Chris Hunt grew up on the East Coast, specifically Boston, where winters are harsh, especially on the football field. But that didn’t stop him from becoming an All American tight end at Trinity College and later trying out with the New England Patriots. The Pats stuck with Gronkowski, but instead of dropping the ball, Chris simply ran it in another direction…
…New York City, to be exact, where he put his traditional B.S. in Economics focused in regression analysis and international finance to use at a boutique investment bank on Wall Street. He transitioned over to JP Morgan’s private banking headquarters in the real estate sector, but soon realized that asset management and private banking weren’t aligned with his long term finance career goals.
Chris took the next steps to secure his future by takingthe Charter Financial Analyst (1 and 2) and the Chartered Alternate Investment Analyst programs to improve his skill set and make the transition into private equity.
He landed at Falcon Global Acquisitions, learning the ropes of private equity and corporate finance. Had he chosen to stay put, he definitely would have enjoyed a successful career. But the Green Rush called, and Chris Hunt answered.
“About 18 months ago, a friend called looking for assistance raising growth equity for his Tier 3 license cultivation operation in Washington State. So I went to bat for him,” says Chris, “reaching out to private equity and venture firms in the cannabis space from across the US, Canada, and a couple firms overseas.”
Problem was, there was no paradigm in place for cannabis investing or consulting strategies, so Chris created one. His game plan was straight-forward, consisting of cold calls, hitting the pavement and fielding any and all conversations with large, private equity firms. Chris found success by blending a more gritty approach with his ‘wolf of wall street’ finesse, and describes the experience as overwhelmingly positive. He explains, these were not analysts picking up the phone, rather “high level executives and portfolio managers; very smart people who were in tune with this new and growing industry.”
In the process, Chris got a crash course education in all the different verticals in the cannabis market — from cultivations to dispensaries, retail, manufacturing, tech, infrastructure, distribution and branding. He soon became an expert consultant and now helps cannapreneurs of every size with business advice, direction and funding. Today, Chris has built a strong client base and through his private equity firm, Hunt Equity, has relationships with almost every cannabis investment fund across the country. When a client approaches him with a specific ancillary product, Chris knows exactly which funds are interested in that specific vertical.
To those that feel they’re late to the cannabis party, Chris couldn’t agree less:.
There’s room, or growth for everyone to make a dollar, mainly because the growth rate of the industry as a whole is so high, there is not as much competition or pressure to produce outsized returns – they’re there..
“Funds are also raising less money per vintage, so there’s capital for everyone. We have a commitment for $20mm and look toI raise another $10-20mm through our family office and investment banking relationships. We are currently reaching out in what you’d call a road show. We go out, pitch our family offices and investment banking networks and get a few $5 or $10mm checks from ultra high net worth investors or family offices. But ultimately, checks come in all different sizes. These family offices refer to a private investment group that manages one or two ultra high net worth family portfolios. So we assume a piece of that portfolio allowing the office to diversify away from the overextended public markets. Private equity firms are expected to return 30% year over year on committed capital, because of the riskier and illiquid nature of the investment, a higher return is expected.”
Higher risk, no doubt. Higher return? That’s to be determined, at least in states that continue to struggle with fluctuating compliance laws and conflicting state and federal mandates. But as we know, it’s not stopping the masses from moving forward. Not since the Gold Rush of the mid-1800’s have people flocked west to chase fortune. Similarly, not since the Prohibition Era of the 1920s has America seen a commodity go from illegal to legal. The undeniable conclusion being, Cannabis and all its verticals present a once in a lifetime financial opportunity.
But many questions remain. How do you approach the cannabis industry, as a private equity firm or as a venture capitalist? The best fit seems to be VC, since most canna-businesses are too new to prove anything on paper and/or raise money by themselves. At his firm, Hunt Equity, Chris employs a 40% discount rate to discount the future cash flows or projected valuation a few years out as based on projected revenue, given the execution and regulatory risks of the industry.
Chris’ biggest piece of advice is both theoretical and urgent. First, ‘learn from the past and remember that history repeats itself’. Great, but how does this apply to the cannabis market which has minimal history? According to Chris, an “arbitrage opportunity” is developing within the greater cannabis industry that follows the same patterns as existing business models in place that follow a set pattern:
“There’s an arbitrage opportunity in the cannabis market caused by the regulatory environment. For example, the price of a medical cannabis product is subject to commoditization. This hurts cultivators because their independent economic environment, state to state, differs (you can’t ship across state lines), so there becomes very intricate and segmented economic environments for the plant itself that also differs between the state and nationwide arena. And that creates an industry dislocation or what hedge fund managers call arbitrage because it’s legal state-wide but illegal federally, this creates an arbitrage opportunity to take advantage of the growth of the industry as a whole by investing in products, services and technology that do not touch the plant, while simultaneously isolating your investment risk away from the commoditization (or price decline) of the product itself..”
Potential investors, ourselves or people we know, have to consider both “Touch” and “No Touch” scenarios. Chris believes that with touch, or growth, you inherently expose yourself to commodity risk in terms of the decrease in the cost of the plant (explained above). The supply of the plant demand goes up and down along with the price. But with a No Touch investment, you won’t experience the top line squeeze from the inherent product communization. Opportunities in this category include all the ancillary products, industrial, tech, advertising/social media, and of course, banking.
So, in conclusion, whether you’re a dreamer (like most) or a hard numbers person (like Chris), your chances of cashing in on the green rush come down to strategy. Almost poetically, Chris describes the ebb and flow of institutional retail dollars as if it were a free-flowing waterfall, pouring down the path of least resistance. But numbers, like water in this case, don’t lie. It’s widely known that cannabis has the largest compound annual growth rate over the next five years.
So any money that flows into the cannabis industry will then flow into the subsets of that industry.
What will turn this babbling brook into a flash flood, according to Chris, is the inevitable changing perception of medical cannabis — it’s expanding total addressable market. Local communities, states, our nation as a whole and the world are changing and modifying their perception of cannabis. As people turn over a new (green) leaf, the year over year growth and acceptance and understanding of the benefits of the product will multiply. Visually speaking, we’re talking a Niagara Falls.
This urgency might explain why people from all walks of life and career disciplines are scrambling to educate and position themselves. When it comes to cannabis, the passion and potential are real.
“I’m an investor myself,” said Chris. “I’m putting my own money in these companies, not just collecting a consulting fee…I won’t work with a company I don’t believe in…So, that’s why I put my name on my business – because reputation is what’s important. I’m building a brand. It’s my name on the front door.”
I’ll bet that door is green.