Hedge funds are but one of the many investment vehicles available to those with disposable incomes (and, in the case of the union pension funds that routinely sink most of their available cash into such funds, incomes that are not at all disposable). But, more so than private equity or other investments, hedge funds have become synonymous with “wealth in America” — and with good reason. Hedge funds are open only to the already-wealthy: Accredited investors (read: people with lots of money) and institutional investors (read: entities like university endowments with biblical floods of money).
Think of privilege, think of class — think of the walnut-walled rooms in exclusive clubs, think of long windows with expansive views of skylines — and you can think of a hedge fund.
For now, hedge funds have very little to do with the burgeoning marijuana industry. There is a reason for this. By design, hedge funds provide their investors with diversified risk. Exposure is balanced between high and low-risk investments, so that investors can literally “hedge” their bets (hence the name).
Cannabis is almost always high-risk — and as a result, cannabis investments are almost entirely held by so-called “retail investors,” not accredited big-boys or the even bigger institutional funds — but that, too, is changing, as one still-new marijuana-focused hedge fund is demonstrating.
According to an item published in Bloomberg, Sean Stiefel, a 30-year-old New York-based investor, founded Navy Capital Green Fund in 2017 with the intention of convincing institutional investors that it’s past time to bet on cannabis. And if you believe him, he’s done quite well: He started a little more than a year ago with $10 million and has increased his “assets under management” (the size of the fund he’s managing) to $100 million.
Navy Capital has done this in part by making investments that, while appearing beyond obvious today, the fund nearly passed on at the time. A prime example is chief investment officer John Kaden’s reaction to the call from a Canadian broker who told them to take a look at the company Uruguay selected to produce recreational marijuana.
“I mean, cannabis in Uruguay?” was Kaden’s reaction, he told Bloomberg. Somehow, they bit — mostly because of the company’s staggering growth protections — and, within four months, they managed to quadruple their investment. Since then, the company has invested mostly in Canada, but also has holdings in Europe, Israel, Australia, and the United States. (Of those places, the U.S. is the lone outlier in still banning medical marijuana on a federal level.)
However, Navy is still operating on a “bleeding edge” other much-bigger funds won’t touch. Big money is conservative by nature, and “publicly listed mutual fund(s) and union pension fund(s)” simply have too much to lose, Bloomberg observed. The risk posed by an untimely visit from federal regulators or a federal law-enforcement official with something to prove is simply too great.
Another complication is that for all of marijuana’s promise as a high-growth, high-capacity market arena, it’s still too small time for truly huge money. Cannabis is “not going to move the needle” for big-time funds like Blackstone, said Kaden. “They have to be able to deploy $1 billion to move the needle and right now it’s hard to deploy a couple hundred million” in cannabis.
Indeed, some of the very largest cannabis investments to date measure in the nine figures: Constellation Brands, an alcohol company that owns Corona and other brands, made major waves in the fall when it paid U.S. $191 million for a 9.9 percent stake in Canopy Growth, the darling of the Canadian stock markets that made history as the first weed unicorn with staying power.
More investments of that kind are almost certain to not happen until U.S. federal law changes. Big money-holders are “all interested in getting educated, but they don’t feel necessarily compelled to jump in yet,” said Morgan Paxhia.
Paxhia is the co-founder, with his sister Emily, of Poseidon Asset Management, which claims about $60 million of assets in the cannabis space. For now, they’re running funds mostly for high-net-worth individuals and not large funds — but that in itself is telling. Holders of big wallets with cash to burn are finding returns in cannabis. Small hedge funds are catching on — which means it’s only a matter of rapidly decreasing time before the largest depositories of wealth on the planet think cannabis can work for them.
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