By John Schroyer
Jim Fitzpatrick is on a mission.
As a member of Kodiak Capital’s advisory board, he’s been tasked with doling out millions of dollars in funding to publicly traded companies in the marijuana industry over the next year.
“I want to be the go-to strategic institutional capital partner that funds publicly traded companies,” Fitzpatrick said. “Kodiak has given me $12 million over the next 12 months, and if I can get deploy that capital, I will certainly ask for more. We want to help cannabis companies win.”
Investors have become increasingly interested in the cannabis sector as of late, and Fitzpatrick chalks that up largely to progress on the regulatory front in several states. Regulation and government oversight, he said, gives investors more confidence to back otherwise risky-looking industries, and marijuana is no different.
California-based Kodiak has already pumped $20 million into publicly traded marijuana firms over the past four years, providing businesses with debt and equity financing. It also pairs up with institutional investors for larger transactions and prepares companies that are going public to eventually take on Kodiak’s capital.
Fitzpatrick took time to answer a few questions from Marijuana Business Daily about what he’s looking for in investment opportunities. Here are excerpts of that conversation, edited for length and clarity.
Why are you only looking to fund publicly traded companies?
It’s Kodiak’s charter and what they do as trademark investment. Public companies provide greater transparency and liquidity events.
Within the cannabis industry, all sectors are of interest. We’re sector agnostic. We’re looking for good, solid management teams with balance sheets that are not in distress.
What companies has Kodiak invested in so far?
We were early investors in MedBox. We were part of a $6.5 million deal in CannaVest. We are in Pazoo (a New Jersey-based testing lab and wellness company) and Signal Bay (a Nevada-based marijuana consulting and testing firm). As we speak, I have six active term sheets in cannabis, all different term structures.
How do you pick which to invest in?
We ask two primary questions: What are you trying to raise, and what is your use of funds?
So provided that we’ve checked the box on a good management team, we get excited about that team’s articulation and use of funds. We only rely on public information, so it’s not hard to get too excited about the future, because we won’t put hype into the valuation.
Any red flags that would curtail a company’s chances?
Distressed balance sheets are a concern. The knowledge that several (publicly traded cannabis companies) have failed, and predictions are many more will fail – that gets us a little nervous.
How large will the typical investment from Kodiak be going forward?
The range is $250,000 to $2 million. If the capital need is greater, Kodiak could play the role of lead investor, which would attract additional capital.
Do you have any specific candidates yet for some of that $12 million?
I do. I have five term sheets going out today.
Do you expect investment in the industry to keep expanding?
Yes. With greater regulatory certainty comes greater investor confidence.
California is the biggest market in the world. We’ve seen the state legislature introduce statewide regulations, and we fully expect November 2016 to go beyond medicinal into adult recreational.
And what I mean by greater regulatory certainty is that in some markets, touching the plant itself is a concern. When a state properly regulates, it reduces those investor concerns.
John Schroyer can be reached at [email protected]