By Omar Sacirbey
Tuatara Capital recently made history when it raised $93 million to wager on marijuana-related businesses, a record sum for a cannabis investment firm.
Tuatara secured the money mainly from deep-pocketed individuals. But a company executive predicts big institutional investors will begin focusing on marijuana businesses in as soon as 12 months.
Al Foreman, Tuatara’s chief investment officer, expects that major investors like investment banks will start doing their “homework and focus on the industry from an investment standpoint” given the upcoming elections. This November could be a historic moment for the industry, as medical and recreational marijuana legalization measures are on the ballot in eight states.
For its part, Tuatara – a New York private equity firm – plans to invest the $93 million in about 10 to 15 companies over the next two to four years.
Marijuana Business Daily spoke with Foreman to learn more about the company’s plans, what the firm learned during the last several months of fundraising, and the investment climate for cannabis companies.
How will you invest the money?
Our goal is to position ourselves as a long-term partner with our portfolio companies. As a long-term partner, we’re going to need to provide capital across different stages of growth. We’re going to need to help these companies with their strategic planning, their supply-chain relationships, and the execution of their growth initiatives.
Making an investment and walking away is not a successful strategy. Our intention is to provide financing at the onset of a company, but to also grow with them as they expand to new markets or add new disciplines or new areas of focus that will require additional downstream capital. Part of the reason of having such a large pool of capital is that we can actually support our portfolio companies throughout their different phases of growth.
How did you develop this strategy?
We have a long-term outlook in terms of what we’re viewing in the industry and how we’d like to approach things. I think the people we’ve encountered along the way would point to this as a quality of Tuatara, that we really have an eye to long-term growth and development. We hope the way that we work with our companies underscores that belief.
From the time that you started raising capital to now, have you noticed a change in investor attitudes towards cannabis?
You can answer that question in two ways. On the investor side, there was definitely more market interest and a greater appreciation both for where the industry is today and where it’s going. A big part of that is educational. More investors have become educated about this space over the last six to nine months.
On the investment side, the quality of the teams and companies and business plans that we’ve seen over the last year has also stepped up.
We think we’re in a nice market position where there is considerable investor interest and there are high-quality teams and companies seeking financing, with new markets opening up. It provides for a very good climate.
What were the most common questions that investors asked? Was there resistance to overcome?
People who’ve focused on the industry from an investment standpoint have already developed a level of comfort with the cannabis industry. There was never much pushback around the subject matter because of several factors: the types of investors we were seeking out; their level of sophistication; the due diligence they put us through; the potential opportunity and the potential upside; and the likelihood of our being able to execute successfully on our plan.
Those are the same types of benchmarks and measures that any successful fund manager would have to meet. So the process wasn’t that much different than what you would see in any other asset class.
Did you consider approaching heavy hitters like JPMorgan?
This particular fundraise was not focused on the institutional channel. We still don’t have a critical mass of institutional investors that are really focused on the space. But we believe that over the next 12 to 36 months – with the coming elections and the continued evolution of the state markets – the institutional channel would start doing its homework and focus on the industry from an investment standpoint.
Will you wait and see how the election plays out before making any investments?
By no means are we pausing until after the election. It’s one of things we factor in as we assess risk and opportunity, company by company.
This interview has been edited for length and clarity.
Omar Sacirbey can be reached at email@example.com