A $1.2 billion asset manager that's quietly built one of the largest portfolios in the cannabis space is now raising a pure-play fund to chase down deals in the booming sector

Jeremy Berke

May 13, 2019, 22:30 IST

A $1.2 billion asset manager that's quietly built one of the largest portfolios in the cannabis space is now raising a pure-play fund to chase down deals in the booming sector

REUTERS/Amir Cohen

An employee holds a test-tube as he works in the tissue culture laboratory of Pharmocann, an Israeli medical cannabis company in northern Israel January 24, 2019. Picture taken January 24, 2019.

$1.2 billion JW Asset Management is quietly raising money for a pure-play cannabis fund.
The fund is targeting approximately $50 million over the next six months, but will accept money each month, said Jason Klarreich, JW's CFO.
JW is one of the largest investors in the cannabis industry, with $600 million in assets on a mark-to-market basis, said Jason Wild, JW's president and CIO.

New York City-based JW Asset Management, a $1.2 billion healthcare and pharmaceutical-focused fund, is quietly raising money from both new investors and its existing investor base for a pure play cannabis fund. Called JW Growth Fund, the fund will target both public and private equity investments in the sector, said Jason Wild, the president and chief investment officer of JW Asset Management.

The cannabis fund will be managed by Wild, and Jason Klarreich, JW's chief financial officer, will be involved as the fund's CFO. While the fund will raise money each month - it'll be structured like a hybrid between a private equity and hedge fund - the fund is targeting approximately $50 million over the next six months.

"Our goal is to turn it into a billion plus over the next few years," said Wild.

JW has already quietly become one of the largest investors in the cannabis space, with approximately $600 million in assets across the US and Canada on a mark-to-market basis as of April 30. Wild said the fund has been investing in cannabis since 2014, and it was an early investor in the behemoth cannabis cultivator Canopy Growth.

Wild also serves as the chairman of TerrAscend, a cannabis company with operations both in the US and Canada. JW has a sizeable investment in TerrAscend through its main fund.

The pure-play cannabis fund is seeking a minimum investment of $500,000, with a 1-year lockup and a 2% management fee, according to a deck shared with prospective investors that was reviewed by Business Insider. Bank of America Merrill Lynch will act as the fund's prime broker, and Deloitte will audit its returns.

JW's cannabis fund will be unique in that it's based within a wider fund with a healthcare and pharmaceutical focus, rather than in a firm set up specifically to target the industry.

JW Asset Management

JW Asset Management's team.

Because JW's investor base is mostly high-net-worth individuals and family offices, they're free to invest in "plant-touching" US cannabis companies - unlike asset managers backed by pension funds or insurance companies who don't allow cannabis investments since marijuana is federally illegal in the US.

But the purpose of the cannabis-specific fund is to provide a platform for investors - including institutions - that will eventually want to get in on the sector.

"We think that as the cannabis industry matures, you'll see investors gravitate towards investing in funds," said Klarreich. "We wanted to have a vehicle that was focused in the space so that it would be a pure-play for someone who is a fiduciary looking to make an investment in cannabis rather than having it mixed in with our general healthcare fund."

While the fund will be focused on US opportunities, Wild said they and won't shy away from investing in Canadian companies. But they'll skip companies "heavily focused on cultivation," which Wild said has less dependable margins than retail and branding.

"We've seen lots of deal flow with things like dispensaries and brands over the past two months," said Wild. He mentioned a previous investment TerrAscend made in the California and Nevada-based Apothecarium dispensary chain as the types of deals the fund would seek.

To both Wild and Klarreich, the fund's edge lies within its management team and its long track record of delivering returns. JW's main healthcare and pharmaceutical fund has posted audited annual returns above 25% for the past two decades, said Wild.

Cannabis is a "very competitive space," Klarreich said. "We enter things with a longer-range approach and a more open-ended spectrum in terms of what we see as the opportunity."

Wild characterized the fund's approach as "long-term greedy," which means, in other words, "don't be greedy."