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  • Exclusive: Cannabis investment firm Navy Capital winds down operations 🍨

Exclusive: Cannabis investment firm Navy Capital winds down operations 🍨

Plus, DeSantis ramps up legalization fight

Good morning.

Tomorrow morning, we’ll have Aurora Cannabis CEO Miguel Martin on Cultivated Live to chat about the latest quarter and what’s next for the company. You can tune in on our LinkedIn page at 10 AM (and be sure to give us a follow while you are there). 

In today’s newsletter, we have a scoop on why cannabis investment firm Navy Capital shut down.

Let’s get to it.  

-JB & JR

This newsletter is 1,433 words or about an 11.5-minute read. 

💡 What’s the big deal?

MARKET CHALLENGES
Cannabis investment firm Navy Capital winds down

What happened: Navy Capital, a cannabis investment firm led by Sean Stiefel and John Kaden, wound down operations in November after a legalization vote failed in Florida, Stiefel, the CEO and founder of the firm, confirmed to Cultivated on Monday. 

It’s the latest casualty in a difficult market for cannabis investors. 

Navy Capital invested in companies like Cann, a cannabis beverage firm, Sanity Group, a European cannabis company, and Harborside, a dispensary chain in California founded by Steve DeAngelo, and has also invested in publicly traded cannabis firms like Trulieve and Green Thumb Industries.

What they’re saying: In a November 15 letter shared with Cultivated announcing the firm’s closure, Stiefel discussed the failed Florida vote and why that catalyzed the firm’s shutdown. 

“While the industry has indeed grown significantly from where it was when we started the Green Fund in 2017, that growth has been accompanied by rapid price degradation as the industry has commoditized far more quickly than anticipated,” Stiefel writes. 

“The failure to pass was particularly disappointing because we viewed Florida as one of the most opportunistic structures for participants in the country, as we believed around $4B of revenue would potentially accrue to the publicly traded stocks and also create a substantial growth and profitability narrative in the sector.”

Dive in: In a follow up letter to investors on January 31 shared with Cultivated, Stiefel further discussed the reasons for shutting down the fund. 

“When we started Navy Capital nearly eight years ago, we had a simple thesis: cannabis would eventually be legalized in the US, would grow into a large and profitable market, and that investments in the early movers in the space would prove to be incredibly lucrative,” he writes.

“We believed that a lack of institutional capital, while an obstacle to near-term price appreciation, represented an opportunity insofar as it created an investing window in which funds like ours could invest at attractive prices to then eventually exit when institutional capital entered the market.”

“Eight years hence we have concluded that the thesis was simply wrong,” he writes.

Go on: The letter goes into further detail about why they believe their original thesis failed. 

They cite that cannabis has become more a commodity than a consumer-packaged-goods industry as brands have mostly been unable to distinguish themselves among consumers.

They say that many cannabis companies took too much leverage (debt) in anticipation of markets that never materialized, that the Biden Administration failed to pursue any meaningful reform for the industry and to ensure rescheduling happened before he left office, and that the emergence of the technically federally legal intoxicating hemp industry has been an “unforeseen headwind” for those in the traditional cannabis market.

“In retrospect, it is very clear that those who invested in the industry in the past 7-8 years were overly optimistic about the original thesis and how quickly it would play out,” he wrote. 

Still, they believe that at some point, the US and Europe will have federally legal cannabis markets — but it’s anyone’s guess how long that will take. 

And more: Navy Capital settled with the Securities and Exchange commission for $150,000 over anti-money laundering violations in January.

Why it matters: Returns have been elusive in the cannabis industry for investors. If you’re a regular reader of this newsletter, that should come as no surprise. 

The industry last year had pinned its hopes on legalization in Florida — with its population of over 23 million people and business-friendly environment — delivering a massive new market.

But while a majority of Floridians voted for Amendment 3, the ballot measure that would’ve kicked off the creation of a regulated cannabis market, it failed to clear the 60% threshold needed to become law after vociferous opposition from Governor DeSantis. 

The vote’s failure left many cannabis investors and retailers scrambling, as margins continued to plummet in existing markets and a new, profitable market in the Sunshine State never materialized. 

What’s next? At Cultivated, we report aggressively on the cannabis industry but we do not cheerlead when companies are forced to shut down. This is a tough industry in challenging economic times. 

We certainly hope that other cannabis investment funds are able to remain afloat. 

-JB

⏊ Quick hits

DeSantis says new Florida legalization push ‘won’t be on the ballot’ ⏰

Florida Gov. Ron DeSantis, a longtime legalization opponent who advocated fiercely against legalization last year, predicts that the new effort to legalize cannabis in the Sunshine State won’t even make it on the ballot due to pushback from the state’s Supreme Court. Read more from Florida Politics. The new ballot effort would ban smoking in public places, among other changes to Amendment 3 which failed last year. 

Oregon’s largest cannabis shop shutters 📉

The Portland Cannabis Market, Oregon’s largest dispensary, is closing after seven years in business due to recent break-ins that cost the owners and their partners over $1.5 million, KGW reports.

New York state senators seek to decriminalize all drugs 🗽

A bill filed in New York’s State Senate seeks to decriminalize the possession of all drugs and create a task force that would be responsible for studying and making recommendations about additional reforms, Marijuana Moment reports.

Curaleaf donates $250k to President Trump 💰

Cannabis company Curaleaf donates $250,000 to President Trump’s inaugural committee via the US Cannabis Council, a lobbying group, NOTUS reports. Read our newsletter from January 21 about the industry’s efforts lobbying Trump and the Republicans

🤝 Deals, launches, partnerships

Village Farms starts sales in the Netherlands 🤝

Canadian cannabis firm Village Farms International said yesterday that it started sales in its Leli Holland facility in the Netherlands, as one of 10 licenseholders to sell cannabis under the country’s recreational cannabis program. On Monday, we wrote about Canadian cannabis going global

Safe Harbor secures a loan pause with Partner Colorado Credit Union 👀

Cannabis financial firm Safe Harbor said it reached an agreement with Partner Colorado Credit Union to pause principal payments on a senior loan for two months while renegotiating terms. Safe Harbor says the move boosts Safe Harbor’s liquidity by $510, 000, allowing it to invest in growth initiatives amid ongoing financial restructuring. CEO Sundie Seefried stepped down last month.

Curaleaf launches the ‘Reef’ brand in Florida 🌴

Curaleaf announced on Monday the launch of the ‘Reef’ brand of cannabis flower in Florida. The company says the brand is inspired by Florida’s coastline, and will be available in 66 dispensaries across the state.

🧳 People moves

More executive shakeup at Ayr Wellness 🧑

Ayr Wellness CFO Brad Asher is stepping down from his role to pursue other opportunities, and the company plans to commence a search for his successor. Last month, Ayr promoted George DeNardo to president, who joined us on Cultivated Live to discuss his new role. The company’s former CEO, David Goubert, stepped down in September. 

Grown Rogue appoints Josh Rosen as Chief Strategy Officer 🏗️

Oregon-based cannabis company Grown Rogue International said it has appointed Josh Rosen as chief strategy officer. Rosen was previously the CEO of 4Front Cannabis and Vireo Growth Inc.

🧪 Science & research

Cannabis and pain relief 🥊

A new study by Yale researchers found that non-intoxicating cannabinoids like CBG, CBD, and CBN can be more effective than opioids in some cases for pain relief. Read the full study here

Minnesota’s medical cannabis program supports pain relief 🌿

A new study conducted by Minnesota’s Office of Cannabis Management found that for patients experiencing moderate to severe pain, nearly 32% saw a meaningful reduction in symptoms within four months of receiving medical cannabis. Read the full report here.

📊 Chart of the day

Sixty-seven percent of cannabis consumers say they plan to watch the Super Bowl, according to a new survey from medical cannabis company NuggMD. It’s a big, big marketing opportunity for cannabis brands…

📰 What we’re reading

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