Steve Miles aims to bring LaSalle Street to the marijuana business.
The co-founder of Livingstone Partners, a Chicago-based investment bank, has started a new firm called Sharp Capital Advisors that’s focused exclusively on weed. Because marijuana remains illegal under federal law, big-name investment banks so far have been unwilling to get involved.
“There really aren’t any traditional established firms that are operating in the space,” Miles says. “There’s no institutional capital in the industry. There’s a need for someone with relationships to help people raise money. They’re paying 15, 16 percent for debt that would be priced at half that in any other industry.”
Miles has spent nearly 25 years in middle-market investment banking, helping privately owned companies raise money or do mergers, acquisitions and sales. He co-founded Livingstone, which has about 70 investment bankers with offices in the U.S., Europe and Asia, in 2007.
Sharp will operate separately from Livingstone. Miles hired Steve Ernest from Viridian Capital, a New York investment bank specializing in cannabis, and Rebecca Hawkinson, a veteran Chicago real estate dealmaker.
Their move is one more sign that weed is becoming too big for professional services providers to ignore. In the U.S., marijuana sales are expected to reach $16 billion this year, up from $12 billion in 2019, according to Arcview Market Research and BDSA. In Illinois, where lawmakers legalized recreational marijuana Jan. 1, sales are on pace to hit $750 million in their first year.
Law firms were first to take a chance on weed companies, followed by accounting firms. Now it’s investment bankers.
Marijuana companies need many of the services investment banks provide in other industries. To capitalize on rapid growth, they need help raising capital for new facilities and additional staff. As the industry begins to consolidate, both acquirers and sellers need advice on structuring mergers and acquisitions, and help negotiating buyout prices.
“As the companies grow, their needs get more sophisticated,” says Bill Bogot, who leads the cannabis practice at law firm Fox Rothschild. “Sophisticated investment bankers can be really useful and make a lot of money in this space.”
For smaller and midsize investment banks, cannabis represents a lucrative new market that’s not yet dominated by Wall Street giants. Miles and others are looking to get a foothold before Congress allows traditional investment banking firms to swarm in.
Chicago is particularly fertile ground, with two of the industry’s biggest public companies, Green Thumb Industries and Cresco Labs, as well as large private players such as PharmaCann and Verano Holdings. Small retailers are being hunted by out-of-state buyers looking to enter the fast-growing Illinois market.
“Four of the 10 largest cannabis companies in the world are in Chicago,” says Charlie Bachtell, CEO of Cresco Labs. “The investment community is starting to recognize that.”
Whether they’re individual store operators or large growers and sellers operating in multiple states, marijuana companies need millions to build new stores and expand cultivation centers. But they can’t borrow from commercial banks because federal law still bars marijuana sales.
So they’ve been forced to turn to costlier financing techniques, such as the sale-leaseback transaction Green Thumb Industries recently used to raise $25 million for a new cultivation facility in Toledo, Ohio.
“Sale-leasebacks are expensive. You run out of land. You run out of friends and family. There’s definitely a need there,” says Barbara Webb, a director in the new Chicago office of MGO, a Los Angeles-based accounting firm with a large cannabis practice.
A handful of firms, mostly startups, have stepped in. MGO’s cannabis practice launched an investment-banking subsidiary, Ello Capital, last year. Most established firms remain on the sidelines. “The huge stopping point for us is it’s federally illegal,” says Rick Herbst, partner in charge of investment banking for Chicago-based Sikich. “There’s no way we can touch anything in cannabis right now, and we’re not willing to try to navigate that line.”
Miles sees opportunities to help the big players such as Cresco, the midtier players and little guys who “have licenses, facilities and no access to capital and running into the arms of (multistate operators).”
He hardly seems like a fit for a freewheeling industry of idealists, activists and risk takers. Miles spent his career doing middle-market transactions in the Midwest. Among his firm’s deals are the purchase of Bolingbrook-based physical-therapy chain ATI Holdings by GTCR, the sale of Chicago’s Goose Island Brewing to Anheuser-Busch InBev for $39 million and the $160 million sale of Mount Prospect-based currency-counting equipment maker Cummins Allison earlier this year.
“I’ve always operated in mature industries,” Miles says. “To be in an industry in its infancy, that’s wildly capital intensive, is fascinating.”
His first deal, back in 1997 while working in Minneapolis, was the merger and sale involving farm equipment maker Ingersoll Tillage. He sees it as an advantage. “That’s what we’re bringing: Midwest sensibility and professionalism. We’re about nuts and bolts, cash flows, management teams and business models.”
The 49-year-old St. Louis native brings something else, says Frank Celli, who says Miles helped him sell a New Jersey waste disposal firm for more than $200 million in 2006. The buyer wanted to change terms at the last minute. Miles and his clients walked out. “They did an about-face, and we got our purchase price,” Celli recalls. “I’m not a huge fan of investment bankers: Usually they’re all about the deal and the fee. It took a lot for him to say, ‘If this is what you want to do, I’ve got your back, and we’ll walk out together.’ “