Exclusive Interview with Altitude Investment Management Companion Roderick Stephan
Altitude Investment Management’s 1st cannabis fund involves a diverse collection of organizations across several verticals. Now, the enterprise is raising capital for its second fund and exploring possibilities in Europe by means of the acquisition car Altitude Investment Management PLC. Companion Roderick Stephan spoke with New Cannabis Ventures about the firm’s investment method and what he sees for the future of cannabis investment. The audio of the complete conversation is offered at the finish of this written summary.
Stephan and his partners have been institutional fund managers for decades. Stephan, a CFA by coaching, has a background in distressed investments. He saw the cannabis company as an chance to comprehend a complicated regulatory atmosphere and apply his capital management capabilities.
Altitude’s other 3 partners are John Brecker, Michael Goldberg, and Jon Trauben. Brecker is an lawyer with in depth expertise in negotiations and documentation about private placements and distressed investments. Goldberg began his personal fund ahead of joining Altitude and brings his expertise in investment banking to the table. Trauben has a background in actual estate. Every partner’s niche comes with each other to make a robust leadership group.
Stephan and his partners had person investments that had been rolled into the firm’s 1st fund. Initially, Altitude focused on organizations that did not touch the plant, but as the group gained a deeper understanding of the regulatory atmosphere and the evolving market place, the fund started to involve plant-touching organizations as effectively. Currently, the firm’s portfolio touches practically the complete provide chain, such as cultivation, extraction, processing, manufacturing, distribution, and retail.
Some of the essential organizations in Altitude’s portfolio involve Canndescent (a major California flower provider), Grassroots (a single of the biggest U.S. MSOs), and BDS Analytics (a information aggregator and evaluation enterprise). Altitude also has organizations focused on cultivation and genetics, such as Segra in Canada and Front Variety Biosciences in Colorado.
Synergistic possibilities are a single of the elements regarded for the duration of the investment vetting approach. The partners take into consideration how organizations in their portfolio could perform with each other. For instance, a enterprise that does distribution and advertising and marketing could aid a enterprise that manufactures a item (such as the portfolio enterprise Sunderstorm, which tends to make a well-known gummy). Similarly, Segra or Front Variety Biosciences could be valuable for organizations that require genetic storage, genetic creation, and clone production.
Altitude has had some modest exits therefore far. Grassroots, a single of the firm’s bigger investments, has a pending acquisition by Curaleaf. In several circumstances, the firm’s equity is tied up for months, and the ultimate sale of these securities will be a function of market place chance, according to Stephan.
Altitude’s 1st fund, closed at $30 million, largely involves higher-net-worth men and women and person loved ones offices. As the firm raises capital for its second fund, there will be a greater net worth hurdle. There is a lot of interest from higher-net-worth men and women, and other investors could involve institutional loved ones offices, multi-loved ones offices, sovereigns, and pension funds, according to Stephan.
Vetting Prospective Investments
Altitude fields 10 or even 20 investment possibilities every week, and it has a rigorous vetting approach. The firm appears for 10 to 12 essential traits, such as very good management, regardless of whether or not a enterprise is making income, and regardless of whether or not there is a clear exit. Following that, a possible chance goes by means of the 1st round of due diligence. The firm speaks with the company’s management group and digs deeper to weight the threat and reward for its possible investment. If a enterprise passes this phase, an in depth create-up goes to Altitude’s investment committee for overview.
If an chance moves forward, Stephan and his partners use their years of expertise in private placement to structure the transaction.
The cannabis business has been mostly equity-financed, but as the market place evolves there will probably be additional chance for debt financing, according to Stephan. Altitude’s preferred route is convertible notes, which assists to shield the firm in the early stages of a enterprise. When later stage organizations evolve toward equity, the firm seeks protection with mechanisms like debt limitation.
Altitude’s Second Fund
Altitude has produced second and third-round investments in several of the organizations integrated in its 1st fund. Now, the firm is targeting $150 million for its second fund. Winners are emerging in each the Canadian and U.S. markets, and as these organizations develop, their capital requires are bigger. Rather than smaller sized $1 to $three million investments, like these in the company’s 1st fund, organizations will require investments in the $five to $15 million variety, according to Stephan. Altitude is viewing this as a development fund, rather than an early-stage fund for startup organizations just starting to create income.
Possibilities in Europe
Earlier this year, the firm began a enterprise to take benefit of possibilities in Europe: Altitude Investment Management PLC. The enterprise is keen to discover the health-related market place (items distributed by means of pharmacies) and the CBD wellness market place.
Offered the Schedule I status of cannabis in the United States, European markets are far ahead of the U.S. in terms of health-related investigation. Stephan points out that practically all main universities in Europe have some sort of joint venture to discover health-related cannabis investigation, backed by each public and private funds. Germany is a single of the essential health-related markets in Europe, according to Stephan.
The enterprise has invested in EMMAC Life Sciences, which is developing a provide chain all through Europe. In the European CBD wellness space, the enterprise has invested in extraction enterprise KannaSwiss.
Stephan sees Europe as such a considerable chance due to the fact it will be roughly twice the size of the U.S. market place with the legalization of recreational cannabis.
Hunting at Market place Possibilities
When seeking at the worth in the different segments of the cannabis provide chain, Stephan sees cultivation (comparable to alcohol and tobacco industries) eventually becoming a commodity. Ideal now, he sees a lot of worth in the extraction and processing markets. Firms that are capable to make trademarked brands, patentable pharmaceuticals, and keep their client base will be the most profitable, according to Stephan.
“As fiduciaries for our investors, we know there has never ever been a management set of projections we do not like,” says Stephan. “It is exceptionally uncommon that a management group hits their projections.” When cannabis investors take into consideration what metrics to track for possible investments, money flow is important. Can a enterprise attain constructive money flow in a affordable quantity of time?
Stephan predicts that a quantity of organizations will struggle to attain EBITDA-constructive achievement in the subsequent year or two. Firms are underestimating the expense of attracting and retaining clients, and several will expertise a money crunch as a outcome, he says.
To discover additional, check out the Altitude Investment Management internet site. Listen to the complete interview: