Green Acre Capital Investment Thesis
A private investment fund will create the most value, by being best positioned to allocate capital to companies in the newly formed Canadian cannabis market and will:
• Capitalize on the difficulty for private companies in the space to attract investment currently
• Provide professional management experience and board oversight to entrepreneurs in this emerging industry, some of whom may lack the experience necessary to quickly scale a venture successfully
• Create earlier access to investment opportunities before they become public
• Make it easier to target industry segments that are difficult to invest in today including: cannabis importation, extraction, infused products
• Allows for a diversified investment strategy across multiple industry segments throughout the value chain, with the best chance to capitalize on successful ventures
With committed capital and focus Green Acre can closely follow regulations as they develop, and move quickly to invest in the most promising opportunities
The End of Prohibition
• Similar to the ending of the prohibition of alcohol, the government is planning to legalize and regulate a substance that is being commonly consumed. According to a June 2016 poll by Nanos, 70% of Canadians support this legislation.
• Will reduce government spending on enforcement, create tax revenue, and take money away from organized crime and gangs
• A UN report found Canadians have the highest cannabis consumption rates of any developed country (over 14%). A poll in November 2015 by forum research found 18% of Canadians have used cannabis in the last year, and another 17% (35% total) would if it became legal
• Current Canadian black market for cannabis estimated to be ~$10B, that is roughly half the size of the entire beer, wine and liquor market in Canada
• Since the market for cannabis already exists, investments in the space don’t come with the same market size uncertainties that are typical with emerging market VC investments
Canadian Legislation 1997 – the Ontario
Supreme Court rules that
MMPR- Marihuana for Medical Purposes Regulations
LP- Licensed Producer
ACMPR – Access to Cannabis for Medical Purposes Regulations
Current Medical Landscape
• There are currently 36 LPs in Canada, 25 of whom are licensed to sell medical cannabis
• 20 of these LPs have received a license to produce, and 17 have received a license to sell cannabis oils
• These LPs directly ship product to patients with a prescription from a doctor
• There are currently over 90,000 patients registered, which is growing by ~10% per month
• Based on Health Canada estimates, and states with older medical programs, expected to be ~500,000 patients and $2-3B in revenue by 2024
Current LP Valuations
• Currently publicly traded LPs offer the only easily accessible way for investors to get exposure to the space, and valuations have increased rapidly as a result
• 5 of these companies have combined raised over $250 million in additional funding in the public markets since late July 2016, and these LPs are up an average of 390% in the past year
Value Recognition
• The publicly traded producers in Canada have created over $2.7 Billion in equity value in under 2 years, investors understand the potential of the market but lack a proper investment vehicle to allocate capital
Expected Legalized Landscape
Retail could potentially be through government controlled liquor stores, pharmacies, direct to consumer or dispensaries, this will likely vary province to province
What it Could Look Like
• Two years into legalization, the state of Washington is on pace to achieve cannabis revenues of over $1B (pop. ~7 million)
• Represents average annual revenue per resident of over
$140
• During the second year of
legalization (2015), the state of Colorado achieved cannabis revenue of $996 million and is on pace to achieve over $1.2 billion in 2016
• Represents average annual revenue per resident of over
$220
Cannabis Industry Segmentation
significant portion of the retail market eventually, yet there has been no notable investment to date
Why Green Acre vs an LP? • LP margins have been strong in a direct to consumer medical market, but few LPs are able to grow at low enough costs per gram to be very profitable in a wholesale legalized market
• LP current costs per gram produced range from around $2 to over $3, while wholesale pricing in Washington state is now under $3
• Currently LPs are only able to profit from growing and selling dried cannabis, and extracting and selling cannabis oil
Why Green Acre vs an LP? Cont’d
• Green Acre is interested in pursuing investment opportunities in other sectors such as:
• Import and export opportunities with other countries that have legalized cannabis federally (some countries with an optimal climate and inexpensive labour can produce much cheaper)
• Value added processing through edibles and topicals, likely through licensing agreements
• Potential branding, retail, and distribution opportunities
• Laboratories with experience testing cannabis for LPs that will see a large increase in demand as the medical program grows, and legalization begins
• Industry specific software and automation opportunities
U.S. Based Funds
Several cannabis focused funds have launched in the U.S. recently:
• Privateer Holdings
• First large entrant in the space
• Closed a B round raise of $75M in 2015, which included Peter Thiel’s Founders Fund
• Current holdings include Leafly (cannabis information and strain review app), Tilray (a Canadian LP), and Marley Natural (a licensing deal to brand Bob Marley products)
• Tuatara Capital
• Closed a $93M raise in August
• Investments thus far in Willie’s Reserve (a licensing deal with Willie Nelson), and Teewinot Life Sciences Corp (a cannabis pharmaceuticals company)
• MedMen
• Said to be close to closing on a $100M raise
• Began as a firm consulting in the industry
• Seventh Point
• Plans to deploy $75M in the space in the next 36-42 months, with a focus on dispensary assets in Los Angeles
• Poseidon Asset Management
• Have placed an undisclosed amount of capital in the space, beginning in 2013, with investments across a broad range of industry sectors
With the exception of Privateer’s interest in Tilray, the U.S. based funds all seem to be focused on U.S. based opportunities, while with federal legalization on the horizon, Canadian based private opportunities are more compelling
Potential Early Investments
Already in various levels of diligence on a number of potential investment opportunities:
• A Toronto based company that is focused on building a recognized brand in the space with licensing deals already in place in several U.S. states and in Canada
• A Vancouver based company that has already built a strong name in the space and is very well positioned to capitalize on aggregating customers for LPs, collecting data from users, and rewarding customer loyalty
• A Colorado based, recurring revenue, point of sale () software company that is successfully rolling out a fully customized system for retailers that allows them to better manage their business and easily comply with the strict state reporting requirements
• The licensing of several already successful Washington and Colorado based edible products to roll-out in Canada when legislation permits
Fund Managers
Matt Shalhoub -
Managing Director Matt recently acted as an investor in and General Manager of ORCA, a VC backed clean technology business in the food waste disposal business. He helped to lead it from zero to over $4M in revenue and positive EBITDA. Prior to that, he was the Director of Operations and Business Development at National Home Services, where he oversaw an annual capital expenditure budget of $30M, and successfully led a $35M acquisition. He was an early investor in the Canadian cannabis sector through a July 2014 pre-IPO investment in Aphria (currently one of the largest LPs). He graduated early with honours from the University of Western Ontario, receiving an HBA from the Richard Ivey School of Business. He has invested and worked with the lead investor since late 2009.
Tyler Stuart–
Managing Director Tyler has 18 years of investment banking and capital markets experience. Approximately 10 years of that was spent on the institutional sales desk of a leading independent investment dealer with a focus on private equity clientele and financings. Additionally, he spent three years in the investment banking group of an energy boutique dealer and two years at a major Canadian bank in private client advisory. He graduated with honours from the University of Saskatchewan with a Bachelor of Commerce in Finance.
Fund Advisors
Shawn Dym –
Advisory Board Member Shawn is a managing director at York Plains Investment Corp. He has been active in the Canadian cannabis sector for several years, as an early stage investor in Aphria and as an advisor to CanvasRx, the largest medical cannabis patient outreach service in Canada (which was recently acquired). He has more than a decade of experience in the energy industry, including cofounding National Home Services (NHS) and serving as its chief operating officer from 2008 to
2011. During that time, NHS grew to more than $300 million in contracted revenue with more than 100,000 customers. He graduated from York University and holds an MBA from Harvard Business School.
Vic Neufeld –
Advisory Board Member Vic is the CEO and Chair of the Board of Aphria, one of the largest cannabis LPs in Canada. Vic brings 15 years of experience as a chartered accountant and partner with Ernst & Young, and 21 years as the CEO of Jamieson Laboratories. During his tenure with Jamieson, the company went from $20 million in annual sales to over $250 million. He holds a bachelor’s degree in Economics from Western University, an Honours degree in business and MBA from the University of Windsor.
Lorne Gertner–
Advisory Board Member Lorne is a serial entrepreneur with experience in start-ups, going public transactions, fashion, retail, architecture, real estate, finance, and cannabis. He is a co-founder and former chairman of PharmaCan Capital Corporation as well as a co-founder of Tokyo Smoke. He is the current chairman of HG2 Capital Corp., an investment, merchant bank in the cannabis sector. Lorne is currently also on the board of Hempco Food and Fiber Co, Emblem Corp., and the Design Exchange. He is a graduate of The John H. Daniels Faculty of Architecture, University of Toronto, and has completed the ICD.D designation at the Rotman School of Management.
Fund managers and advisors have collectively committed $6M to the fund
Early Industry Success
Matt and York Plains were both early investors in Aphria, a Leamington, Ontario based medical cannabis LP. The investment thesis at the time was that Aphria with a strong management team, and many years of commercial agricultural experience, would be successful in a medical cannabis marketplace, with upside from a potential legalized market. This thesis has since proven true, as Aphria has demonstrated their ability to be a low cost producer, and gain market share. Investments in these early stage rounds were at $0.60 and $1.10 per share, with warrants at $1.10 and $1.50, and the shares are currently trading over $5.00.
Shawn Dym (of York Plains) was involved in the 2014 founding of CanvasRx, which was created to be the conduit between patients requiring cannabis prescriptions, and LPs, and remained involved as an advisor. CanvasRx quickly grew into the largest medical cannabis patient outreach and counselling service (with 17 medical clinics in Ontario). CanvasRx was acquired in August of 2016, by Aurora Cannabis (a publicly traded LP), for total consideration of up to $37.5M (based on hitting certain milestones).
Fund Structure
| | |
| Industry Focus | Medical and recreational cannabis |
| Geographic Focus | Canada with consideration for import/export opportunities with countries with federal legalization |
Total Committed
Capital | Target $20-30M CDN |
| Investment Period | 5 years |
| Term | 10 years |
| Management Fee | 2% per year on committed capital, during investment period, 2% of deployed capital for duration of term |
| Success Fee | 20% of capital gains, net of fees with an 8% hurdle rate |
Contact Us
Matt Shalhoub Tyler Stuart
Managing Director Managing Director
mshalhoub@greenacrecapital.ca tstuart@greenacrecapital.ca
416-697-0342 403-830-1657