Q&A with managing partner at Casa Verde Capital
Since closing its $45 million debut investment fund nearly a year ago, Casa Verde Capital has led a series of high-profile funding rounds for growing cannabis firms, luring co-investments from mainstream multibillion-dollar hedge funds and corporations.
Co-founded by rapper Snoop Dogg, the West Hollywood, California-based fund focuses on “scalable, sustainable businesses run by great management teams,” said managing partner and co-founder Karan Wadhera, a former trader at Goldman Sachs.
In October, the firm co-led a $50 million raise for seed-to-sale tracking firm Metrc along with Tiger Global Management, a hedge fund that boasts $23 billion in assets.
Earlier in the year, Casa Verde teamed with Tiger on a $17 million funding round for compliance software company Green Bits.
The fund also led an undisclosed investment with Big Tobacco’s Imperial Brands Ventures in British medical cannabis startup Oxford Cannabinoid Technologies.
Marijuana Business Magazine spoke with Wadhera to get his insight on the changing investment landscape in cannabis and top considerations investors entering the space should keep in mind.
What has been the fund’s guiding strategy?
We see a lot of opportunity in many different sectors, but recently we’ve been excited by potential with delivery and compliance-software businesses. The strategy has really been to look at everything in the ancillary space and find the businesses solving long-term, structural industry problems while being as prudent as we can as it relates to valuation.
What’s the makeup of your investor base?
Our investor base is primarily comprised of family offices and high-net-worth individuals. Additionally, as interest in the industry grows, we are seeing a number of traditional institutional investors reaching out to learn more. As they see institutional funds and (corporations) participating in our transactions—Tiger Global with Green Bits and Metrc, Imperial Brands with Oxford Cannabinoid Technologies—it certainly sparks a necessity to learn more.
Among your portfolio companies, can you offer some insight into what’s driving success at one or two of the firms?
Our companies have been successful because they occupy critical positions in the industry and have management teams that can seize on that opportunity. One portfolio company, Metrc, is the industry leader in track-and-trace technology for governments. As legalization drives demand at the government level, Metrc can feed off its prior experience with other states to offer government regulators a best-in-class compliance solution.
Vangst, a recruiting and staffing company for the cannabis industry, has seen tremendous growth through its Gigs platform, which solves the industry’s seasonal labor problem with an intuitive, scalable technology platform. This progress comes on the back of an established, traditional recruiting business, which provides access to a massive pool of candidates and companies.
Both of these companies sit in advantageous positions, with great teams and a string of successes that create a virtuous cycle for future growth.
What attracted you to these opportunities?
They had the features we look for in terms of a great team, sustainable market need and long-run scalability.
Some other recent examples include our investment in Dutchie, a platform allowing consumers to purchase cannabis products from dispensaries for pickup or delivery. The business model is akin to Grubhub in that Dutchie is an aggregator rather than a logistics provider. Its technology bridges buyers and sellers, creating a compelling value proposition. We also are big fans of Ross Lipson, the (Dutchie) CEO, who has demonstrated his ability to grow and scale businesses in the online food space previously.
What are some of your key investment criteria?
The first thing we look for is the team. Beyond just dedication and passion, we look for founders who are taking their expertise from other industries and bringing it into the cannabis space. We partner with people who were the best at whatever they did—inventory management, payments, online ordering—and are now going to leverage that expertise in the cannabis space.
We also look for businesses with staying power. There are a lot of ways to make a quick buck in the industry by solving immediate but temporary problems. That’s not the business we’re in. We look at companies that will still be serving a vital need for the industry in 10 years. Metrc is a great example of a portfolio company that we see occupying a foundational position in the industry over the long term.
We also look for businesses with scalable growth potential. This leads us to shy away from capital-intensive businesses like cultivation, but rather focus on technology platforms and similarly scalable business models.
How did you connect with Snoop, and which portfolio companies is he most involved in?
I’ve been involved in the entertainment industry since college, doing digital media consulting, so that has been a long-term relationship that has continued through my time in Asia and back to the States. These days, Snoop is probably most involved in our portfolio company Merry Jane, the digital media business that he helped found, which benefits from his expertise as a content creator.
What’s your top tip for best judging the credibility of valuations?
Working with early stage businesses, it’s often difficult to arrive at accurate valuations because forecasts can be so variable. Most businesses in cannabis have parallels in more traditional industries, so we look to those as a comparative proxy to help benchmark valuations. We also try to develop an internal thesis around what the true possibility for the business is and look to any historical performance to substantiate the company’s traction. This is another place where we invest in the management team; if we feel like we can trust the forecast based on the team’s experience, it makes the valuation exercise a lot easier.
What products or sector are you most excited about?
We still think there is a lot of work to be done on the compliance front. This industry will continue to be highly regulated and complex as more states and international jurisdictions come online. The ability to manage that through technology is still a space we feel deserves more investment. We also see consumer brands as being an interesting segment. As the industry and consumer expectations begin to mature, brands will take on a larger role, with category winners able to ride industrywide growth.
This interview has been edited for length and clarity.