A Q&A with Matt Hawkins, Co-Founder & Managing Partner at Entourage Effect Capital

The hashish sector saw close to $15.5B in promotions across VC, non-public equity, M&A and IPOs in 2020 in accordance to PitchBook details. Early and growth phase money has been a essential enabler in deal activity as firms look for to innovate and scale, taking edge of developments toward nationwide legalization and consolidation. Entourage Impact Cash is 1 of the greatest VC corporations in cannabis with in excess of $150MM deployed given that its inception in 2014. Some of their noteworthy investments involve GTI, CANN, Harborside (CNQ: HBOR), Acreage Holdings, Ebbu, TerrAscend and Sunderstorm.

We spoke with Matt Hawkins, co-founder and running husband or wife at Entourage Impact Cash. Matt begun Entourage in 2014 right after exiting his prior corporation. He has 20+ several years of non-public equity encounter and serves on the Boards of many hashish firms. Matt’s assumed leadership has been on Fox Enterprise in the past and he has also just lately featured on CNBC, Bloomberg, Yahoo! Finance, Cheddar and more.

Aaron Eco-friendly: How did you get concerned in the hashish marketplace?

Matt Hawkins: We’ve been producing investments in the hashish industry considering the fact that 2014. We’ve designed 65 investments to day. We have a full group of expenditure professionals, and we commit up and down the benefit chain of the field.

I had been in non-public fairness for 25 years and I type of just fell into the business soon after I’d had an exit. I began lending to warehouse homeowners in Denver that ended up on the lookout to refinance their mortgages out of commercial financial debt into non-public personal debt, which would then give them the skill to lease their facilities to growers. I understood there would be a significant option to location funds in the personal fairness aspect of the cannabis business. So, I just started boosting money for that challenge and I haven’t looked again. It’s been a great operate and we have created a great portfolio. We glimpse forward to continuing to deploy funds up to and by means of legalization.

Green: Do you think about Entourage Result Money a VC fund or private fairness organization? How do you chat about on your own?

Hawkins: In the early levels of the industry, we have been far more purely venture capital mainly because there was barely any profits. We’re most likely however regarded as a venture funds business, by definition, just mainly because of the threat aspects. As the business has matured, the investments we make are heading to be larger sized. The truth is that the checks we publish now will go to organizations that have a keep track of document of not only 12 months of profits, but EBITDA as very well. We can calculate a multiple on those, and that would make it much more like lessen/middle-sector personal fairness investing.

Eco-friendly: What’s your expense mandate?

Matt Hawkins, Co-Founder and Managing Associate at Entourage Result Capital

Hawkins: From below ahead our mandate is to construct scale in as numerous verticals as we can ahead of legalization. In the early times, we were being focused on providing significant web value people today and household places of work access to the sector utilizing a extremely diversified method, that means we invested up and down the price chain. We’ll keep on to do that, but now we’re heading to be definitely laser focused on combining companies and building scale in just organizations to the place they are likely to be far more eye-catching for exit companions on legalization.

Eco-friendly: Are there any particular segments of the marketplace that you target on no matter whether it is cultivation, extraction or MSOs?

Hawkins: We tend to concentrate on all the things over cultivation. We feel like cultivation by alone is a commodity, but when vertically built-in, for instance with a solitary-point out operator or multi-condition operator, that helps make it intrinsically more valuable. When you search at the price chain, suitable just after cultivation is in which we commence to get involved.

Inexperienced: Are you also executing investments in tech and e-commerce?

Hawkins: We’ve made some investments in offer chain, management software, ERP alternatives, things like that. We’re not truly focused on e-commerce with the exception of the only CBD organization we are invested in.

Eco-friendly: How does Entourage’s investment philosophy differ from other VC and private equity companies in cannabis?

Hawkins: We definitely don’t pay consideration to other people’s philosophies. We have co-invested with other individuals in the earlier and will go on to do so. There’s not a good deal of us in the market, so it is very good that we all do the job together. Until eventually legalization happens, or institutional money comes into perform, we’re really the only match in city. So, it behooves us all to have excellent performing associations.

Eco-friendly: Throughout the states, there’s a variety of markets in various stages of improvement. Do you are inclined to like investing in much more complex markets? Say California or Colorado where they’ve been legalized for for a longer period, or are you seeking far more at new progress alternatives like New York and New Jersey?

Hawkins: Historically, we’ve concentrated on the most populous states. California is certainly wherever we’ve positioned a lot of bets heading forward. We’ll continue on to build out our portfolio in California, but we will also exploit the other huge inhabitants states like New Jersey, New York, Arizona, Massachusetts, Michigan, Ohio and Illinois. All of individuals are big targets for us. 

Eco-friendly: Do you assume legalization will materialize this Congress?

Hawkins: My private view is that it will not happen this yr. It could be the latter element of next year or the calendar year right after. I consider there’s just much too significantly wood to chop. I was encouraged to see the Secure Banking Act reappear. I consider that will with any luck , persuade institutional cash to consider another seem at the sport, in particular with the NASDAQ and the New York Inventory Exchange open up up. So which is a beneficial.

I believe with the election of President Biden and with the Senate runoffs in Georgia going Democrat, the timeline to legalization has sped up, but I really don’t consider it’s an overnight situation. I surely don’t imagine it’ll be effortless to commence crossing state lines straight away, both.

Green: Can you clarify additional about your feelings on interstate commerce?

Hawkins: I think it’s pretty basic. The states really do not want to give up all the tax earnings that they get from their cultivation corporations that are in the condition. For example, if you let Mexico and Colombia to start off importing merchandise, we just can’t compete with that expense construction. States that are neighbors to California, but need to increase indoors which is more expensive, are not likely to want to eliminate their tax revenues both. So, I just feel there is going to be a great deal of butting heads at the point out amount.

The federal govt is going to have to outline what the tax implications will be, mainly because at the close of the working day the business is presently taxed as substantial as it ever will be or must be. Everything North of existing tax levels will prohibit organizations from thriving even more, proficiently which means not staying ready to tamp down the illicit sector. A person of the major objectives of legalization in my impression must be reducing the tax burden on the organizations and thus making it possible for them to be equipped to contend extra immediately with the illicit sector, which clearly has all the gains of lessened crime, etcetera.

Environmentally friendly: Do you foresee 280E changes coming in the future?

Hawkins: For positive. If the federal illegality veil is taken off – which suggests there’ll be some sort of rescheduling – hashish would be taken off from the 280E classification. I think 280E by definition is about just unlawful medications and production and providing of that. As extensive as cannabis is not aspect of that, then it will not be issue to it.

Eco-friendly: What have been some of the winners in your portfolio in terms of productive exits?

Hawkins: When the CSC started off enabling companies in Canada to own U.S. property, the complete landscape modified. We ended up privileged to be early buyers in Acreage and corporations that offered to Curaleaf and GTI prior to they were public. We are large traders in TerrAscend. We ended up early buyers in Ebbu which marketed to Canopy Advancement. Those ended up massive wins for us in Fund I. We also have some interesting performs in Fund II that are on the precipice of owning comparable-type exits.

You read through about the massive types, but at the finish of the day, the kinds that variety of slide underneath the radar – the personal deals – essentially have even larger multiples than what we see on some of the community M&A action.

Environmentally friendly: Governor Cuomo has been hinting not long ago at remaining “very close” on a deal for opening up the cannabis current market in New York. What do you feel are the biggest possibilities in New York right now?

Hawkins: If it can get done, that is great. I’m just involved that distractions in the state home ideal now in New York may perhaps get in the way of development there. But if it does not, and it is capable to appear to fruition, then there isn’t a sector that does not have a opportunity to thrive and prosper very properly in the state of New York.

Inexperienced: Hunting at other markets, Curaleaf just lately introduced a major expense in Europe. How do you look at Europe in basic as an expenditure prospect?

Hawkins: We have a rather interesting engage in in Europe correct now by a corporation named Relief Europe. It’s poised to be one of the to start with entrants to Germany. We consider it could be a significant get for us. But let’s encounter it, Europe is continue to a small guiding, in simple fact, a lot at the rear of the United States in phrases of where by they are as an sector. Most of the capital that we’re likely to be deploying is likely to be finished domestically in advance of legalization.

Eco-friendly: What sector developments are you observing in the yr forward?“We’re regularly learning from other industries that are measures in advance of us to determine out how to use individuals lessons as we proceed to commit in hashish.”

Hawkins: Nicely, I feel you will see a great deal of consolidation and a lot of ramping up in progress of legalization. I feel which is likely to implement in all sectors. I just do not see a circumstance wherein mom and pops or more compact players are going to be profitable exit companions with some of the new money that is coming in. They are heading to have to get to a position in which they are possibly selling to someone even larger than them ideal now or signing up for forces with organizations all over the identical dimensions as them and building mass. Which is the only way you are likely to compete with organizations coming in with billions of pounds to deploy.

Eco-friendly: How do you see this shaking out?

Hawkins: That is where by you start out to look into the crystal ball. It is definitely difficult to say for the reason that I think right up until we get to the place we truly have a nationwide footprint of brand names, which would need crossing state strains, it’s likely be seriously challenging to notify in which things go. I do know that liquor, tobacco, beer, the distribution corporations, they all are standing in line. Large Pharma, significant CPG, nutraceuticals, they all want obtain to this, also.

In some kind or trend, these bigger players will dictate how they want to go about attacking the market on their possess. So, that part stays to be noticed. We’ll just have to hold out and see in which this goes and how quickly it goes there.

Inexperienced: Are you searching at other geographies to deploy cash these types of as APAC or Latin America regions?

Hawkins: Not at this stage. It is not a aim at all. What a short while ago transpired right here in the elections just seriously helps make us want to concentration listed here and make good returns for buyers.

Eco-friendly: As hashish goes extra and much more mainstream, federal legalization is it’s possible much more very likely. How do you feel the institutional trader scene is evolving all-around that? And is it a great detail to bring in new funds to the hashish industry?

Hawkins: I never see a downside to it. Some people are stating that it could harm the collegial and cottage-like mother nature of the marketplace. At the conclusion of the day, if you have got tens of billions of pounds that are waiting to pour into corporations outlined on the CSC and up-listing to the NASDAQ or New York Stock Exchange, which is only heading to enhance their industry caps and give them a lot more dollars to purchase other corporations. The trickle-down impact of that will be so excellent to the industry that I just don’t know how you can look the other way and say we don’t want it. 

Green: Very last concern: What is obtained your focus these days? What is the factor you’re most interested in learning about?

Hawkins: We’re regularly understanding about just in which this industry is headed. We’re constantly finding out from other industries that are techniques forward of us to determine out how to use people classes as we proceed to commit in cannabis. We all noticed the correlation among cannabis and alcohol prohibition. The reality is that the market is experienced ample now in which you can see similarities to industries that have gone from infancy to their adolescent yrs. That’s sort of in which we are now and so we expend a lot of time studying industries that have been down this route right before and see what classes we can utilize here.

Inexperienced: Ok, excellent. So that concludes the job interview!

Hawkins: Thanks, Aaron.