The cannabis industry has become a massive green rush in newly legalized business opportunities. It has attracted all kinds of operators and investors. This includes everyone from bankers and lawyers to Original Growers and traditional market operators trying to trap their way into a legitimate business. One of the most prominent investors in the cannabis space is a pharmacist turned hedge fund manager.
The high growth nature of a newly legalized business combined with the medicinal benefits of cannabis has also attracted significant investments from the traditional pharmaceutical industry. This includes Big Pharma companies looking to develop therapeutics derived from THC and CBD for new products and protect their existing revenue streams. Sleep aids and pain management products are both likely to face decreases in demand in the long term due to available cannabis products.
There are multiple industries currently worried their businesses will shrink as cannabis becomes legally accessible for adults 21+. Two industries with the most to lose are businesses in the alcohol and pharmaceutical space. It is no secret that both industries have invested significant resources to combat this problem through investment. Big names in the spirits industry like Constellation brands have invested in large Canadian Licensed Producers (LPs). Big Pharma companies have also focused on cannabis, including one very important pharmaceutical turned cannabis investor.
Who Is Jason Wild?
Jason Wild is one of the most significant financers in the legal cannabis space. Wild has grown his pharmaceutical focused hedge fund business from a small five-figure fund into a billion-dollar cannabis-focused hedge fund. As of October 2019, the fund had more than 50% of its holdings in the cannabis industry. Jason Wild might be one of the most fascinating and significant investors in the cannabis industry.
In October 2019, Wild did a 30-minute interview with Narbe Alexandrian, CEO of Cannabis-focused Venture Capital firm Canopy Rivers, at their Cannabis Symposium. Wild gives a brief history of his investment career and experience in both the pharmaceutical and cannabis space. Jason Wild runs JW Asset Management, and he is a major shareholder in Canopy Growth as well as the Chairman and chief driver of strategy for TerrAscend.
Wild made his fortune investing in pharmaceutical stocks focusing on the specialty drug companies, which are much smaller drug manufacturers than big companies like Pfizer and Merck. After more than a decade of success, Wild purchased Arbor Pharmaceuticals in 2010 for $2.5 million. In the first year, Arbor completed three successful M&A transactions. Arbor used its ability to sell in all 50 states to generate over $127 million in sales with over $55 million in EBIDTA. Three years later Jason Wild sold 1/3rd of Arbor Pharmaceuticals to PE firm KKR at a valuation of $1.2 billion.
Wild Enters the Cannabis Industry
Around the time Arbor was sold for $1.2 billion, Wild was first introduced to the cannabis industry in 2014. JW Asset Management initially invested approximately $30 million in various Canadian cannabis firms and grew the investment to about $200 million in 2018. Wild decides to take a more aggressive approach to cannabis. Like Arbor Pharmaceuticals, Wild invests significantly in Canadian LP TerrAscend and takes a controlling stake.
In the Canopy Rivers interview from 2019, Wild goes into detail at 12:30, saying what he likes about TerrAscend specifically that the team believes in doing well by doing good. Wild elaborates to say that they are focused on patient care and product quality. Wild then says that this quality and care focused approach is not something that many other operators share. He equates the modern cannabis industry to the pharma industry from 150 years ago, saying that the focus must be on product quality and consistency. TerrAscend does not want to be the biggest firm in the space but rather the best firm.
TerrAscend: The North American Operator with International Reach
TerrAscend is one of the current Wall St darling cannabis stocks. The company operates in California, Nevada, Pennsylvania, and New Jersey and recently acquired HMS from Curaleaf in Maryland. The firm has built its US-based business through M&A transactions, similar to the Arbor Pharmaceuticals strategy.
Over two years, the company has acquired The Apothecarium, initially based in San Francisco. The purchase of California and Nevada brand State Flower. Pennsylvania based Ilera Health, and out of 146 applications, TerrAscend New Jersey was awarded one of the state's six vertically integrated licenses in 2018. This NJ license is particularly important to the firm because it comes with three north jersey regional dispensary licenses.
TerrAscend hired Jason Ackerman, former CEO of FreshDirect, as the CEO in November 2019. The company has progressed swiftly by growing both cultivation and retail footprints in California and Pennsylvania. In California, State Flower expanded its facility from 5,000 square feet to 20,000 square feet resulting in a 500% increase in total output. In Pennsylvania, Ilera Health expanded its cultivation by 25% as the medical market expanded rapidly. In New Jersey, TerrAscend is opening its first retail location with two more planned to open in Q1 and Q2 of 2021, both located in Northern New Jersey, likely near New York City and in the middle of the New York suburbs. These two stores in North Jersey near the wealthy New York suburbs are critical to the short-term growth of the brand.
Overall, TerrAscend is well-positioned for the future of legal cannabis, and they are well-capitalized for future transactions. Besides substantial financial support from leading investors like Jason Wild, TerrAscend is already generating a profit even as they finish their cultivation expansions. In Q3 2020 ending September 30th, TerrAscend generated $51.0 million, 8% sequential and 90% year over year growth. Adjusted EBITDA of $17.8 million, an increase of 56% sequentially. Adjusted EBITDA margin grew from 14% in Q1 to 24% in Q2 all the way to 35% in Q3 demonstrating exceptional ability to scale operations. For those confused by this financial data, this means that TerrAscend can generate profits. They are able to reinvest in their business and enter new states while other firms are still struggling to survive in competitive markets.
The Realities of Big-Money Investors
The strong growth at TerrAscend will likely continue as the company launches its New Jersey business and expands its footprint into Maryland. There is no doubt the experience in the heavily regulated pharma space combined with significant resources of a billion-dollar hedge fund makes a very competitive operator. If you add that the company can go out and win the North NJ license, you have a serious player with limitless potential. This company is one of many with direct or indirect ties to big pharma. If they have a competitive product and strong customer experience, there is very little to stop them. Companies like TerrAscend are built to outperform and outlast small operators.
What makes these companies so dangerous to smaller cultivators is their ability to enter new markets quickly through robust license applications and access to capital. M&A is their chief weapon in the fight to deliver their brands at scale. The company is generating free cash flow meaning the company is profitable. This company is built with a strong balance sheet and a strong management team.
Investors and Banking
The two largest investors in TerrAscend are JW Asset Management and Canopy Growth; this gives them a distinct advantage in M&A, financing, and deal introduction. According to the 2020 Investor Day presentation from August 2020, JW Asset Management has participated in all of its financing efforts investing over $115 million in TerrAscend.
Companies like TerrAscend are only becoming more common in the cannabis industry. Access to capital is very limited due to banking restrictions. These restrictions on traditional lenders make it impossible for a high-quality grower from the traditional market to get a bank loan and start a company in the legal industry. The inability to get a necessary loan for a company at any point in the cannabis supply chain is extremely limited to friends and family. The high-risk nature of the industry makes borrowing near impossible for all but the wealthiest families in America.
Big money is moving into the industry at a much higher rate than previously seen. Well-financed Multi-State Operators (MSO’s) collect states left and right, as seen by the recent Maryland acquisition. There will always be significant companies in the cannabis industry. Big money will try and invest in the legal cannabis industry in every state until it becomes a mature market. As more states expand their medical or rec programs and add additional licenses, operators will likely find these companies as enemies or possibly allies.
Big investors are not going away; in the legal market, sophisticated operators are far more powerful and dangerous than the plug. Significant investments from outside influences is a real threat to first-mover cannabis operators across the country. You can either fight the coming wave of wealth flooding the industry or figure out how to adapt, grow, and capitalize on the future of legal and regulated cannabis. Working with or investing in these kinds of companies is just another way to hedge your bets on the cannabis industry.
“About: Canopy Rivers - Cannabis Venture Capital Firm.” Canopy Rivers, 2020, www.canopyrivers.com/about.
Arbor Pharmaceuticals, 10 Sept. 2020, arborpharma.com/.
Co., TerrAscend. “Jason Wild at the Canopy Rivers Cannabis Symposium.” YouTube, YouTube, 5 Oct. 2019, www.youtube.com/watch?v=mhwi8M6S_UU.
“The Odyssey.” KKR, 2020, www.kkr.com/.
“TerrAscend Announces Closing of Previously Announced Transactions with The Apothecarium in California.” TerrAscend Corp., 16 July 2019, www.terrascend.com/closing-of-previously-announced-transactions-with-the-apothecarium-in-california/.
“TerrAscend Commences Sales from Newly Expanded State Flower Cultivation Facility.” TerrAscend Corp., 6 Oct. 2020, www.terrascend.com/terrascend-commences-sales-from-newly-expanded-state-flower-cultivation-facility/.
“TerrAscend Completes Acquisition of Ilera Healthcare.” TerrAscend Corp., 17 Sept. 2019, www.terrascend.com/completes-acquisition-ilera-healthcare/.
“TerrAscend Enters Into Agreements to Acquire State Flower, an Ultra-Premium California Cannabis Brand.” TerrAscend Corp., 28 Aug. 2019, www.terrascend.com/agreements-to-acquire-state-flower-premium-california-cannabis-brand/.
“TerrAscend Expands U.S. Footprint Via Acquisition of Maryland Based Grower Processor.” TerrAscend Corp., 6 Nov. 2020, www.terrascend.com/terrascend-expands-u-s-footprint-via-acquisition-of-maryland-based-grower-processor/.
“TerrAscend Names Jason Ackerman Executive Chairman and Provides Business Update.” TerrAscend Corp., 20 Nov. 2019, www.terrascend.com/jason-ackerman-executive-chairman-business-update/.
“TerrAscend To Host 2020 Investor Day.” TerrAscend Corp., 17 July 2020, www.terrascend.com/terrascend-to-host-2020-investor-day/.
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