Bronx-born 75-year-old billionaire investor Leon G. Cooperman recently disclosed that he’s invested in the cannabis industry.
Not only is this a big deal for the company he bought shares in, but it also marks further progress in the de-stigmatization of capital flow towards this growing industry.
Cooperman’s Career and Omega Advisors
In 1991, after 25 years, Leon Cooperman retired from his positions as general partner of Goldman, Sachs & Co. and as Chairman and Chief Executive Officer of Goldman Sachs Asset Management in order to start Omega Advisors.
Having amassed upwards of $9.4 billion in assets under management at the firm’s peak in 2015, Omega has faced troubles in recent years. Following the United States Securities and Exchange Commission insider trading charges against Cooperman, many investors began pulling money out.
Cooperman, initially intended to fight the allegations, saying ““I am not going to let these people destroy my legacy.” After determining that the time and dollar cost of the legal battle was too much, Omega settled with the SEC and paid a $4.95 million fine with no admission of wrongdoing.
Omega has since shut its doors to outside investors as it converted to a family office structure earlier this summer.
Now, with approximately $3.8 billion under management as of July 31st, 2018, Omega is still a market-moving force to be reckoned with.
Leon Cooperman’s Investment Strategy
As a overall long-term investor with a strategy of “holding long positions in companies with stocks which are mispriced,” Cooperman has joined the likes of Warren Buffet in the value investors winners’ circle with a long career of solid stock picks.
Whereas his early investments in companies like Teledyne (NYSE:TDY) were based on management and management alone, he has recently turned his focus towards free cash flow.
“Free cash flow gives companies the luxury to do good things, whether it’s pay dividends, buy back stock, invest in new plant equipment, et cetera,” Cooperman recently told CNBC.
With so few cannabis-related companies having a lot of free cash flow, Cooperman’s recent investment in the cannabis space shows that his investment strategy may be evolving.
Cooperman’s Investment in Cannabis
Just one day after Green Thumb Industries Inc. (CSE:GTII) (OTC:GTBIF) reported a 291% year-over-year increase in Q2 revenues, Cooperman told Business Insider that he’s a shareholder.
Having only been a public company since its June 13th reverse-takeover of Bayswater Uranium Corp., that means that Cooperman presumably hopped on the opportunity some time within the 55 trading days between the RTO and his recent interview.
Why he made the investment is a little less clear…
A Mispriced Marijuana Stock?
Having $13.6 million USD in quarterly revenues is great, but with a current market capitalization of over $430 million USD, Green Thumb is almost certainly mispriced, as Cooperman would say.
Whether or not it is mispriced to the upside or the downside however, is up to you to decide 😉.
Since Cooperman may have gotten into the company weeks ago when it was trading below $9 CAD per share on the CSE, we’ll give him the benefit of the doubt on valuation.
There is also a chance that he got into Green Thumb at even more favorable terms in the multi-million dollar private placement round that landed Green Thumb on the public markets.
Cannabis = Cash Flow?
While Cooperman’s investment in Green Thumb may not have been because of valuation, it may be due to the free cash flow potential of the pot producing company.
Although the company currently has debt obligations and an aggressive expansion strategy, Green Thumb’s national chain of retail cannabis dispensaries have the potential to produce tons of free cash flow over time.
With “eight manufacturing facilities and licenses for 59 retail locations across eight highly regulated U.S. markets,” Illinois-based Green Thumb has positioned itself for tremendous upside (and free cash flow) as the domestic cannabis industry takes off.
Until the company is further along in its expansion strategy, Cooperman’s cannabis investment is very much a play on management.
Green Thumb’s Leading Marijuana Management Team
Warren Buffett once said that “Henry Singleton of Teledyne has the best operating and capital deployment record in American business,” and he’s not wrong.
After co-founding Teledyne in 1960, CEO Henry Singleton turned his small semiconductor company into a multi-billion dollar conglomerate through a series of smart acquisitions and careful “deployment” of capital.
Using Teledyne’s high share price as a currency, Singleton was able to acquire over 100 companies, bringing the company from #293 on the 1966 Forbes 500 list up to #78 just over a decade later. Over the span of Singleton’s time at the helm, an initial venture capital investment of less than $500,000 turned into a widespread mega-company with billions in revenues.
With millions of dollars in the treasury and a rock-solid management team in place, maybe Cooperman sees Green Thumb as a play on leadership in the same way that he saw Teledyne back in the day.
Green Thumb’s Top Brass
At the helm is Ben Kovler, who founded Green Thumb back in 2014. In addition to growing Green Thumb into a national cannabis cultivator, dispensary operator and consumer packaged goods company, Kovler’s Milken Institute bio mentions that he is also chief investment officer for Kovpak II LLC, a Chicago-based investment partnership.
Beside him as Partner is Eugene Monroe, the first active NFL player to openly advocate for the use of cannabinoids to treat chronic pain and sports-related injuries. After being drafted 8th overall by the Jacksonville Jaguars in the 2009 NFL Draft, Monroe later joined the Baltimore Ravens on a trade in 2013. Following his 7 year career playing professional football, he joined Green Thumb “for its patient-first focus of striving to provide the best medicine possible.”
Given the company’s acquisition strategy, one of the most important people in the C suite is Chief Financial Officer Anthony Georgiadis, an investor and entrepreneur that has invested in a number of cannabis-related businesses including PAX, Cannasure, Headset, and Baker.
Keeping the company compliant with all of the complex cannabis industry regulations is Dina Rollman, an experienced commercial attorney turned cannabis attorney who has representing plaintiffs and defendants in business disputes throughout the country.
Additionally, the company’s Board of Directors shows even more top leaders from their respective industries including real estate and beyond.
Green Thumb just recently bolstered it further with the additions Glen Senk, ex-CEO of Urban Outfitters (NASDAQ:URBN), to its board of directors to assist the company with retail strategy, alongside Wes Moore, CEO of Robin Hood, New York City’s largest poverty-fighting organization to help with social impact.
Combined, they all posses a wealth of knowledge that will help Green Thumb grow and succeed in what is shaping up to be one of the most competitive industries out there. This may be one of the strongest parts of Cooperman’s investment thesis.
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