By John Schroyer
New York-based equity firm Tuatara Capital, which launched last year and is looking to make investments in cannabis-related companies, recently completed a fundraising round of nearly $26 million, according to public documents filed with the Securities and Exchange Commission.
The move represents one of the largest private investment raises in industry history and highlights the growing interest of mainstream investors in the cannabis space. It comes on the heels of a $75 million round of funding that private equity firm Privateer Holdings wrapped up earlier this year.
According to the SEC filing, Tuatara Capital raised a total of $25.75 million from 51 separate investors. The firm used $400,000 of that as compensation for company executives.
Though no one at the firm could be reached for comment, rumors have been swirling in industry circles that the company is aiming to raise $100 million to invest in cannabis businesses.
That’s not an unrealistic goal, said two New York industry observers.
“For them to raise $25 million, that’s a no-brainer,” said Jerome Dewald, the president and CEO of JWD&A Holdings, an investment firm that is active in the cannabis industry. “For them to raise $100 million, absolutely doable. For them to raise $500 million, I’d bet my last investment dollar that they could do it.”
Matt Karnes, a former Wall Street equity analyst and managing partner at financial analysis firm GreenWave Advisors, predicted that Tuatara’s team would be able to reach $100 million “pretty easily.”
“It’s challenging for everybody in the industry, but if anybody’s going to do it, it’s going to be them,” Karnes said. “They’re really smart guys.”
According to Tuatara’s website, the company “explores investment opportunities throughout the legal cannabis industry supply chain from genetics to consumer consumption.” The four-man team plans to focus, at least initially, on research and testing, cultivation, processing, and the consumer/retail sides of marijuana.
Al Foreman, one of the partners at Tuatara, told The New York Times last year that the reason the fund was founded in the first place was to help develop the cannabis sector, which he called “a new frontier.”
“We’re talking about an industry with real assets and markets where there is existing demand,” Foreman told the Times.
The ripple effects of Tuatara’s fundraising could be significant. While $25 million isn’t a huge amount compared to the hundreds of millions raised in other industries, it shows that investors are more seriously considering cannabis as a worthwhile place to put their money.”
“I don’t think the issue is the $25 million. The issue is you’ve got mainstream investors getting involved in cannabis in New York,” Dewald said.
Alan Brochstein, the founder of 420 Investor, agreed.
“The industry really needs this at this point in time, where serious professional investors can get involved and help entrepreneurs,” Brochstein said. “The ability to finance this industry is essential.”
The funding – particularly if it hits the rumored levels – could encourage even more investors to support cannabis companies, Karnes said.
“It could be another feather in the cap for credibility for this industry. Maybe with these guys stepping in, it’ll further the capital flow sooner rather than later,” Karnes said. “You still have this overhang of, at the end of the day, it’s illegal at the federal level, and that’s creating a lot of hesitation. But at some point, the floodgates are going to open, and (Tuatara is) going to be well-positioned, because presumably they’re going to be picking the best ponies.”
Brochstein also said that all four of Tuatara’s principals – Foreman, Mark Zittman, Marc Riiska, and Rob Hunt – attended the Marijuana Business Conference and Expo in Las Vegas last November, likely to explore business possibilities and scout for potential investment opportunities.
He further said that it’s “exciting” that the fund’s areas of interest include so-called “marijuana-touching” companies, because plenty of investors shy away from dispensaries, recreational cannabis shops, cultivation companies and edibles producers given marijuana’s ongoing status as a federally illegal drug.
Dewald and Karnes predicted that Tuatara, once it begins deploying investment capital, will be focusing on where it can likely get the most bang for its buck. Dewald said Tuatara could put money behind cultivators and ancillary companies that support them, such as lighting businesses and hydroponics suppliers.
“All these growers are typically growing indoors. So they’re going to need air conditioning, you’re going to have huge energy needs, they’re going to need irrigation and lighting,” Dewald said. “Anybody who’s in any of those businesses would be in their sights.”
He also predicted that Tuatara will likely take a close look at companies that are working on building national brands, such as PharmaCann, Empire State Health Solutions and Columbia Care, all of which recently won MMJ licenses in New York and also have licenses or businesses in other states as well.
But cannabis entrepreneurs shouldn’t see this as a situation where the Tuatara team will simply be handing out checks to anyone with a company or an idea, said Karnes.
“Like every fund, they’ll do their due diligence, but in order to pass muster with these guys, you’re going to have to have a pretty exceptional business plan and opportunity,” Karnes said. “I think they’ll set the bar pretty high.”
John Schroyer can be reached at [email protected]
Becky Olson contributed to this report.