In 2014, Matt Hawkins made a loan that changed everything. He had recently exited Tucson Capital Partners, a Dallas private equity firm, and was working in the private lending space. As he looked for a new opportunity, contacts in his network pointed him toward warehouse owners who needed to refinance.
Amendment 64 had recently legalized statewide use of cannabis in Colorado, and Oregon, Alaska, and Washington, D.C., weren’t far behind. Eager to be part of this growing new industry, Denver warehouse owners sought to house marijuana growers. But because cannabis was federally illegal, they had to break from their commercial mortgages and engage a private lender. Enter Hawkins.
The yields were great, but what really stood out were the high rates the warehouse owners were willing to pay. He knew that meant their tenants were doing something quite profitable.
“I thought, ‘Why am I not investing in that guy, rather than just lending money?’” Hawkins says. “I realized that this could be one of those generational wealth moments where I had the once-in-a-lifetime opportunity to get in on the ground floor.”
Not wanting to miss out, Hawkins founded Cresco Capital Partners, a private equity firm that deals exclusively with cannabis-related businesses. Since its launch five years ago, the company has raised close to $90 million through two funds and co-investment entities, and has deployed $60 million. Cresco has 36 portfolio companies and invests in a wide range of marijuana-related endeavors. These include license aggregators, brands, ancillary services, technology businesses, and multistate operators like Acreage.
“We invest up and down the value chain,” Hawkins says. “There really isn’t a vertical industry we haven’t looked at.”
It wasn’t easy at first, and people often told Hawkins he was crazy for attaching his name to the weed business. But others, like Codie Sanchez, a global investment firm veteran and friend, believed in his vision. Around that same time, she began working with nonprofits that helped veterans, and she saw the potential that cannabis had to help them manage their PTSD and other ailments. She joined Cresco at the start of 2019 and is now a managing director.
“The two things that came together for me were that we can make this profitable and thus sustainable, and that we can do well by doing it,” Sanchez says.
Cannabis is still far from becoming federally legal, but it is clear that the industry has serious potential. Worldwide spending on legal cannabis is predicted to soar past $50 billion by 2027. Additionally, states can benefit from legalization; since 2014, Colorado has raked in more than $1 billion in tax revenue, which is being used in part to fund public health and literacy programs.
And there are medicinal factors to consider, too. Since marijuana has long been illegal, there has been little study on the its health benefits. In 2018, the Food and Drug Administration approved the first cannabis-based drug, but it’s worth noting that cannabis contains more than 100 cannabinoids (including THC, the psychoactive component of the plant, and CBD, which has been studied for its effects on epilepsy), suggesting that there’s room for further examination. Hawkins says his mother suffers from fibromyalgia and that she has recently been using cannabis products to help her sleep better and manage the pain.
“That’s obviously a feel-good aspect of it,” Hawkins says. “I’m a big supporter of the industry. I’m also not too naïve to realize that this is a vice product, but the fact that it does have medicinal benefits is where there’s some significant differences between alcohol and this industry.”
“I realized that this could be one of those generational wealth moments.”
Hawkins is based in Dallas, though most of Cresco’s eight-person team is scattered across the country, concentrated in states like California, where recreational marijuana is legal, and Florida, which enjoys a liberal medicinal program. Cresco’s two original funds are now closed to investors, but the company plans to launch a third fund, larger than the others, this fall. At the moment, Cresco is one of the largest private equity firms in the cannabis business.
As the industry booms and more states have jumped on the legalization bandwagon, Hawkins says that many of the good-intentioned people who sat him down and told him not to pin his name to a marijuana enterprise have come back to admit they were wrong. “The change in public opinion has been dramatic,” he says.
Currently, 11 states and Washington, D.C., have legalized recreational marijuana. And although Hawkins says he doesn’t believe that legalization will happen in Texas tomorrow, there are signs of progress—like the law Gov. Abbott signed in June legalizing hemp farming and CBD oil. It may take a few years, but Hawkins believes that marijuana will be nationally legal sometime soon. “The proverbial genie is out of the bottle,” he says, “and it ain’t going back in.”