Last week, the New York Office of Cannabis Management announced that former NBA All-Star Chris Webber will manage the Social Equity Cannabis Investment Fund, a public-private limited partnership that will allow the state to invest in a private fund to finance dispensaries in New York State operated by individuals who have been impacted by the inequitable enforcement of marijuana laws.
Yet investors say it is unclear if the state will be able to raise the money.
The fund will help those who have a Conditional Adult Use Retail Dispensary License (CAURD) meet the costs of establishing adult-use cannabis retail dispensaries, including the identification and leasing of suitable retail locations and design, construction, and fit-out of the spaces.
The fund will be supported by up to $50 million in licensing fees and revenue from the adult-use cannabis industry and up to $150 million from the private sector.
“As we create a new industry in New York, I am proud to see real progress in addressing the economic needs of our future entrepreneurs,” Governor Hochul said in a statement at the time of appointment.
The fund is the first of its kind in the nation, and could be promising for social equity license holders if the state can fundraise and deploy the funds.
“From a structural perspective, they are looking at it the right way,” said early cannabis investor Nick Gastevich of Gastevich Investors. “If a state’s goal is to have a diverse array of business owners, awarding social equity licenses early and funding them before big competitors creates the opportunity for them to do well.”
Yet the question remains: Where will the money come from?
Gastevich pointed out that there are only a handful of private equity institutions invested in the cannabis space – Entourage Effect Capital, Poseidon Garden, and Merida to name a few – that are sizable enough to offer significant funding and commit to the long-term nature of social equity investments.
“Though, there might be more interest given that there is a social equity market,” Gastevich added. Yet, with a volatile economy and a strong underground market in New York, funding the industry can be risky for investors.
“It’s not easy for people who are ten or twenty year investors to raise that kind of money in cannabis,” said Scott Delgado of Hawkeye Capital Investments, which works with investors in New York and New Jersey.
Social Equity Impact Ventures, LLC, a joint venture between Webber and business partner Lavetta Willis, was named the sponsor of the investment fund, along with investment banking firm Siebert Williams Shank, bringing in SWS CEO Suzanne Shank and SWS Chief Administrative Officer William Thompson, the former New York City Comptroller. With Webber at the helm, Impact Ventures has a track record of investing in small businesses and minority owned businesses.
This isn’t Webber’s first investment fund to support cannabis entrepreneurs of color. In 2021, he partnered with Jason Wild of JW Asset Management to launch a $100 million private equity cannabis impact fund.
The capital Webber and Wild were able to fundraise is not publicly available and investors we interviewed could not confirm any business to which funding from the impact fund was deployed.
Yet later the same year, Webber, Shank and Wild broke ground on a $50 million dollar project to transform an a nine-acre industrial site in Detroit, Webber’s hometown, into Webber Wellness Conservatory, which features a 60,000-square foot cultivation facility and 8,000 square foot dispensary, which sells Webber’s cannabis brand.
It is unclear whether the funding was deployed from the impact fund or elsewhere. Impact Ventures and Siebert Williams Shank could not be reached for comment.
“Chris can be a good funnel, he has name recognition for people to seek him out,” Delgado said. The investment banker added that Jason Wild may be open to seeding social equity funds.
Still, Delgado said, with the risks involved in cannabis investment, “Investors should be asking for a higher return, around 40 percent. Whether a fund manager will tell them that is up to them.”
Some investors speculated that funding from the 2021 fund will be rolled over – meaning that whatever Wild and Webber fundraised last year will be transferred to the new fund.
“My gut says they rolled in their efforts from before,” said Steve Ernest, Vice President of Chicago Atlantic, a publicly-traded company and financier to the cannabis industry. Ernest is also a recipient of a conditional cultivation license in New Jersey.
Yet even with some capital carried over, financing and sustaining social equity businesses in the state will present challenges.
“Trying to address and unwind institutional racism and the War on Drugs is a tremendous undertaking,” Ernest said.