For nearly two decades, Mitch Baruchowitz spent his time as a corporate attorney who helped growing companies stay compliant within the ever-changing regulatory landscape.
In the past decade, Baruchowitz leveraged that legal and financial acumen to help a host of cannabis firms launch and grow. A co-founder of licensed cultivation and dispensary firms in Colorado, Connecticut and Maryland, Baruchowitz is also managing partner at New York-based Merida Capital Partners, a private equity cannabis investment fund.
This year, the fund passed $50 million in assets under management, with many of its investments targeting ancillary cannabis firms focused on tech, data and product solutions, including:
- Kush Bottles, a supplier of cannabis packaging.
- New Frontier Data, a marijuana data-analytics firm.
- Simplifya, a tech platform that helps MJ businesses comply with industry regulations.
- Steep Hill Labs, a marijuana testing company.
Marijuana Business Magazine spoke with Baruchowitz to get his investing insights.
What’s the best cannabis investment you’ve made, and why?
All of them have made incredible strides since our investment. One of our investments has grown from $4 million to a projected $37 million this year. Another will do more than $50 million in revenue in 2018. Most have posted 100% revenue gains for two or three straight years and turned profitable.
More broadly speaking, the best investment Merida has made is in our team, which now sits at nine full-time employees. We built as strong and professional a team as early in our existence as possible, so we could dig deeper on diligence, support our portfolio in the engaged manner that is our trademark and give them all the governance and corporate resources their opportunities deserve.
What attracted you to these companies/opportunities?
They all have core aspects that we look for in our opportunities:
- Large addressable verticals.
- Professional management.
- A broad sense of how they should align themselves with partners.
- Corporate behavior that shows an understanding of governance and transparency.
- A passion and vision for the pursuit of their entrepreneurial goals.
What’s your biggest investment mistake and how did you overcome it?
I think any professional investor in the cannabis industry would say that mitigating risk and avoiding big mistakes are a key component of a successful investor. There was one specific instance where we overestimated the sophistication of an executive team and ended up having to work tirelessly with them for weeks to extricate them from a complicated and clumsy transaction that was a major distraction. Ultimately, this served as a great teaching moment for our team and really showed the power of our collective experience as investors.
What’s your top tip for judging the credibility of valuations?
If I had one tip, it would be to find a range that adequately recognizes inherent risks and the high-probability results and then back strong management who have the right mindset to scale their operation, which will more than adequately compensate you for not getting the lowest price possible.
What products or sector are you most excited about?
We really like extraction-related precision equipment and services as companies spend to create formulations and branded products in the cannabis version of a space race. We also really like medical delivery methodologies and some of the solubility tech we have seen.
What’s one of your top investment goals in the next year?
We have spent the past year focused on the tidal wave of regulation that we envisioned coming as cannabis laws loosen, and the difficulty of applying that across jurisdictions. From the looks of California, Canada and other evolving markets, compliance and standards are going to be a major issue going forward. There is no industry in the United States or any G-7 country that allows you to put something in your body without a ton of regulation, and we feel fortunate that we found a strong group of companies that help serve the needs of operators on a variety of regulatory requirements.
We are still very focused on adding to the compliance/validation components of our portfolio and also targeting the health and wellness aspects of CBD, particularly with a few foreign investments we think are highly synergistic to our other global portfolio companies.
This interview has been edited for length and clarity.
– Lisa Bernard-Kuhn