Capital is a Change Agent for Cannabis IndustryInvesting in cannabis, brother-sister team finds success in the new industry.
Morgan Paxhia and his sister, Emily, have proven themselves as investors with a keen eye for cannabis success stories. Their investment fund, Poseidon, which has become the longest-running fund in the sector, counts some of the largest cannabis brands in its Rolodex. GW Pharmaceuticals, Aphria, FlowHub, and Pax were some of their first investments but have gone on to become industry heavy-hitters.
Since the launch of Poseidon in 2013, the investment firm has gone from cold-calling possible leads to complete integration within the broader national cannabis landscape. Paxhia discussed the incredible journey of Poseidon in a recent interview, including key insights into the future of a rapidly evolving industry.
The Inspiration Behind the 1st Cannabis Investment Fund
Paxhia and his sister grew up in Upstate New York. Unlike other early starters in the industry, the siblings had little previous experience with the plant. Beyond their father's known love for cannabis in his adolescent years, both Paxhia and his sister had little familiarity with it.
The decision to launch into cannabis, well before it was a hot investment trend, was inspired in part by their father's final days in hospice. To Paxhia's astonishment, a nurse offered cannabis to his father in a gesture of compassion. As this was long before the days of legal medical marijuana, the gesture hit home with Paxhia.
Several years later, California and Colorado began a journey through cannabis policy reform. Emily, who traveled for work, brought back exciting stories of this burgeoning new industry. As Paxhia explained, "The fact that they were even talking about it as an industry, at the time, was hard to imagine." Still, the siblings both agreed. "We believed that it was going to be a permanent shift in history."
The Paxhia siblings have a background in the finance industry. In their experience, "Capital is a change agent." They immediately saw the industry's need for capital investment as a means to push it forward.
By 2013, after exhaustive work pulling together lawyers, auditors, banks, and fund administrators willing to work in a federally illegal sector, Poseidon launched its first investment fund. While Paxhia now admits they may have mistakenly launched too soon to avoid some of the logistical nightmares of the early days, they set themselves up for a competitive edge years later.
In 2013, Poseidon became the first cannabis investment fund in a space where everyone was operating on the same even playing field. As an entirely new industry, there were no financial experts already building portfolios and analyzing profit margins—it was a brand new world eager for capital.
Building on Early Successes with Smart New Investments
Poseidon packed the initial investment fund, Fund One, with some of the most successful names in cannabis. Many of their initial investments have gone on to become household brands, including Pax, Aphria, and GW Pharmaceuticals. Fund One includes tech solutions, vertically integrated companies, and hemp processors, among others. It is split with roughly 80 percent private firms and 20 percent public and is closed to new additions.
In 2018, Poseidon opened up a second fund, Fund Two, which is still accepting new investment opportunities. This secondary investment portfolio includes industry innovators like Headset, Landsteiner Industries, and Sublime. Poseidon built it as a venture capital fund focused on Series A and later companies.
Poseidon may have started from zero, literally with the initial investments coming from Paxhia and his sister, but now has $150 million in assets under management. It is is now a key player helping to reshape the American landscape.
The Key to Building a Strong Portfolio
While their first investments may have come from intelligent livingroom research sessions, Poseidon's approach has dramatically changed over the years. The siblings now sit on 15 advisory boards across the country, giving them multifaceted insight into a rapidly changing industry. As new companies come online seeking capital, chances are Paxhia has already heard about their development from several different angles. This insight is built into their investment decisions.
They also have developed an intelligent investment funnel. Through careful analysis, Poseidon filters the entire industry down to the essentials and builds off that. As Paxhia explains, "Basically we looked at [the cannabis industry] in its totality and here are the areas we think are vital to building a multi-billion dollar industry."
Poseidon also accepts that a move towards federal legality may signal the end for their cannabis-focused investment fund. Although they were operating in Canada before legalization, they have since shut down north of the 49th parallel. While it will be quite a long time before the US federal government truly legalizes cannabis, Paxhia expects to move on to new pastures if and when this happens. Post-legalization, he predicts that the returns will flatten enough that the market will no longer be attractive.
In 2020, Poseidon's move away from cannabis is a long way off. Paxhia discussed the plan to open up a third investment fund, already in the early phases of development, and possibly several more should legalization take longer than expected. There is still a lot of excitement and potential in cannabis and a need for investment companies, like Poseidon, to use capital as a means to push it into new frontiers.