Hemp investments are a quiet departure from the volatility of Cannabis retail sales where price pressure crushed many public companies plying their trade in this new investment sector. Cannabis is a totally misunderstood asset class, and there are few who really have a handle on how to invest in the sector after a brutal sell-off in 2019.
It’s wise to pinpoint where larger pools of money flow as we head into the 2020 election cycle, as smart money must commit capital now and begin outlining their bets 6 months ahead. Hemp is a core bet in the Cannabis Sector as we exit Q1 2020 and is a building block to longer-term investments as the industry evolves and a federal mandate looms for 2021.
Bedrock Group is a London based Private Equity Fund that bought $5 million of Preferred stock which is convertible into Emerald Organic (EMOR), Common Stock at $1.60. This secured investment is a way to wager on the potential mandate coming and has all the components of a core investment and a subtle way to enter the Cannabis/Hemp Sector, which is palatable to private equity investors.
The days of needing to grow, extract and sell Cannabis flower or extract into the volatile retail sector are behind us when Private Equity firms begin to dabble. $5 million is a dabble for larger funds but it is more about the structure and safety of the investment that caught my eye. This is an indicator that money is moving to the sector in different ways which are the revealing footprints that a bottom is in, and the worst is over. This is what PE Funds must find, and they have a need to commit capital in chunks larger than this $5 million. This is a toe in the water and is a harbinger of investments coming into the beaten-down sector.
The P.E. Fund, The Bedrock Group is investing in potential growth in CBD Vitamins, specifically, the Pura Vida product who sell CBD Gummies, Oils and Extracts, and Topicals. The investment will pay off no matter the timeline for full legalization across the US in the form of a Federal Mandate, but if in fact, when this happens, the upside in the EMOR Preferred shares becomes a 10X investment. These are the type of bets/wagers private equity makes. They need 10 baggers to keep clients, and the investments need to be secured (like these preferred shares) in public markets. This is a logical bet and well thought out by a portfolio manager within the fund, and a typical investment in risk-driven growing markets.
Investing in Cannabis was a retail disaster for most investors in 2016 because they bought the top of the market and have endured (in some cases) a decline of 90% in public shares or indexes, it is also normal that Hedge Funds, or Private Equity come back and pick up the pieces and provide capital when the entire market looks broken. We look for the path (as portfolio managers ourselves and investors) in these broken markets and follow the money to see if the logic is sound, and the risk is balanced, with the potential reward. Money movement on behalf of fat cats is a sign that the points on the spectrum are changing as we exit Q1 2020 and prepare for the inevitable moves in the Hemp/Cannabis Sector investment cycle.
Stay tuned as we break down other CBD/Hemp investments that are still forming, and soon to be available in public markets in Canada, Mexico, and Germany.