Chris Leavy, a former BlackRock managing director, told Agri Investor that his previous career experience identifying “undervalued assets in inefficient markets” was motivation for having recently joined MedMen as co-chairman and partner. In fact, the 46-year-old said it pulled him out of retirement.
“The cannabis market is so inefficient and there are so few buyers that you can barely call it an asset class,” he said. “As a result the values are tremendous.”
Leavy in part told a familiar story, one of a burgeoning sector that will grow rapidly and has barely been scratched by institutional money, with significant upside in addition to regulatory challenges and obstacles. Pent-up demand for cannabis is great, he said, “and we’re beginning to hear from large pools of institutional capital as these groups do some tire kicking.”
Through MedMen Capital’s $60 million MedMen Opportunity Fund I, which originally targeted $100 million, the firm has completed $92.3 million in investments across “a variety of liquidity spectrums” in the US and Canada, including the acquisition of Bloomfield Industries, a stake in a cultivation and production facility outside Reno, Nevada, and various positions in California-based retail operations.
Returns are lofty, with targeted IRRs of 30 percent-plus, Leavy said, but risks associated with crops and retail merchandising must be properly managed too. State-by-state laws are on one hand prohibitive, but on the other open up opportunity for MedMen — which has grown from 15 people in early 2015 to more than 100 today — to scoop assets from smaller players who may not have the sufficient legal and compliance expertise, he added.
The California market, one of a recent slew of US states to recently pass laws approving recreational use of marijuana, is a key to the firm’s strategy, particularly as the state drafts regulations which will take effect in 2018 and require individual municipalities to draw their own local regulations.
“For example in Los Angeles, the largest regional market in the country worth close to $1 billion by some estimates, there are an estimated 1,000 dispensaries, of which only about 135 are legally permitted operators,” a MedMen spokesperson explained in an email. “The city is expected to shutter the non-permitted dispensaries and properly license the 135 by 2018. The regulatory shakeup creates opportunities for licensed operators to greatly expand their market share.”
Opportunity Fund I closed early due to an earlier-than-anticipated liquidity event — the IPO of its Canadian portfolio company MedReleaf in Canada — which made it problematic to take in new investors, he added.
Leavy brings more than two decades of experience in asset management, including senior roles at Morgan Stanley, OppenheimerFunds and BlackRock. As a managing director of BlackRock he oversaw $115 billion of fundamental equities and was a member of the firm’s Global Operating Committee. He retired from the firm in 2013 for undisclosed reasons.