FROM BLOOMBERG.com:
Navy Capital's one-room office in midtown Manhattan could probably fit in the coat closets of many of its competitors. But the hedge fund’s digs belie the firm’s success in betting on something few of its peers will touch: cannabis.
Since the Navy Capital Green Fund launched in May 2017 the company said it’s increased assets under management to almost $100 million from $10 million and returned more than 100 percent net of fees last year.
Sean StiefelPhotographer: Christopher Goodney/BloombergAs for 2018, “we’re having a good year so far,” Sean Stiefel, Navy Capital’s 30-year-old founder said in an interview at the company’s office on Lexington Avenue, where the only adornment is a white board labeled “prospects.”
As Canada moves toward legalization of recreational marijuana on Oct. 17 and the U.S. shows signs of growing leniency, hedge funds such as Navy are leading the advance of institutional money into a sector that’s so far been dominated by retail investors.
Uruguay, Really?
Currently, institutions account for only a fraction of shares held in many pot companies: big firms hold 6.5 percent of Aphria Inc. and just 5.2 percent of Aurora Cannabis Inc., both members of the Canada’s S&P/TSX Composite Index, according to data compiled by Bloomberg. By comparison, 76 percent of portfolio stalwart Rogers Communications Inc. is held by institutions.
For the few cannabis companies that are cross-listed on U.S. exchanges, institutional ownership is higher. About 18 percent of Canopy Growth Corp., which trades on the New York Stock Exchange, is held by institutions, while Cronos Group Inc., listed on the Nasdaq, is at 22 percent.
Navy Capital’s foray into cannabis investing started in 2016 when it got a call from a Canadian broker urging them to look at ICC Labs Inc., chosen by Uruguay to produce recreational marijuana after it passed a law legalizing the drug in 2013.
John KadenPhotographer: Christopher Goodney/BloombergChief Investment Officer John Kaden, 44, said they almost didn’t take the call. “I mean, cannabis in Uruguay?”
But the growth projections couldn’t be ignored and Navy bought in at a C$40 million ($30 million) valuation before Vancouver-based ICC listed on Canada’s TSX Venture Exchange through a reverse takeover. Four months later when it had reached a market value of C$160 million, they sold. It’s worth about C$206 million now.
“After that we were like, ‘How do we learn as much as we can?”’ said Stiefel. “I went to Israel, Australia, Europe, Canada and we really tried to spend the latter half of 2016 understanding the landscape.”
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