NEWLY-LAUNCHED legal medicinal cannabis fund Verdite Capital plans to make its first investments in the spring of 2021 – with team members having already considered over 500 deals in the sector.
It is close to securing $75m from a UK-based multi-family office and is looking to top that up to $100m for the first close – with plans to subsequently take it on up to $200m.
Verdite will fill the void left by traditional players in this investment space; the banks, institutional investors and the private equity firms that remain on the sidelines pending US Federal legalisation.
Verdite is a Guernsey-based offshoot of London-based Chrystal Capital Partners, which was co-founded by Kingsley Wilson 11 years ago and has, to date, helped investors deploy over $1.6bn in more than 100 deals across a variety of global sectors.
Q1 2021 For First Verdite Cheque?
Mr Wilson said: “We have a $75m cornerstone commitment and are now marketing to family offices and high-net-worths to secure another $25m to get to first close.
“We have a good list of really strong businesses we want to deploy into and once we have the money. We will look to complete final due diligence and the first cheques will be written before the end of quarter one next year.”
The institutions have sat on the sidelines with cannabis due to the lack of regulatory clarity but that is changing, says Mr Wilson.
He continued: “We are one of the very few large global cannabis focused funds. We are able to write large investment cheques – five, 10, 15, or 20m which again is something we think is currently missing in the sector.
“A lot of cannabis companies have been funded by friends and family, by small VCs or have gone to the public markets to access hedge fund money.
“But, in the middle there is this big void of growth funding – because the big PE firms institutions and banks have not come to the space – Verdite will plug this gap in the market; this lack of growth capital.
“We can deploy institutional-type capital into big tickets, into very strong businesses at low valuations because of this.”
US Election Boost To Cannabis
However, things are changing and Verdite expects that over the next two to three years we will see the institutional money arrive.
“Following the US Elections we have seen more states approve recreational and medical use and we may see some regulatory changes in relation to banking which is why we are seeing such strong rebounds in public market cannabis share prices.
“The opening up of the stock exchanges in North America and now London, as well as Europe and Asia, will also provide very viable exist routes for our companies.
“The growth profile of the legal cannabis market is phenomenal and with regulations changing all over the world this will re-assure the banks, private equity and institutions,” he said.
A Cannabis ‘Who’s Who’
Verdite is supported by a team of 11 sector experts, which includes Bruce Linton, the founder of Canopy Growth and Colin Stott, former R&D Director of GW Pharmaceuticals.
Mr Wilson described it as the ‘Who’s Who’ of the cannabis world allowing it tap into their expertise, deal flow access and counsel at the various stages of the investment process.
Its own team has been boosted with some private equity expertise in the shape of Penny McDermid and Edmund Motley, both with extensive experience in venture capital with large funds.
Verdite’s Investment Parameters
When considering potential investees Verdite works on set parameters as Mr Wilson explained: “When we look at businesses we first of all look at management teams, their experience, track record and then we will look at governance, within the business, to make sure it ticks the family office boxes.
“Then we want to look at the business model, understand the size of the market it is addressing, we want to look at the competitive environment of the market.
“There is a lot to go through in vetting and due diligence and if we run through these processes and everything stacks up we could write a small cheque to get company going and the continue to fund it.
“A lot of the investment we make will be follow on investments to the deals we have previously backed.”
Investing Across Value Chain
Verdite is looking to deploy half its capital in North America and 35% is earmarked for Europe with a focus across the value chain.
It is interested in genetics companies and those creating cannabinoid molecules be they ‘botanical, synthetic, or biosynthetic’.
Then there are the formulation companies developing consumer products for humans and animals, and then the brands and the retail distribution chain.
On the medical side it is interested in the development of consumption devices, private clinics and medical education platforms.
It is also keen on ancillary services; testing, financial services and insurance with the ancillary companies being low cap-ex, high-margin and capable of being rolled out quickly, on a global basis.
Cautious On CBD
But, it is still cautious on CBD with regulations in a state of flux, although it sees the UK’s move toward Novel Food compliance as a stabilising factor.
He continued: “Science will drive value in the sector. GW Pharmaceuticals led the way 20 years ago and now has $3.5m market cap.
“There are over 300 clinical trials underway across the globe and here in the UK we have a hotbed of pharma companies. There’s a nice ecosystem growing with lots of interesting models arising in the UK, and this will be replicated in every country that legalises.”
Verdite is currently in discussions with additional Family Offices and High Net Worth individuals on how, and why, they should embrace cannabis as viable alternative asset class.
New Phase Of Cannabis Investing
“We are helping them understand the growth that’s coming and the value that will be created, and why they should be in a fund such as Verdite,” he says.
We are now in the second phase of cannabis investing, says Mr Wilson.
“In the first one there was great euphoria, with lots of capital flowing-in and almost every business model being backed, irrespective of the management’s skills.
“However the Investment community soon recognised not all are great companies and values have been dragged down. At Verdite, we will cherry pick, with a focus on where we can create real value.
“Having looked at over 500 different investment opportunities we have a clear view as to where the real value gets created and our aim is to find those management teams, and companies in those sub sectors, and give them access to the capital they need to grow.”
Chrystal made its first cannabis investment four years ago and has now deployed over $210m into the sector on behalf of investors.