Vireo Health (CSE:VREO), which owns Minneapolis-based medical marijuana producer Minnesota Medical Solutions, went public March 20 through a reverse takeover with a Canadian company listed on the Canadian Securities Exchange. Vireo Health stock currently trades around CAD$5.80. Should you consider buying VREO stock?
Well, I hadn’t heard of the company before my editor asked me to write something about it, so I did a little quick research. What I found seemed attractive enough. However, it was another company’s investment in Vireo that caught my eye.
Private investments, whether we’re talking about cannabis or any other industry, have become hot commodities. Publicly-listed companies are disappearing in droves. According to a 2018 study by the Harvard Kennedy School, the U.S. saw the number of public companies shrink by 48% from 8,090 in 1996 to 4,331, 20 years later.
For various reasons, private companies are opting to wait before taking the IPO plunge. Yes, we are witnessing a surge in unicorn IPOs right now, but that might indicate we are getting to the end of the business cycle; companies want to strike while the iron’s hot.
To help remedy the situation, the SEC and state securities regulators are overhauling regulations so retail investors like you and I can invest in private companies, formerly the domain of high-net-worth accredited investors, pension funds, and other large institutional investment funds.
Soon, investing in private companies will be as easy as sending money to a friend over your smartphone. In the meantime, there are some exciting options available. First, let’s start with the company I mentioned owned a piece of Vireo Health.
Cannabis Growth Opportunity: Based in Toronto and also listed on the Canadian Securities Exchange, Cannabis Growth Opportunity Corp. (CNSX:CGOC) invests in private and public cannabis companies. Currently, its investment portfolio is weighted 60% in private companies, 37% in public companies, and 3% in cash. At the end of October, its fiscal year-end, it had assets of CAD$42.2 million.
In the case of Vireo, Cannabis Growth initially invested $2.0 million in the company in July 2018. Its preferred shares were converted to 1 million common shares through the reverse takeover. Those shares delivered a gain of $3.7 million (188%) in less than a year. I recommend you take a look at its portfolio of investments. CGOC is an excellent way to capture a little of the private capital markets.
GSV Capital: Barron’s recently covered this Silicon Valley investment fund that owns a piece of Lyft, which is close to going public. GSV Capital (NASDAQ:GSVC) is trading at a 30% discount to its net asset value of $9.89, and Lyft (NASDAQ:LYFT) is the company’s seventh-largest holding. Other companies you’ve probably heard of in its top 10 holdings include Spotify (NYSE:SPOT), Palantir Technologies, Dropbox (NASDAQ:DBX), and Coursera. Unfortunately, it doesn’t have any cannabis investments that I’m aware of.
Years ago, I recommended GSV’s stock because I’d read founder Michael Moe’s book, Finding the Next Starbucks: How to Identify and Invest in the Hot Stocks of Tomorrow, and thought the premise of the fund made sense. It’s had some ups and downs since then, but given it’s focusing a lot more attention on its best ideas, more investments like Lyft are bound to push the stock higher.
That said, anytime you invest in private companies, you’re flying blind. These aren’t investments you should be making in a tax-advantaged account.
Other Private Equity Options
As the cannabis space evolves, more companies like Cannabis Growth will emerge, providing investors with lots of private capital options. In the meantime, I’d suggest you scour the listings of business development companies (BDCs) and private equity firms that invest in private companies that are growing, including those operating in the cannabis industry.
A good example is Compass Diversified Holdings (NYSE:CODI), a holding company that invests in middle market companies in North America. In February, CODI sold Manitoba Harvest, the world’s largest producer of hemp foods, to Tilray (NASDAQ:TLRY) for CAD$419 million.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.