Cresco Capital Partners closes cannabis fund on $60m

Cannabis-focused private equity firm Cresco Capital Partners has closed its second fund on $60 million and simultaneously announced plans to raise a third targeting $200 million.

Launched in April 2018 with a target of $50 million as the firm’s second vehicle, Cresco Capital Partners II has already been used to deploy $22 million across 15 companies, according to a June 6 statement. Its close brings New York-headquartered Cresco’s total capital raised to $85 million across two funds and a series of co-investments.

Founded in 2014, Cresco provides growth capital to cannabis cultivators and other businesses that “touch the plant,” as well as ancillary businesses, such as genetics, breeding, branding and distribution.

Exits from Cresco’s first fund have included vertically-integrated cannabis producer Acreage Holdings and Green Thumb Industries, a provider of cannabis-focused consumer packaged goods.

“No doubt about it, it would have been easier to raise capital initially if we said we didn’t touch the plant,” Cresco managing partner Codie Sanchez told Agri Investor. “That being said, I don’t think it is in any way, shape or form the best way to actually get returns. Most of the big exits in the space – almost all of them – have been plant-touching businesses. If you weren’t invested in multi-state operators or cultivators originally, you probably don’t have a very interesting return profile in your fund.”

The average commitment to Cresco’s Fund II was between $500,000 and $1 million, Sanchez said, with investor types including family offices and ultra-high-net worth individuals. Sanchez said LPs in Fund II included individual managers from large private equity and venture capital funds investing their own capital to learn about the cannabis industry.

“People are just getting more and more comfortable with cannabis and looking for people that have some type of real track record in the space,” she said. “We certainly have that and a team filled with a bunch of private equity, investment banking and asset management people in tandem with operators of cannabis companies.”

Sanchez declined to disclose return expectations for Fund II beyond saying Cresco would look for a 3-5x return on any of individual investment.

For the $200 million third fund, Cresco will focus on endowments, trusts and the same investor types it has targeted for its first two vehicles. It is unlikely that US public pensions would amend their sin clauses to invest in cannabis as some have suggested, Sanchez said, though there are Canadian pensions conducting due diligence and analysis on cannabis funds.

Cresco has not held discussions with agriculture-focused private equity firms, Sanchez said, but institutions interested to hear more about the cannabis market have included corporates, consumer packaged goods-focused firms and agriculture-focused family offices.

The firm is yet to invest in companies devoted purely to hemp or CBD, but Sanchez said it is a market Cresco is exploring, though it is marked by a number of important risks.

“You really have to be thoughtful about the price of cultivation continuing to decrease over the long term, right now that’s not the case in hemp, but long term we think it will be,” Sanchez said. “We’re very focused on what the FDA might do with regards to anyone who makes false claims with regard to something like CBD.”