By this time next year, a Beverly Hills-based firm says it will have invested at least $100 million into legal cannabis ventures in California.
StarGreen Capital plans to spread that $100 million between 15 to 25 startup or growing marijuana businesses, according to firm CEO Paul Daneshrad. The goal is to help those companies overcome persistent challenges the industry faces in accessing capital and real estate, and to help those businesses stay competitive as the Golden State’s cannabis market explodes.
“Our strategy is really to help grow the industry,” Daneshrad said.
News of the StarGreen Capital pledge came on the same day that Florida attorney John Morgan also committed to invest $100 million in legal cannabis.
If those pledges come to fruition, Troy Dayton, CEO of the industry research firm The Arcview Group, said it would put both StarGreen Capital and Morgan among the top five largest investors in the cannabis industry.
“It is an indication of what’s to come,” Dayton said, predicting even bigger numbers within the next six months as California transitions to a fully regulated medical and recreational cannabis market.
Daneshrad knows the California market well.
He founded StarPoint Properties nearly 30 years ago, investing heavily in commercial and multifamily real estate. He said they recently “redeployed” some of his company’s capital that had been going to traditional ventures, shifting it to focus on the cannabis space. Then they got outside investors funds from around the world. And StarGreen Capital was formed, registering with the Secretary of State just Tuesday.
There’s been a slight chill on the industry thanks to uncertainty at the federal level, Dayton said, with the avalanche of investment dollars that was expected after Californians voted to legalize recreational marijuana in November slowed to a trickle thanks to Trump’s appointment of marijuana foe Jeff Sessions as Attorney General. But after a few months with no signs of a federal crackdown, he said investors are starting to get bolder, with this week’s $200 million in pledges a solid sign that the tide has turned.
Daneshrad said there wasn’t any hesitation on the part of his company’s investors when he told them of plans to focus on cannabis.
“They’re excited about it,” he said. “It’s an explosively growing sector, and that growth can mean great returns and opportunities. That’s what they’re looking for on their capital.”
StarGreen Capital’s first project is to build around 1 million square feet of industrial space in Lancaster, which it hopes to sell off, lease out or partner with entrepreneurs to use for cannabis cultivation and manufacturing.
Lancaster became one of just handful of Southern California cities that permits commercial growing when it approved licensing up to 10 medical marijuana cultivation and manufacturing businesses in February, with the first applications made available April 1, according to Assistant City Attorney Jocelyn Corbett. She said they’ve handed out 30 or 35 applications so far and received a few completed packages back, which are all still being reviewed.
StarGreen is in talks with three other cannabis brands about either investing in or buying out their companies. Their names are being kept confidential while negotiations take place. But Daneshrad said one is a Colorado grower who wants to expand his operations to California. And Daneshrad said they’re “highly motivated” in their search for more companies that are profitable, have solid businesses plans, strong management teams and the potential to scale up.
“It’s going to get much more competitive,” he said, with the state expected to start licensing both medical and recreational cannabis businesses as of Jan. 1.
All of the investment dollars will be focused on the Golden State, Daneshrad said. Part of that is logistics, he said, since it’s easier to manage deals and projects close by. There’s also a loyalty aspect.
“We want to support our own state and where we live and play,” he said.
Then there’s the size of the market, with the weed industry in Los Angeles alone projected to be the size of the entire state of Colorado’s industry.
“California is also going to be the big market in the world,” Daneshrad said. “So our backyard just happens to be the biggest playing field.”
The influx of support from StarGreen Capital will make a “significant difference” for the industry, Dayton said, paving the way for more tax revenue, more jobs and better cannabis products for consumer
“The market potential in California and nationally for legal cannabis is just remarkable,” Dayton said. “But it’s going to take a lot of investment to realize that growth.”