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Private Equity Strategies

Dealmakers Q&A: MedMen eye second fund

Friday, September 29, 2017

By: Bailey McCann, Private Equity Strategies

Los Angeles, California-based cannabis-focused investment firm MedMen is eying its second fund. The firm is targeting $250 million for investments in cannabis assets.

MedMen's investor base is largely high net worth individuals and family offices, but the firm has also had some institutional interest. MedMen partnered with Chicago-based Wicklow Capital, a venture capital firm, for investments from its first fund which closed on just under $100 million earlier this year. Wicklow Capital is backed by Dan Tierney, the co-founder and former board member of GETCO, a Chicago-based high-frequency trading firm, now known as KCG Holdings following GETCO's acquisition of Knight Capital in 2013. MedMen typically invests between $1-40 million per transaction and made seven investments from its debut fund.

Unlike other cannabis industry investors that are focused on investing in existing consumer distributors, MedMen invests in raw assets. The firm is looking for opportunities to buy licenses or cannabis assets that they can then turn into an enterprise. MedMen operates by using a management holding company model, so they are the owners of each entity in the portfolio, rather than simply investing in several companies.

"We made a strategic decision to be very hands-on with development," MedMen co-Chairman and Partner, Chris Leavy tells Private Equity Strategies. Leavy oversees the investment strategy for the firm. Prior to joining MedMen, Leavy spent more than two decades on Wall Street, holding senior management roles at Morgan Stanley, OppenheimerFunds, and BlackRock.

According to Leavy, the development model MedMen uses is more resource intensive, but it allows the firm to be a prime mover in the still nascent industry. "We are working on everything from regulatory, to site selection, to bringing in people with relevant experience," he explains. "Many people look at us as a pot business, but we are largely working with experts from other fields including agriculture, chemistry, consumer marketing, finance. We are creating a new industry."

MedMen has an established presence in states that allow medical marijuana and is expanding its footprint into emerging medical markets including Massachusetts, New York, and Nevada.

In some ways, the firm operates like a large mid-market specialist private equity manager. Because of the focus on a single industry, Leavy and the investment team can take advantage of common private equity scaling practices like group purchasing, group marketing, and supply chain optimization. For Leavy, that model is key to MedMen's growth prospects because he says, it creates standardization and opportunity in an otherwise inefficient and fragmented market. "We're still early enough into the development of the industry that people are trying a lot of different models," he says. "This isn't available in every state. So if we can come in and build scale, there is opportunity for us there."

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
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