Cannabis Capital: Why One DFW Investor Saw a Market Opportunity and Staked His Claim

Matt Hawkins of Entourage Effect offers high-net-worth individuals and family offices access to the legalized cannabis industry. For now, "folks like us are the only games in town."

Texas may be behind the national trend around marijuana’s legal status, but one North Texan has staked a claim in the world of cannabis investment. He left Dallas private equity firm Tuscan Capital Partners in 2014 to found and serve as managing partner of Entourage Effect—previously known as Cresco Capital Partners—after seeing a market opportunity with marijuana becoming fully legal in Colorado at the time, but still federally illegal.

Because of federal legal constraints, cannabis companies couldn’t take part in commercial mortgages and other regulated financial services, and because cannabis startups were willing to pay a premium to private lenders Hawkins not only jumped into the lending market, he also decided to begin investing directly in cannabis-oriented businesses.

“I thought, ‘Why am I not investing in that guy, rather than just lending money?’” Hawkins told D Magazine. “I realized that this could be one of those generational wealth moments where I had the once-in-a-lifetime opportunity to get in on the ground floor.”

Entourage Effect has made almost 50 investments since its 2014 founding, all in various aspects of cannabis companies.

“We invest up and down the value chain because we believe there are opportunities throughout … there isn’t a sector of the business that we haven’t seen to date,” Hawkins told Dallas Innovates.

The investment strategy for Entourage Effect is relatively simple—offer high net worth individuals and family offices access to the legalized cannabis industry through diversified private company investments. What was most interesting about the cannabis market to Hawkins was the scale of the relatively untapped financial opportunity.

“[The cannabis market] is attractive because of the outsized returns that exist due to the federal illegality. There is a dearth of capital due to the lack of institutional money, so folks like us are the only games in town,” he explained.

Currently Entourage Effect has no investments in North Texas since cannabis is “only medicinally legal in a very small way” said Hawkins, but when the firm looks into startups for potential investment that analysis “starts and ends” based on the quality of management teams. With the right startup team in place secondary considerations include the sector of the cannabis industry and location of the company.

Location factors into Hawkins’ advice for founders looking to break into the burgeoning cannabis marketplace. He suggests developing and growing the business in one of the larger adult-use-legal states and plans to expand from that base.

As for North Texas? He sees a “very large business opportunity” whenever the proper regulatory and legal framework gets put into place explaining, “Until the state increases its medicinal program, there will be very little (if any) investment dollars flowing into the state of Texas.”

Cannabis is now fully legal in eleven U.S. states—Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington and only fully prohibited in three states as well as federally. The full legalization of marijuana in Texas and across the U.S. is now a matter of when, not if. And when that time comes to pass, Entourage Effect will be ready, having helped fund the rapidly growing cannabis market through its investments.

A version of this story originally ran in Dallas Innovates 2020: The Magazine.

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Dallas Innovates 2020: The Magazine highlights Dallas-Fort Worth as a hub for innovation. Our third annual print publication declares “The Future is Here.” It’s a moment for innovation in Dallas-Fort Worth, one that we’ve been working toward for a long time.

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