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Chrystal Capital Partners launches USD100m medical cannabis fund

Chrystal Capital Partners, a London-based entrepreneurial corporate finance and investment house, has launched Verdite Capital Fund I LP (Verdite), a medical cannabis and cannabinoid focused alternative investment fund regulated in Guernsey. A first close of USD100 million is planned for the end of 2020, with USD75 million committed from a cornerstone investor, subject to final documentation.

Following years of investment activity in the burgeoning legal cannabis market, Chrystal has assembled a team of highly experienced investment professionals and global sector specialists to help investors gain broad exposure to this rapidly expanding alternative asset class. The private equity Fund will target investments in well-managed, fast-growing companies active in legal and regulated cannabis and cannabinoid markets around the world, with a focus on the medical, pharmaceutical and wellness sectors. Verdite will aim to create a diversified portfolio of 10-15 high-quality investments in these markets and to accelerate value creation through the life of the fund. The Fund will not invest in the recreational/adult-use segment.

Investment partner Kingsley Wilson says: “We are delighted to launch Verdite, a fund that will address the equity funding gap in the hugely exciting and growing medicinal cannabis market. Overseen by a team with decades of cannabis and private equity experience, we believe that Verdite presents the vehicle through which investors can profit from the significant value creation that is now unfolding globally across the legal cannabis healthcare space.”

The perception of cannabis has changed dramatically over the last decade. The medical benefits of the plant are now beginning to be understood and the world is now in the midst of a global wave of decriminalisation and legalisation. Medical cannabis is now legal in over 40 countries and 33 US states and the shifting landscape has been further highlighted by the Covid-19 pandemic leading to a majority of US states declaring it to be an “essential” product, while demand from the burgeoning European medical market is accelerating.

The total estimated size of the cannabis market is USD350 billion per annum, of which just USD15 billion is currently legal and regulated. An industry of this size coming out of prohibition is a once in a lifetime investment opportunity. Over the next decade the market will transition into a legal market, where it can be regulated, monitored, taxed and most importantly for investors, profited from. If the mature cannabis sector trades at c3x global annual sales, as is the case with the alcohol, tobacco and pharmaceutical sectors, then a trillion dollars of shareholder value will be created over the next decade. Verdite has been set-up to exploit the investment opportunities this provides.

Chrystal believes that now is the perfect time to invest in the cannabis market ahead of the institutionalisation of this alternative investment sector. Institutional ownership in the cannabis sector is estimated to be less than 5 per cent, in contrast to 50 per cent for companies in the technology sector. Additionally, previously inflated valuations have rebased through 2020 and growth capital is scarce despite the significant number of well-managed, fast growing, high quality companies. This creates an opportunity to invest into a these businesses at low valuations ahead of secular growth and value creation.

The dedicated investment team has substantial sector experience and a deep pool of knowledge on the regulatory landscape, medical research, technological developments and industry participants. The team has reviewed over 500 deals in the space and have identified a number of sub-sectors that they expect to outperform versus the rest of the industry. In addition, the 11 person Advisory Board and Panel of sector experts includes Bruce Linton, the founder of Canopy Growth (USD5.5 billion market cap) and Colin Stott, former R&D Director of GW Pharma (USD3 billion market cap).

Chrystal made their first cannabis investment four years ago and have now deployed over USD210 milllion into the sector on behalf of investors. Now investors are looking for broader exposure to this exciting sector, and Verdite has been specifically established to provide these investors with an institutional quality diversified risk-adjusted investment approach.

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