As cannabis is legalized in more places, investors are taking note. One Luxembourg-based, Uruguayan-led fund has found an innovative way to bypass banking obstacles and raise capital.
Soon it will be possible to buy shares in a fund that invests in the nascent cannabis industry, on Ethereum, a blockchain portal. The fund is Global Cannabis Capital (GCC), formed in Luxembourg and soon to offer shares as tokens (digital value units representing the value of a stock), instead of the traditional initial public offering (IPO).
GCC's founder is the Uruguayan Andrés Israel, also CEO and founder of Cannabis Company Builder (CCB), an incubator that helps Latin American startups devise a business strategy for the cannabis sector. He said tokens were "a much more efficient channel for attracting capital" than share issues, and legal frameworks already exist covering their use. The legalities, he said, were "one of our major challenges. We chose Luxembourg as we found legality both in the blockchain sphere and the cannabis industry. It was a double challenge for us."
GCC has 30 firms in its portfolio and aims to raise capital through token sales whose proceeds are to be reinvested in its portfolio. The main objective, said Israel, is to "do it in a diversified manner, both in the various verticals of the cannabis industry and in different world markets, and put together an absolutely diversified portfolio. Our projection is to have 60 firms in the portfolio by mid-2023, before floating Global Cannabis Capital on the Luxembourg stock market. It can either be a public firm in that country or our token can become an index or an ETF (Exchange-Traded Fund) of the cannabis industry."
Blockchain to fund growth
The first sale, scheduled for early June, is a private placement, so GCC could not reveal the price of a token or the sums expected to be raised. But investors were showing keen interest. "Before this we held a pre-sale in which all our tokens were sold in 10 days. This is highly auspicious, as we expected to end the pre-sale in June," Israel said.
Some 50 investors bought all available tokens and for 80% of them, this was their first investment in a cryptocurrency or in digital assets.
Israel explained that a token gave you a stake in GCC and its value was backed by GCC's portfolio valuation, which was in keeping with its stake in other firms in the sector. He said that all money raised by token sales was reinvested to boost the GCC portfolio — and every token's value. "What I can say is that the firm's valuation is currently at $25 million," he said.
The firm will create 100,000 tokens, which will be its entire stock capital, to be offered in stages over three years before the fund's listing on the Luxembourg stock exchange. The first private placement will sell off 6% of all tokens.
Cannabis can be grown for medicinal purposes, like in this facility in Ecuador.
Solution to banking obstacles
Using tokens or crypto-assets is an increasingly common way of raising capital in the cannabis sector. In addition to legal restrictions on cannabis in many countries, which hinders public listings or more traditional fundraising, many actors in the sector see blockchain technology as a faster financing instrument.
A much more liquid model.
For buyers, says Israel, tokens also open the way to a secondary market for resale, giving their assets liquidity. "Funds generally need five to seven years for limited partners to recoup their investment. We have a much more liquid model because through our technology, once investors acquire the token, they can sell them on the secondary market. It is very important for us to generate a large volume of investors, because we are generating this secondary market and need big numbers," he said.
In parallel with GCC, the incubator firm CCB is working on industry projects not yet mature enough to receive capital. Its focus is on finding projects relating to research and development, genetics, final products, branding and in brand creation both in the cosmetics and pharmaceutical sectors. CCB currently has seven cultivation projects of this type, limited to Latin America.
GCC on other hand is aiming for global-level investment. Israel says: "We're going to diversify the geography to invest in Canada, California, Colombia and Switzerland. We'll go to more advanced countries in terms of legislation. We want to be a push factor as cannabis firms currently have a financing problem. Most venture capital firms do not invest in cannabis startups, simply because at the federal level it is not yet legal in the United States. There are banking obstacles that are a break on the industry, and we're trying to lift that with GCC."