabis sector is becoming mainstream. That view is helped by widespread legalisation of cannabis happening across much of the West, led by Canada’s bold move to legalise cannabis for recreational and medical use in 2018. 

In the past, given the sector’s risk profile, the cannabis industry turned to alternative investment sources to fund its expansion; family offices were among those sources. Florida-based Broadband Capital Investments was one of them. Owned by Michael Rapoport, Broadband backed Hydrofarm in two rounds before exiting, according to Crunchbase

A sprinkling of other family/principal office investors have been drawn to the sector. Last month, Enexis, a Swedish investment group recently set up by David Bonnier, a member of the Swedish Bonnier publishing dynasty, seeded Alphagreen Group, a London-based maker and seller of cannabis health products. Enexis says its focus is on: “companies involved in plant-based medical, wellness and industrial applications, notably cannabis and hemp.” 

Early this year, Enexis also backed NOBL, a UK-based cannabis data, conferences and consulting startup. 

A high profile family office backer of the sector is Wrigley Management, owned by William “Beau” Wrigley Jr., a member of the Wrigley family, famous for their chewing gum brand. Wrigley Management signed a $65 million check for a cannabis-based therapeutic company, Surterra Wellness, two years ago.  

Other family/principal office backers of the sector include:

DNS Capital, the investment office of Gigi Pritzker and Michael Pucker, and Casa Verde Capital, backed by Snoop Dogg, invested early this year in Greenbits, a cannabis retail platform. 

Casa Verde Capital early this year also backed Dutchie,  a cannabis ordering platform. 

Tao Capital Partners, the investment group owned by Nicholas Pritzker, invested two years ago in PAX Labs, which designs, develops, and sells cannabis vaporization technologies and devices. 

Torian Capital, an Alabama-based investment office owned by David Kutche, has backed various cannabis businesses. 

Mercer Park, a family office owned by US derivatives trader Jonathan Sandelman, was behind the setting up of a SPAC (special purpose acquisition company) to target acquisition opportunities in cannabis and cannabis-linked industries.

But has the cannabis sector hit the mainstream family office investment world? Probably not. As one family office chief investment officer told Family Capital: “Cannabis is like Bitcoin – to be viewed as a momentum play at best. We think it should be treated with utmost caution and we aren’t currently investing in the sector.”

Like cryptocurrencies, perhaps the real money to be made in the cannabis world is on its infrastructure, in a so-called “picks and shovels play”.  Hydrofarm fits the bill, like all the exchanges built to trade cryptocurrencies. But whether the product itself can become a mainstream investment choice remains to be seen. 

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