Private Equity Eyes Cannabis Investments

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Pandemic and Cannabis Stock Declines Create Opportunity. 

As a result of the COVID-19 global pandemic, investors are uncertain how their portfolios will evolve as we move further into 2020.  With cannabis stocks having fallen in recent months, investors increasingly are looking to the cannabis industry as a potential source of dip-buying.  According to managing director of Entourage Effect Capital Codie Sanchez, “If you’re looking to invest, I’m not sure there’s a better time…we’re  working right now on three really large distressed deals that pre-Covid, and but for the cannabis pullback, we would not otherwise have been able to do.”  Sanchez believes that firms will look to set aside parts of their portfolios to distressed cannabis stocks.  Three potential targets for private equity are Aphria, Merida Merger I, and Innovative Industrial Properties.  

Aphria

Aphria is an attractive investment due to its $163.8 million working capital.  This means that it can acquire and pay back debt in a potential acquisition.  The company is also growing as it has recently bolstered revenue by 65 percent in the third quarter.  Its income per share has also risen by 167 percent in the third quarter of 2019.  

Merida Merger I 

Merida Merger I is attractive as it is now a target of a special purpose acquisition company.  This will be sponsored by Merida Capital Partners III — a cannabis-focused firm that has growing assets.  With $120 million already raised for the special purpose acquisition, Merida Merger aims to expand it with the cannabis industry.  

Innovative Industrial Properties

Innovative Industrial Properties is a real estate investment fund that owns industrial properties that lease to cannabis producers.  The company’s business model began when it went public and utilized its proceeds to buy properties in the United States.  With medical marijuana use becoming more accessible in a variety of states, the land prospects for this company continue to rise.  This can lead to a very profitable investment to private equity firms interested in dipping their portfolios into the medical-marijuana business. 

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