Cannabis Companies Get Series B Financing from Privateer Holdings
NEW YORK ( MainStreet) Similar to Yelp.com, Leafly.com is an online portal providing information for about 750 cannabis strains and where to find the nearby medical dispensaries that sell them. With filters, the website narrows down the effects a particular strain has on patient's symptoms and ailments. Leafly had 180,000 visits per month and no revenue before it was acquired by Privateer Holdings in 2011, but just last month, more than 3.5 million people visited the popular portal and its mobile apps.
"We used four different components to purchase Leafly, including a small out-of-pocket cash payment upfront, employment contracts, options and a revenue earn out for the founders," said Michael Blue, CFO of Privateer Holdings. "That's how we pay for most of our acquisitions."
Privateer CEO Brendan Kennedy founded Privateer Holdings in 2011 with Blue and their long-time friend Christian Groh who serves as chief operating officer. Privateer's three founders bring backgrounds in investment banking, private equity and operations.
"Our investors include ranchers in Texas, farmers in Kansas and finance professionals in New York," Kennedy said.
The firm raised $7 million in Series A capital last year with 40 to 50 investors and is officially launching Series B financing to raise $50 million in May or June of this year.
"We do not have institutional, venture capital or private equity fund investors although we are beginning to get calls from these groups for our Series B round," Blue told MainStreet.
Although dubbed a private equity firm, Privateer is structured as a holding company because its founders aren't comfortable making minority investments.
"We are capitalized like a startup rather than a traditional private equity fund," said Blue.
"This gives us the flexibility to acquire companies, to make majority controlling interest investments and to incubate companies on our own."
As for return on investment, more will be revealed.
"Our objective is to create a billion-dollar company," Blue said. "What that means as far as a return for our investors depends on when they got involved."
The firm receives 16 to 20 pitches a week from people looking for financing for their ideas or companies.
"The pitches are getting better," Blue said. "We incubated a Washington state company called Arbormain, which provides production and processing space to I-502 licensees."
Initiative 502 licenses marijuana producers, processors and retailers.
"What makes cannabis different from other industries is the additional challenge of federal regulation, fast changing state laws and the difficulty in getting licensed to sell cannabis," said Troy Dayton, co-founder of Arc View , an investment and research company. "For investors looking to invest in ancillary cannabis companies, there's less risk but if they are looking to invest directly in licensed cannabis, cultivation and such, it still violates federal law."