Private Equity Sees Hemp’s Potential

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Hemp advocate Geoff Whaling launches RePlant Hemp Impact Fund to promote hemp as a green industrial material

A new roughly $30 million industrial hemp decortication line built by Montana-based, privately-owned oil seed and fiber company Ind Hemp represents the future of industrial hemp as a potential building material and green ingredients for cars, among many other uses, advocates for hemp say.

Now the U.S. only has to build 524 more of these five-ton-an-hour hemp processing facilities as a key element of a potential $32 billion positive economic impact from domestic hemp fiber by 2030, according to a study by the National Hemp Association.

That’s where a new private-equity fund called the RePlant Hemp Impact Fund comes in. Formally announced on Saturday by cannabis executive and advocate Geoff Whaling, the fund aims to invest $500 million by 2030 in the supply chain for industrial hemp to jump-start the business. Sanitas Peak Advisory is a sub-adviser to the fund.

“Big corporations are looking at hemp but they won’t invest if there is no supply chain,” Whaling said at a presentation at the CBCWExpo at the Jacob Javitz Center in New York City.

While still in its formative stages, industrial hemp offers a “new cash crop for American farmers and a sustainable manufacturing input for a range of industries,” said Whaling, who is also chairman of the National Hemp Association and former president of Canopy Growth Corp.’s CGC, +7.63% WEED, +7.42% HIP Developments hemp unit.

Whaling is far from alone in his interest in drawing private money to foster the birth of a major American industrial hemp marketplace.

After the 2018 U.S. Farm Bill legalized hemp for the first time since 1937, the market for hemp has centered mostly around CBD, a non-psychoactive ingredient in the plant, as a potential health and nutritional product. But farmers quickly produced too much of it.

Now, private investors see a larger potential addressable market with industrial hemp, at a time when institutional money is taking aim at global warming and reducing the overall carbon footprint of industry.

Private-equity firms that participated in the early stages of the legal cannabis market are now also adding industrial hemp to their list of investible businesses. These firms will in turn look to exit some of these investments down the road in potential merger deals or by taking companies public via initial public offerings or special-purpose acquisition companies.

For now, few publicly traded companies provide direct exposure to industrial hemp, mostly because it remains a small business in private hands.

To be sure, like any new industry, many losers will be left on the side of the highway, and green projects often get shelved during times of economic hardship such as the 2008 global financial crisis.

But industrial hemp checks off a lot of the boxes that resonate with private-equity firms and their investors, including better use of farmland, creating rural jobs, and growing a product that sequesters carbon dioxide and outperforms many petrochemical products.

Tammy Dekel, co-founder and managing partner of Sanitas Peak Advisory LLC, a firm that has been investing in industrial hemp for years, said she’s also focused on building up the supply chain for the plant.

“We saw people coming into the hemp CBD market very, very rapidly,” she said during an investing panel at the CBCBExpo. “What we forgot was to figure out the size of the addressable market.”

Sanitas Peak Advisory is “very much focused” on primary processing for industrial hemp, she said.

“The tailwinds supporting the transfer of industrialization to more sustainable input materials are there,” she said. “Everything is aligning in the right direction for this plant and for this industry.”

Mina Mishrikey, senior partner and managing director Merida Capital, led a $14 million round of financing in Canadian Rockies Hemp Corp. earlier this year and urged others to pay attention to industrial hemp.

The potential market for industrial hemp products is “multiples larger” than the THC or CBD space, he said, but it still needs to take its first big steps.

The firm routinely sees strong investment pitches from companies such as an Idaho maker of hemp insulation that outperforms fiberglass, but it’s often too early to jump in.

“It’s an astounding fiber, but because the industry is not yet built I can’t invest in this amazing company because it has to be sold at prices close to fiberglass,” he said. “It can’t be [cost competitive] because the supply chain of this industry does not exist today. That’s what we’re focusing on.”

Sumit Mehta, founder and CEO of Mazakali, a cannabis investment firm based in San Francisco, said the birth of any new industry creates winners and losers such as Google eventually wrestling leadership of the Internet search business from rivals AltaVista and Netscape in the early 2000s.

His strategy is to spread Mazakali’s exposure across company phases of development and sectors in cannabis including plant-touching companies, international companies, cannabis real estate specialists and hemp.

“If you get diversification…over time, you will find the next Google and survive the AltaVistas,” Mehta said.

For his part, RePlant Hemp’s Whaling has been working on hemp investments for years. In 2019, Canopy Growth Corp. acquired his company AgriNextUSA and named Whaling to head up its roughly $150 million plan to build the first hemp industrial park in New York state.

In 2020, Whaling helped establish and build a special-purpose acquisition company called Collective Growth that raised $150 million for hemp investments.

Whaling said the SPAC pivoted away from industrial hemp because it couldn’t find any U.S. companies large enough to buy, since the space remains so underdeveloped.

Instead, Collective Growth combined on April 5 with Innoviz Technologies INVZ, +13.08%, an Israeli autonomous driving technology company, in a deal valued at $1.4 billion. Innoviz Technologies continues to trade on the Nasdaq.

Along with Ind Hemp, Whaling also said a venture called Black Buffalo 3-D Corp. could offer another path for industrial hemp. The company is researching industrial hemp as an ingredient in its 3-D printed homes, which can be made for less time and money than mobile homes provided to people forced out from flooding or forest fires.

Like many of the executives now moving into the industrial hemp space, Black Buffalo 3-D Corp.’s leader comes with a lengthy resume from the institutional investing space. CEO Michael Woods is the former CEO of Rothschild & Co. Asset Management U.S. Woods is also CEO of Big Sun Holdings Group Corp., which is in turn a member of the HN Inc. family of companies based in South Korea. Woods is also working with Whaling as chair of the board of advisers for the RePlant Hemp Impact Fund

While Black Buffalo 3-D appears to have some deep-pocketed owners, the company’s 3-D homes remain in the prototype stage, like much of the industrial hemp industry.

But Whaling said the future could be bright as an emerging sector to help the U.S. reach its climate change goals and promote a new crop for farmers.

“Access to capital is essential to scaling the new companies now operating in the hemp space,” Whaling said. “The RePlant Hemp Fund will not only support these American entrepreneurs but will supply a range of competitive options for companies seeking to replace input materials for everyday products like paper, plastics and cement with hemp.”