The market
Direct legal cannabis sales totalled US$7bn in the US in 2016 and by 2020 will reach around $22bn, according to the latest industry data.
Currently 28 states have legalized the use of medical marijuana, while a further eight allow recreational use of the herbal drug.
In all, 43 states allow some degree of legal cannabis use meaning 93% of Americans live in a state that allows some degree of consumption.
The challenge
“You’ve got a strange anomaly in the US where cannabis is legal at the state level and illegal at the federal level,” Hadley Ford, chief executive of iAnthus Capital, told Proactive Investors in a recent interview.
The federal rules make it difficult for entrepreneurs to finance their operations.
“The Citibanks, Bank of Americas aren’t making any loans, and the Goldman Sachs and Morgan Stanleys of the world aren’t taking anyone public,” said Ford.
The opportunity
iAnthus raises capital in Canada, where cannabis is legal at both the federal and provincial level and puts the cash to work in the US.
With a board chocked full of business experience it also offers “advice and counsel” to cannabis growers and dispensers.
“This is the classic value-added capital model where we write a cheque, but we also bring ourselves to the table as well and help entrepreneurs grow their companies,” said iAnthus chief Ford.
The market is growing at a compound annual rate of 31% so the returns on investment – both financial and intellectual – promise to be significant.
The company is targeting an internal rate of return of over 40%.
Invested in four states
iAnthus, which so far has raised C$33.5mln to date, has put its money to work in Colorado, Vermont, New Mexico and Massachusetts. It is invested in six cultivation facilities, four processing operations and eight dispensaries.
It has a strong pipeline of further opportunities – assets with proven revenue and cash flow generation.
In all there are nine additional opportunities with revenue potential of anywhere between $8mln and $100mln.
The investment proposition
“You have a situation in the US where there is a US$50bn proven market which is shifting from the hands of the Mexican cartels to the hands of good hardworking entrepreneurs,” said Ford.
“This is being overseen by the states. So you really have a built-in demand curve in growth in the industry of plus-30%.
“If you are an investor there are very few markets where you can pretty much have guaranteed top-line growth of 30% for the foreseeable future.
“There are not many ways for the public invest to play that opportunity.
“Public companies are few and far between and we are the only ones that provide diversified opportunities across multiple operators in multiple states.”