A greenhouse worker holds a budding cannabis plant.
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Cannabis investors are a small community to begin with, in part because the mutual funds that own big stakes in most American businesses have steered clear of the sector. But even within that group, the name Beehouse rarely appears in announcements of financings and other capital-markets activity.
But Beehouse, run by Greg Heyman, has been quietly investing in U.S. weed companies for more than three years. The firm has deployed tens of millions of dollars across stocks, private equity, and debt deals. Heyman, 47 years old, has worked for Tiger Management, Miura Global, and Carl Icahn.
Heyman and Beehouse recently launched a hedge fund focused on public markets, Beehouse Partners, that holds publicly traded stocks such as Green Thumb Industries (ticker: GTBIF), and Lowell Farms (LOWLF). Heyman told Barron’s what drew him to cannabis investing, and why there is more upside to come in the U.S.
Greg Heyman.
Courtesy of Greg Heyman
A condensed and edited version of the interview follows.
Barron’s: How did you get involved in cannabis investing?
Greg Heyman: I like the contrarian element, I like going where the puck is headed, instead of where it is. There is almost as much cannabis consumed in the US as beer, and as recently as two years ago, a tenth of that consumption was legal. Existing demand for cannabis is roughly $80 billion to $100 billion a year. And last year, that legal market was less than $20 billion, up 56% from what it was in 2019. So that means that there will be huge growth, and a huge opportunity to find winners.
Beehouse has made a number of investments in closely held companies. When did you become interested in publicly traded businesses?
The macro tailwind of the normalization of cannabis in the U.S. is what got us excited about the industry in general. But at the end of 2019, some of the public companies started generating cash. It became clear to us at that point, that the best ways to capture the macro environment would be with the public companies.
What it brought our view into focus was a huge moat around their businesses. And all of the headwinds the public companies have to deal with today [as outlined in Barron’s May 3 cover story], will ultimately become tailwinds. I couldn’t believe that phenomenon wasn’t already priced into the stocks.
Cannabis investors often refer to time spent in the industry as “dog years,” referring to the pace of change in the sector. You have three years of experience, equivalent to a few decades in a less turbulent business. What are some of the important lessons you have learned?
The difference between “I have” and “I will have.” Companies that have had an audit, that have put forth quarterly numbers per exchange rules, are very different from companies that will have an accurate quarterly report, or will have an audit. That extends to, “I have a facility that has licenses, a team of people, access to water and electricity, etcetera” versus, “I will have.”
Another is that there are more idiosyncratic risks in the cannabis space than people expect. It’s going through growing pains, its history in the illegal market complicates a lot of the development.
Third, I would say that when you put big dollars to work, it’s nice to have an ability to sell. Right now, I don’t believe the promised return in private equity opportunities are as good as the high probability for return in the public equity opportunities.
The Beehouse Partners hedge fund was launched last year. How are the returns?
We were up over 120% in 2020, net of fees. And through this year, we are up roughly 10% for this year.
In the Barron’s cover story about cannabis stocks, you explained your bullish thesis on Green Thumb. What other U.S. names do you like?
Ayr Wellness (AYRWF) is one. Their ability to execute has been demonstrated by the fact that they’ve met or exceeded every number they’re every put out. They have an ability to win. Executives have shown a real ability to be dynamic in difficult environments, such as the Covid-19 pandemic. Ayr, Cresco Labs (CRLBF), and Green Thumb are all strong executors, strong allocators of capital, strong integrators of new companies, and strong operators.
Thanks, Greg.
Corrections& Amplifications: Beehouse has deployed tens of millions of dollars across stocks, private equity, and debt deals. An earlier version of this article incorrectly said it had invested tens of millions in debt deals.
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