Large sums of money test Canadian marijuana stocks

Navy Capital's one-room office in downtown Manhattan could possibly fit in the closets of many of its competitors. But the hedge fund's results belie the company's success in betting on something that few of its peers will touch: Cannabis

Since the launch of the Navy Capital Green Fund in May 2017, the company has increased its badets to nearly $ 100 million. As for 2018, "we have a good year up to now," said Sean Stiefel, founder of Navy Capital, 30, in an interview at the company's office. on Lexington Avenue, where the only adornment is a whiteboard entitled "Perspectives".

As Canada moves towards the legalization of recreational marijuana on Oct. 17 and as the US is showing signs of increasing indulgence, hedge funds like the Navy currently, institutions are only representative of the world. a fraction of the shares held in many pot companies: large companies hold 6.5% of Aphria and only 5.2% of Aurora Ca. the nana, both members of the company. Canada's S & P / TSX Composite Index, based on data compiled by Bloomberg. In comparison, 76% of the portfolio badets of Rogers Communications are owned by institutions.

For the few cannabis companies that are publicly traded in the United States, institutional ownership is higher. About 18% of Canopy Growth Corp., which trades on the New York Stock Exchange, is owned by institutions, while Cronos Group Inc., listed on the Nasdaq, is 22%

. 2016 when he received a call from a Canadian broker urging them to watch ICC Labs, chosen by Uruguay to produce recreational marijuana after pbading a law legalizing the drug in 2013.

Chief Investment Officer John Kaden, 44, said he did not take the call. "I mean, cannabis in Uruguay?"

But growth forecasts could not be ignored, and the Navy bought $ 40 million Canadian ($ 30 million) before the Vancouver CCI was listed on the TSX Venture Exchange in Canada by reverse takeover. Four months later, while it had reached a market value of 160 million Canadian dollars, they sold. That's about $ 206 million Canadian now.

"After that, we thought," How can we learn as much as we can? Stiefel said, "I went to Israel, Australia, Europe and Canada and we really tried to understand the landscape in 2016."

Today, about half of Marine's portfolio is invested in Canadian companies that it believes are "well-valued." including CannTrust Holdings, Hydropothecary Corp. and Organigram Holdings, with the remainder spread between the United States and Europe, Israel and the United States. Australia: The fund invests in public and private companies and sees the best investment opportunities move from Canada to the United States, Europe and Latin America.

"We remain at the forefront of new markets that legalize, "Kaden

Last year, the BI Canada Cannabis Competitive Peers index jumped about 250 percent from October to December as legalization became clearer at Canada, before dropping by about 50%. e hedge funds like the Navy are in the process of hosting the leather goods industry, pension funds and mutual funds are still reluctant, said Chris Barry, a lawyer for Dorsey & Whitney LLP based in Seattle. who works with cannabis companies. This is not because they do not see a compelling investment opportunity.

"I personally know a number of occasions when a company has entered a large mutual fund, an everyday name that you know." "Is it?" "Barry said in a phone interview. "And the people around the table said," Oh, our fund could not consider doing it ", then they pulled out their checkbooks and invested themselves personally."

Lots of US funds do not want to run up against investors and regulators in a country where marijuana is illegal at the federal level – it's less of a problem for specialized hedge funds and family offices that pbad under the radar. " a lot easier for them to decide to badume the legal risk that Jeff Sessions will come to the door someday than for a publicly traded mutual fund or a union pension fund, "said Barry, referring to Attorney General

The pension giants of the California Public Employees' Retirement System and the Canada Pension Plan Investment Board stated that they were held at The sector's gap, while The Vanguard Group stated that they were investing only in equities. BlackRock declined to comment

Some cannabis companies are taking matters into their own hands, hiring people with experience in capital markets to lure institutional investors into their actions. Last month, Khiron Life Sciences Corp. appointed Chris Naprawa, former partner at Sprott Capital Partners and head of equity sales at Macquarie Canada, as president, to enhance the visibility of Vancouver 's business with institutions. Naprawa said he has not seen much appetite from major Canadian investors, but American family offices and hedge funds are beginning to buy in space.

Investors say the industry has received three marks of legitimacy over the past 12 months: Tiger Global Management, the $ 22 billion investment company, took a stake in Green Bits Inc. , a cannabis software start-up based in San Jose, California; the alcohol giant Constellation Brands Inc. has bought a 9.9% stake in Canopy Growth; and GW Pharmaceuticals Plc has received approval from the US Food and Drug Administration for a treatment of cannabis-based epilepsy, the first marijuana-derived drug to get approval from the states United States

Charles Taerk, Chief Executive Officer of Faircourt Asset Management Inc., a Toronto-based company, which manages the Alternative Alternative Health Fund of ITU. ITU, with about 20 million Canadian dollars in badets, mainly addresses private investors.

Poseidon Asset Management, one of the oldest hedge funds in the cannabis industry, said that large institutions are interested they can not take the plunge before the laws American federations do not change.

"They are all interested in educating themselves, but they do not necessarily feel obliged to start it," said Morgan Paxhia, co-founder and co-director of Poseidon. with his sister Emily. "We are just trying to build those relationships for when they do it."

Poseidon launched in January 2014 and has badets under management of over $ 60 million. The fund has invested primarily in private companies for wealthy individuals and family offices, but plans to gradually increase its public exposure to half of its badets.

Another factor that keeps the biggest investors away from space is that most cannabis companies are still relatively small, Kaden told Navy Capital.

"The reality is that the Blackstones of the world can not make it a central part of their business because it's not going to give them the needle" he said. "They must be able to deploy $ 1 billion to move the needle and now it is difficult to deploy a few hundred million".

It may be only a matter of time. According to data compiled by Bloomberg, there are at least 91 publicly traded companies in Canada with a combined market value of more than $ 30 billion Canadian. Canopy, with the highest market value, has a market value of Can $ 7.8 billion.

"I find this place so exciting, it's like indulging in alcohol just before the prohibition is eliminated," said Navy Capital's chief financial officer. Gahwyler.