Cannabis private-equity firm Merida Capital is raising a $250 million fund.
Managing partner Mitch Baruchowitz told Insider that he’s pursuing three key themes in Fund IV.
He said the company is looking “to capture the largest component of cannabis’ natural growth.”
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One of the most prolific investment firms in the cannabis industry is raising its fourth fund in five years, Insider has learned.
Merida Capital Holdings, led by Mitch Baruchowitz, is targeting $250 million for its Fund IV, according to a filing with US regulators. Merida may look to raise up to $350 million, Baruchowitz told Insider in an interview. Fund IV would be one of the largest private-equity funds targeting the cannabis industry to date.
Most traditional venture-capital and private-equity firms avoid investing in cannabis because THC is federally illegal in the US. That dynamic has given rise to firms such as Merida, which focus solely on the cannabis industry and draw investors that are comfortable betting on the drug. Similar to the companies they back, firms such as Merida have been able to scale up quickly as the industry has grown.
Merida’s backers include institutional investors, family offices, and high-net-worth people. Dan Lipton, Merida’s chief operating officer, said that around 30% of Merida’s investors have returned to invest in multiple funds.
Merida’s cannabis track record
Baruchowitz said he’s had more “indications of interest” from larger institutional investors who want exposure to cannabis than ever before.
“That’s really where the base is growing,” Baruchowitz said.
The fourth fund will build on Merida’s track record of investing in both publicly traded and startup cannabis companies, Baruchowitz said.
Merida’s first fund has already returned 200% to investors, Baruchowitz said, and he expects the fund to finish up 600%.
Other cannabis funds have performed well in recent years. J.W. Asset Management, a fund that invests primarily in public companies, returned 146% to investors in 2020. Navy Capital, another cannabis-focused hedge fund, returned 70% to investors in 2020. It’s not an entirely apples-to-apples comparison as J.W. Asset Management and Navy Capital only shared their public portfolio returns with Insider.
Merida invested in GrowGeneration, a Nasdaq-listed cannabis hydroponics company. GrowGen’s stock has gained 477% over the past year. Merida also invested in Dharma Pharmaceuticals, which it sold to cannabis producer Green Thumb Industries in May in an $80 million deal.
Merida’s third fund closed at $118 million, and the firm handles over $500 million in assets, coinvestments, and a Nasdaq-listed
, Lipton said.
Betting on medical cannabis and broader normalization
Merida’s fourth fund will focus on three themes, Baruchowitz said: medical cannabis, companies that address what the normalization of cannabis means for consumers, and supply-chain firms.
Medical cannabis has been largely overlooked as companies rush to conquer the recreational marijuana market, Baruchowitz said. He’s looking for companies that address the medicalization of cannabis, such as doctor education, medical data, and insurance reimbursement.
“There’s a whole world that’s going to be unlocked over the next couple of years, and Fund IV is going to be very aggressive in targeting what we think is going to be the fastest-growing vertical,” he said. “Even though there are medical users now, the truth is a lot of people are self-medicating, a lot of doctors aren’t participating, there’s no insurance reimbursement.”
Baruchowitz said Merida is also focused on the broader theme of the normalization of cannabis in the US and around the world.
That means backing companies that are producing branded products — such as pre-rolled joints, beverages, and edibles — that could help transition the industry from the illicit market to legal consumer products. Baruchowitz said he’s also looking to back adtech and data companies that help brands understand cannabis consumer behavior.
He’s also investing in supply-chain companies such as GrowGen that help producers grow cannabis consistently and at scale.
“It’s not always about finding the right company, it’s about finding the right vertical first because we think the right verticals have better margins of error,” he said. “And that’s how you get to these high returns.”
Editor’s note: This story has been updated to reflect the proper return profile for Merida Capital’s Fund I.
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