CULTIVATED: A boutique cannabis bank founded by Goldman and JPMorgan alums is chasing deals, CannTrust is exploring a sale

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CannabisAmir Cohen/ Reuters

Introducing Cultivated, our new weekly newsletter where we’re bringing you an inside look at the deals, trends, and personalities driving the multibillion-dollar global cannabis boom. Sign up here.

Happy Friday!

Hello from the tiny town of Winhall, Vermont, where I’m thankfully escaping the 90-degree weather in New York.

This week, we saw the latest fallout at embattled Canadian marijuana producer CannTrust as the Ontario Securities Commission opened an investigation into the company. 

CannTrust hired the investment bank Greenhill & Co to explore a sale, though Robert Marcovitch, the company’s interim CEO, said in a BNN interview that he’d still prefer CannTrust remain independent.

The Globe and Mail had reported this week that CannTrust insiders sold $6 million worth of company stock after the company’s chairman was informed of the unlicensed cannabis growing. 

As CannTrust grabbed headlines, short sellers were working on a report about Hexo, another Canadian cannabis producer. (I covered Hexo’s run-in with Riposte Capital, an activist investor, last year). 

The short-sellers claim that Hexo was promoting products on Snapchat — a social media platform used mostly by teens under the legal consumption age — as recently as June. According to the short report, the ads "included slogans that encouraged risk-taking, and associated Hexo’s brand and products with glamour, excitement, and vitality."

That’s all clearly against the rules Health Canada laid out about advertising cannabis to kids. Snap itself admitted that its age control restrictions don’t work, because kids, well, they’re not stupid. Health Canada has since opened an investigation into Hexo. 

And cannabis producer WeedMD invited some Twitter controversy of its own after it partnered with Instagram star Dan Bilzerian’s cannabis company, Ignite. Bilzerian’s marketing tactics, relying on semi-automatic weapons and half-naked women, seem to appeal to a narrow slice of 17-year-old boys, and nobody else. 

So far, neither company has backed down from the agreement.

Both the CannTrust and Hexo debacles show that Health Canada has its hands full with the move-fast-and-break-things Canadian cannabis producers. And like we’ve reported before, the Canadian public does not view the cannabis sector favorably. Expect more questions from investors, short-sellers, journalists, and regulators alike. 

And on the home front, Gov. Andrew Cuomo signed a bill decriminalizing marijuana possession in New York State.

The penalties will be similar to a traffic ticket once the law goes into effect: $50 for possessing less than an ounce of pot or a maximum of $200 for 1 to 2 ounces. The bill will also allow certain past offenders to expunge their records for low-level marijuana possession. 

Looking forward to next week — I’ll have a pair of stories about how the mainstream venture capital world is looking at cannabis, so look out for those.

-Jeremy

More stories from around the BI newsroom: 

ELLO Capital, a boutique investment bank founded by JPMorgan, Goldman Sachs and Macquarie veterans, is chasing cannabis deals in the red-hot US market

Cannabis companies are merging, raising money, and going public seemingly every day, creating a red-hot market for investment bankers who make money off these deals.

Even with recent turmoil in the sector, the M&A market for US cannabis companies is quite promising, and it’s one that larger investment banks like JP Morgan and Goldman Sachs still shy away from because cannabis is federally illegal in the US.

I interviewed Hershel Gerson, a Wall Street veteran, who’s launching a boutique investment bank, ELLO Capital, focused on US cannabis deals.

In the story:

  • Gerson said there’s really "no one" doing M&A advisory work in the US cannabis industry in a meaningful way.
  • "What we’re finding with our clients, is the growth in the market and the growth in the companies is well outpacing their infrastructure," Gerson said.
  • Because the cannabis industry is propped up by high-net-worth investors and family offices, rather than traditional institutions, Gerson said ELLO’s network is perhaps the most "proprietary" part of the new venture.
  • ELLO Capital is starting out with a team of 17, including 10 bankers, and offices in LA and NYC.

Capital raises, M&A activity, partnerships, and launches 

Executive moves

  • Gretchen McCarthy moves from Curaleaf to Acreage Holdings, where she’ll be Vice President of Retail Operations.
  • Four-time NBA champion John Salley joins Edge Pharms, a CBD company focused on pain management, as EVP of Marketing.
  • CBD Capital Group, a CBD-focused fund, adds Scott Hartman as an advisor. Hartman was previously a marketing exec at Albertson’s and Whole Foods. 

Chart of the week 

We’re experimenting with a new section on this week’s newsletter — drop me a line and let me know if you like it. This one comes from Nielsen and Headset’s big cannabis report.

It seems like every day that a new cannabis brand is launched. In 2014, when Colorado was the only commercial cannabis market in the world, there were only 166 cannabis brands. That’s skyrocketed to over 2,650 — with the bulk concentrated in California — as entrepreneurs battle for market share.

It’s too early to pick winners, but in a few years, I imagine there will be lots of consolidation and failures and the trend will start to reverse. 

explosion marijuana brands us chartShayanne Gal/Business Insider

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Source: Business Insider – jberke@businessinsider.com (Jeremy Berke)

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