Firms looking to invest big money in Colorado’s hemp industry
Charles Wellso described his early days of analyzing investment opportunities in the hemp industry as being like peering into a koi pond. The water was uncrowded. You could follow each fish and get an idea where it might be headed.
Flash forward to 2019. In its 2018 farm bill, Congress reclassified the hemp plant from a controlled substance to a crop like any other. Drug stores feature entire sections of CBD products derived from hemp. Research firm the Brightfield Group has projected the U.S. CBD market will be worth $22 billion by 2022.
Now the waters are a lot more crowded. The key to picking the right fish in Wellso’s view? Due diligence. Lots of it.
“There is no information out there. You can do all the research you want,” Wellso, the co-founder and managing partner of Sanitas Peak Financial, a Denver-based investment firm specializing in industrial hemp, said of the young U.S. industry. “So we’re cautious. We do a lot of tire kicking.”
Wellso’s and Sanitas’ tire kicking kicked into high gear Thursday at an investor forum organized as part of the sixth annual NoCo Hemp Expo. Plopping down on a collection of chairs and couches in a windowless meeting room at a Crowne Plaza Denver International Airport Convention Center, Wellso, fellow Sanitas Peak partner Zeid Masri and a handful of the firms’ staff members and friends launched a three-day effort to interview more than a dozen hemp companies looking for investment. The company’s other co-founder, Nicholas Mortimer, is joining the crew on Friday.
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Sanitas Peak launched a $50 million private equity fund dedicated to industrial hemp on Dec. 20, the day President Donald Trump signed the farm bill. The firm has previously invested in hemp, underwriting 13 percent of the Colorado harvest in 2017, according to Wellso. So what is Sanitas looking for in a company?
“It is a complicated matrix but I can boil it down for you to four traits,” Wellso said. “We call it FACE forward.”
The F stands for future vision; people who plan to stick around in the industry, not make a quick buck and get out. The A is for business acumen; companies that know how to tackle business problems with sound practices. The C is for character. Sanitas is looking for people with integrity. And E, finally, is experience, even if that comes in the form of success in other industries.
“The challenge in the space is that no one has really invested in it before,” Wellso said. “We have.”
Thursday’s first meeting was with Will Carr,founder of Denver-based WillPower, a company that produces a line of hemp-based dietary supplements marketed to athletes. WillPower’s products include protein powders with CBD in them, one of which uses plant proteins including hemp. Carr has also formulated a 2-ounce CBD wellness shot and a hemp-based protein bar. His products are already available for sale in more than 50 stores around the country. Now Carr has a vision of taking over shelf space in 7Elevens with his protein bars and shots.
“I think we really have a first-to-market opportunity here,” the strikingly tall Carr, a former college basketball player who played professionally in South America, said Thursday. He was asking for $500,000 for a 10-percent stake in the company with aims to build up inventory and fund marketing. “I feel like we’re turn-key at this point. As soon as we get an injection of capital, we’re ready to go.”
After meeting with Carr, the Sanitas Peak team welcomed Trey Riddle, founder of Kentucky-based Sunstrand. Riddle was joined by the company’s chief commercial officer, Adam Block. The duo declined to publicly share their company’s financials or what kind of investment they’re after, but they were willing to share some of the clients they are already working with. They provide hemp-based animal bedding to Walmart, sold under the Earth Supply Co. brand. They also provide Wrangler and Lee jeans brands (both companies that, for now, are owned by Denver-based VF Corp.) with American grown hemp for inclusion in their products. The goods they make also touch the automotive, construction, plastics and paper industries.
“People talk about using hemp to make paper or building materials,” Block said. “We’re the only ones in the Western Hemisphere doing it.”
Neither Carr nor the Sunstrand team walked out of their meeting with commitments from Sanitas on Thursday. That’s not the way the cautious company operates. Wellso said his firm hopes to announce two or three initial investments from its hemp fund in the weeks after the NoCo Hemp Expo.
In a Q&A session later in the day, Wellso did give a hint where Sanitas will continue to dedicate some of its funding: growing the plant. Just 21,000 acres of hemp were grown in Colorado last year, and that accounted for 25 percent of the entire U.S. crop, according to information provided by the Colorado Department of Agriculture. In 2019, that number is expected to grow to 28,000 acres. But it is going to take a lot more than that to keep up with demand.
“We certainly try to support the farming. It’s the tip of the spear,” Wellso said. “If hemp farming doesn’t succeed in this country, none of the rest of it really matters.”
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