New York-headquartered cannabis investor Acreage Holdings has raised $119 million in a Series E funding round it will use to prepare for a public listing in Canada scheduled for the third quarter.
Acreage is a vertically integrated producer that operates across 13 US states where medicinal or adult use of cannabis is legal. Its investments span cultivation, processing and dispensary operations.
Founded in 2014, it previously operated as High Street Capital Partners. In April, it added former Speaker of the House John Boehner and former Massachusetts Governor Bill Weld to its board.
Its portfolio includes edible cannabis product provider Dixie Brands; Kalyx Developments, a private REIT that leases commercial and industrial properties to cannabis operators; and various companies holding cultivation licences in 10 states. In conjunction with the fresh funding, Acreage also announced Monday it had aggregated previous minority positions into a single holding company, of which other investors in those companies now hold stakes.
Acreage president George Allen told Agri Investor that investors in the $119 million Series E round were mostly high-net-worth individuals, with limited participation by large family offices. While the firm did not speak directly to any pension funds about backing its cannabis investments, Allen said it did have discussions with institutions representing pensions.
“I firmly believe that we would have secured investments from those types of investors, but for the fact that ‘Joe Investor’, or the high-net-worth investor, was just much faster on the trigger than they were, and we’ve got lives to lead,” said Allen.
Despite the firm’s efforts to bring them in, he said, Acreage was also unable to secure commitments from private equity or venture investors.
“Not for lack of interest; we spent a lot of time with those groups of investors,” Allen explained. “Their timeline to get comfortable with the investment was simply slower than folks that have been touched by cannabis and who see the power of it.”
In speaking with multi-strategy private equity and hedge fund investors, Allen said, he found some remain concerned that association with the cannabis market, which is still only partly licit in the US, could complicate banking relationships elsewhere in their businesses.
Such concerns will be allayed in public markets, according to Allen, because those markets will allow for swift exits by any investor fearing such challenges.
“You will see more risk appetite that these types of investors are willing to take with liquid public securities,” he said.
Pain and pleasure
Commenting on Acreage’s plans to list on the Canadian Securities Exchange, Allen said Canadian institutions have been more attuned to cannabis opportunities thus far because of their three-year head start in watching the rapid growth of public companies in the market. Institutional investors in Canada do not tend to ask the same questions that those just entering the space do, according to Allen, who said they are often more interested to hear about the many structural differences in the Canadian and American cannabis markets.
He predicted that a relaxation of the barriers to going public in Canada will help feed a rush of cannabis companies looking to enter public markets, which will be left to identify the strongest among them. By listing a business still facing regulatory uncertainty, he acknowledged, Acreage is exposing itself to a new set of risks, though he said the firm had carefully considered the move.
“By being the largest public company in the cannabis space, which I believe we will be, you walk around with a bull’s-eye on your back,” Allen said. “All the pain and all the pleasure will come with that, but it’s a necessary step in us getting the right access to capital and connecting with investors that want to participate in the story.”