Interview with Matt Hawkins (Cresco Capital Partners)
On February 21st, Matt Hawkins of Cresco Capital Partners will speak at Kahner Global's Cannabis Private Investment Summit in Fort Lauderdale, FL. This event gathers industry leaders and investors for a day of collaboration and networking.
As he prepares for the Summit, Hawkins shares some insight into the strong position of the U.S. market, the power of industry experience, and some plans for the years ahead.
This interview has been edited for length and clarity.
How did you come to enter into the cannabis industry?
In 2015, I was lending money to warehouse owners in Denver, CO who were looking to refinance their existing mortgages to provide tenant improvement dollars to their tenants who were growers. While I was enjoying the yield aspect of the real estate debt investment, I realized that I had a first mover advantage on investing in the equity of the operating companies themselves. Fast-forward to March of 2017, which is when we closed the first fund, and we have made 14 cannabis-related investments out of the fund.
From that experience, what advice would you share with new investors?
In my opinion, the key to this industry, because there is a lot of noise, is to use a shotgun approach versus a rifle approach, and utilize a fund manager as your entre into the industry. Anytime you have a nascent industry such as this one, it’s always good to work with somebody that has been in the industry for a while. Investing in the space since 2015 makes me a bit of an industry veteran.
Find a fund manager that has done this, has the expertise, and has the track record to place the rights bets and give you a diversified portfolio. That’s precisely what our second fund is designed to do.
In your first fund, you had a diverse range of products, including interesting retail brands. As the industry continues to develop, what do you look for in terms of retail?
In my second fund, I’ll probably be more focused on branding opportunities primarily because the markets have grown so much. With the advent of the legalization of recreational marijuana in California, legitimate brands can be built in that market alone.
The brands need to have scale prior to federal legalization because then it becomes a buy versus build strategy with the larger companies that are entering the space. If there’s not enough critical mass that exists for that brand, or frankly for any part of the supply chain, then it will be build over buy.
What has been your response to fears around stock dilution, particularly in relation to Canadian stocks?
I am not a buyer of public Canada cannabis stocks, however there is an abundance of liquidity that exists north of the border because of the regulatory landscape that exists in that country. As a result, there can be tremendous exit opportunities for funds and other companies that have made investments in the space because all these Canadian companies are currently looking for U.S. assets.
As long as those transactions are done with a combination of cash and some stock, they have to be looked at. What’s typically happening is the valuations that are being offered currently are well in excess of what our basis was at the beginning of the investment. If we can get all of our money back in cash and have upside stock, it’s worth looking at very seriously.
How do we frame U.S. investment, in the context of the global market?
Even with the legalized landscape as it exists in the United States, Australia, Canada and other countries, they are still reliant upon the U.S. in order to build and sustain their own business models. Canadian stocks are not skyrocketing because of Canadian assets; they’re skyrocketing because of the assets that are owned in the United States.