Each month Grown In reports significant Midwestern cannabis fundraising transactions. Have a news tip on a private pot transaction? Email firstname.lastname@example.org.
Chicago-based cannabis software startups leaf.trade and AeroPay raise venture rounds
Home to four of the 15 largest licensed cannabis companies in the United States, Chicago has become fertile ground for ancillary software companies that provide services ranging from banking to advertising to supply chain management.
“When the industry first started in Illinois, nobody knew that many of these companies would be at the scale of where they are now” explains James Yi, a former consultant of dispensary chain Windy City Cannabis and CEO of wholesale cannabis marketplace leaf.trade.
The origin story for leaf.trade, which raised a $5.5 million venture round in March on top of $4.5 million in seed funding in 2019, involved creating a way for dispensary purchasers to procure product from cultivators that was more sophisticated than agents sharing pictures of plants taken from their iPhones.
The 21-person company will invest proceeds from the financing in technology and product marketing. Supply chain software developed by leaf.trade is currently used in more than 600 dispensaries and nearly 100 cultivation and production facilities across 17 states. In addition to Windy City dispensaries, Illinois companies that currently license leaf.trade software include Green Thumb Industries, Verano Holdings, and the former Grassroots Cannabis dispensaries now officially owned by Wakefield, Mass.-based Curaleaf. Yi said Michigan along with Nevada and Arizona are newer markets for leaf.trade, which is also keeping up with opportunities in Missouri’s fledgling cannabis market.
Artemis Growth Partners, with offices in San Jose and London, led the venture round. Existing investors including members of theChicago-based Hyde Park Angels investor group also reupped.
Earlier in the month, cashless payments software developer AeroPay announced the raise of a $5 million round, led by Chicago Ventures. Phoenix-based 4Front, which operates Mission Dispensaries in Illinois and Michigan, is “an anchor partner” for its technology, AeroPay CEO Dan Muller told Grown In shortly after the financing.
Existing AeroPay financiers, including Continental Investors and the estate of deceased National Basketball Association commissioner David Stern, also re-invested. Continental is the family office investment vehicle of former Morgan Stanley and Discover Card CEO Phil Purcell.
Muller said his company would use investment proceeds for product development and marketing.
Chicago Ventures’ partner Stuart Larkins, also an angel investor in multiple plant-touching businesses, said the high concentration of licensed and ancillary companies in Chicago makes it easier for local investors to keep in touch with their portfolio companies.
“Doing due diligence is easy,” he said. “There are so many people here who are our friends who are in our own backyard.”
For serial digital entrepreneur and plant aficionado Yi, having his biggest clients just a stone’s throw away in downtown Chicago is a simple twist of fate.
“Call it luck, but we were in the right place at the right time,” he said. “But now there is definitely a huge network effect being based here. As these MSOs expand into new states and deeper into those markets, we do grow with them. We also help to define best practices and standardize operations with these players.”
Cresco Labs CEO Charlie Bachtell unpacks strategy behind Cultivate acquisition
On March 18, Chicago-based Cresco Labs announced that it plans to acquire vertically-integrated Massachusetts operator Cultivate for as much as $158 million in a mostly stock deal.
With existing cultivation operations and a dispensary in Fall River, Cresco had the option to invest in facilities expansion or acquire an existing operator to become fully operational in a limited licensed state which has experienced fits and starts since voters decided to green light recreational sales in 2016.
Cresco CEO Bachtell explained to Grown In the rationale behind the Cultivate acquisition.
Massachusetts is attractive to Cresco and other vertically-integrated multi-state operators for its seven million residents, 59,000 medical patients and robust regulation. Licenses are limited with operators restricted to 100,000 square feet of cultivation and three dispensaries. Cresco wants to be a top three operator in a state thatregistered $80 million in cannabis sales in February. Chicago-based Green Thumb Industries and Pharmacann, along with Wakefield, Mass.-based Curaleaf and Phoenix-based 4Front, are among the handful of multistate operators competing for those top slots.
While the first wave of cannabis operators “adopted GBD, get big fast strategies,” Bachtell said, the ability to execute and expand in desired markets generates profits. “It’s all about how you are competing in those markets.”
Cresco could have invested tens of millions of capital and several months expanding its existing cultivation facility. Instead, the company deployed a small amount of cash and a generous dose of stock to claim existing operations.
“It was a classic buy versus build analysis,” he said. “All of a sudden we go from a long structure, which was all cash, to an existing structure that was some cash and more stock. It’s a little expensive, but allows us to be in the marketplace over the next 18 month.
The founders of Cultivate were among the first to win licenses in Massachusetts. This operating experience along with a team familiar with how to grow, process and merchandise cannabis in the state was a critical motivating factor in the acquisition decision.
“The way we think about M&A as opposed to financial,” Bachtell explained, “we look at five things. We look at the cash expense, the stock expense, the bandwidth needed to make that asset perform, time and risk. Bandwidth is the lever in which we take into consideration the talent of the team. It’s probably the most expensive lever when we analyze a deal. Talent means a lot.”
Verano acquires Pennsylvania-based Accretive for $110 in cash and stock deal
Verano on March 31 announced the acquisition of Pennsylvania-based cannabis operator The Healing Center for $55 million in cash and $55 million in stock. Among the company’s assets are three dispensaries based in Pittsburgh.
Grown In readers should also note that Verano seems to be taking over Greengate Chicago on the city’s far north side. Greengate’s website reportedly briefly displayed Verano’s Zen Leaf brand, and the store’s ordering system seemed to be in a transitory state.
Verano, which went public earlier this year, has opened and acquired multiple Illinois facilities in recent months.
4Front Raises $65.5 million in sale-leaseback deal with Innovative Industrial Properties
On March 13, Phoenix-based 4Front secured $6.5 million to acquire a cultivation facility in Illinois along with an additional $45 million to build out 558,000 square feet of cultivation space from New York-based real estate investment trust Innovative Industrial Properties.