Business

Jay-Z’s $10M bet on equity

By Alex Halperin
(Photo by Andrew Burton/Getty Images)

Cannabis equity, the idea that minority communities disproportionately harmed during the war on drugs, should profit from the legal industry has long been a goal for cannabis progressives. But despite public and private sector efforts, and endless panel discussions at industry conferences, there are few equity success stories. As the industry’s largest companies, which generally have not made equity a priority, grow more sophisticated and expand their footprints, equity efforts may be running out of time. 

This month hip hop icon Jay-Z, in partnership with The Parent Company, a California-based portfolio of brands, launched what is probably the biggest and highest profile cannabis equity effort to date: A $10M investment fund which aims to back cannabis businesses owned by people of color. Start-ups backed by the fund also stand to benefit from The Parent Company’s corporate heft and Jay-Z’s cultural megaphone. (He’s the company’s chief visionary officer.) 

The capital will come from Subversive’s balance sheet which Auerbach recently pegged at $575M.

As the fund rolls out, competition has never been tougher for start-up cannabis brands. A growing number of multi-state operators are reporting revenues well-into the hundreds of millions. Overwhelmingly white-owned and led, some have indicated plans to create equity programs of their own. 

Michael Auerbach, general partner of Subversive Capital, the special purpose acquisition company (SPAC) that assembled The Parent Company, said the fund generally expects to make equity and convertible note investments of between $50,000 and $500,000 in companies led by entrepreneurs of color. It plans to consider plant-touching and ancillary businesses with a focus on California. The fund will also support equity-related non-profits. 

Since the killing of George Floyd last May, there’s been an outpouring of interest in supporting Black owned businesses. But closing the wealth gap between white and Black Americans is a generational challenge. There’s poetic justice to enlisting the cannabis industry, but because of its federal illegality, the industry amplifies the disparities in raising capital and other issues that Black entrepreneurs already face.

Auerbach cited the work of two businesspeople as the inspiration for The Parent Company’s investment fund. Robert Smith, a private equity mogul who’s the richest Black American, has called for American corporations to invest 2% of their net income into minority communities for a decade. 

The other is Aurora James, founder and creative director of sustainable fashion brand Brother Vellies, who is asking retailers to take the 15% pledge: Dedicate 15% of their shelf space to Black-owned brands. (Approximately 15% of Americans are Black.) The pledge has attracted a small but impressive group of retailers, including Sephora and Macy’s, though it’s not clear when they’ll hit the target. Few, if any, even claim to be close. 

One cannabis brand, California-based MedMen has made the pledge. UPDATE: The company declined to specify its progress toward achieving the pledge goals. 

California delivery service Eaze, which started an incubator for minority-owned cannabis brands recently told WeedWeek that it has sold $2.6M in equity products, an amount that implies equity brands account for well under 1% of the legal California market.    

Thus far cannabis equity programs have largely fallen short because it’s a hard problem and the well-intentioned organizations involved aren’t necessarily equipped to solve it. Doing so will likely require programs like The Parent Company fund that are designed to help build a corporate infrastructure for minority-owned brands and campaigns to make consumers care about the issue. 

“These aren’t quick exit investments,” Auerbach said. “The real exit in this industry is the end of prohibition when this becomes a real global market.”

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