Interview with Mitchell Baruchowitz, Founder of Merida Capital Partners
Merida Capital Partners is a private equity firm
committed to responsible investing, targeting
fundamental growth drivers underpinning the rapid development of the cannabis and hemp industry.
What inspired you to start Merida?
In 2016, after 4 years of applying for and winning limited medical cannabis licenses in the first several states to have highly competitive processes for awarding licenses, I saw an opportunity to do much more than simply grow the plant for medical purposes, formulate medicine or dispense medicine to patients. While building these operations, I observed the early evolution of the supply chain around these operations, and how the explosion of capital flowing into the space was rapidly maturing ancillary businesses. Circling with my closest operational partners, we envisioned a fund that would invest in the businesses supplying the operators, while integrating investment in that area as well to create a holistically linked ecosystem. We really wanted to take advantage of all of the experience we had gained from all of our work from 2012-16 when few institutional capital sources and operators existed and pool our knowledge and collective backgrounds across finance and law to offer intelligent exposure to investors who wanted professional asset management but also the specific thematic expertise that was lacking at that time.
What were some of the challenges you had to face while building Merida? How did you overcome them?
The biggest challenge has always changed depending on the stage of the cannabis industry. Our early challenge was overcoming skepticism about the prospects of the industry and a lack of understanding around what the cannabis industry was, and where it was going to be. Investors were very skeptical about whether regulations would pass in many states until the election of 2016, when 8 ballot measures passed.
We overcome these challenges in the same way we react to challenges today: we studied, we investigated, analyzed, synthesized, and consumed as much information and data as we could. We then transparently communicated with investors so that they could educate themselves and ask the right questions to get comfortable that we had done an incredible amount of diligence and were going to be responsible stewards of their capital.
What are the current biggest Cannabis related trends?
The biggest trends on the adult use side are specialty products that are micro-dosed or quick onset (like edibles or beverages), while the medical side continues to push the existing understanding of the components of cannabis and how it interacts with the Endocannabinoid System in order to create more effective and targeted cannabis-based medicines. We think that this research will lead to a significant leap forward in treatments that will disrupt areas of the healthcare, medical, pharmaceutical and biotechnology industries.
How is COVID-19 affecting the Cannabis space?
In one way, it has accelerated a trend we saw in the second half of 2019, where very little capital was available. Capital is scarce in the industry right now. On the other hand, COVID is looking like a catalyst that will embed cannabis as a permanent fixture of the consumer and medical landscapes, as it was determined as an essential business in many states. We learned that demand for cannabis and cannabis-based medicines is inelastic and that the industry will continue to rocket forward as illegal consumption migrates into the legal landscape. Lastly, as states face large budget gaps, they will be looking for revenue sources and with $60B of illegal consumption in the US (with $10B legal in 2019), cannabis is one of the only areas that regulators can turn to plug these financial gaps.
So the balance of COVID’s effects were probably positive, even though society has suffered greatly from its effects.
What type of an economical/ social impact is your firm looking to make?
We have several goals aside from just doing a great job for investors and many fall on the social side and we can highlight a few:
First, we want to make sure that people who can benefit from cannabis-based medicines have safe, legal access to the medicine. So we try to make ancillary investments that can help create a stable environment for operators to produce that medicine.
Second, we believe that the War on Drugs has created a disparate impact on communities of color and lower socioeconomic areas. We created a specific program called the “inclusive incubator” or i2 that invested initially in 5 companies owned by members of disadvantaged communities. With our guidance and capital, these companies are making an impact in their communities and opening up opportunities for other disadvantaged people.
Third, we want to make sure that the industry can normalize over time, so we have taken a disciplined and active approach to governance in order to enable cannabis to grow into a multifaceted industry and can create a positive impact in a variety of important social areas, as well as have a positive impact on resource usage and the environment. When that happens, that normalization will touch everything from plant-based medicine, to health and wellness, all the way through industrial materials, like hempcrete. We see some incredible opportunities from brilliant innovators and we try to invest in areas that have the double bottom line impact of doing good while doing well for investors.
What are some of your major accomplishments / success stories?
We have had a great deal of success but I can try and pinpoint some of the bigger ones. Achieving the highest score in Connecticut, which gave out the first for-profit limited medical license in the US, and then delivering the first legal cannabis to patients later in 2014 was a big milestone for me personally. Winning one of the two licenses given out in Minnesota to this day is also a great achievement. Helping develop a company, GrowGeneration, from a small three store chain with less than $5MM in revenue and a $6MM market cap, to a public company in 2016 with a $175MM+ market cap and projected revenues in excess of $100MM and this past December uplisted to Nasdaq (the first such uplisting in the cannabis industry), in just 3 short years also is something which makes us feel proud.
We are getting ready to deliver the first legal cannabis-based medicine in Virginia’s history pretty soon so we believe that we will have a lot more things to celebrate in the near future and beyond.
Please visit www.meridacap.com for more information about our Private Equity funds.