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Supreme Heights searching for the Brewdog of CBD

The Europe-focused investment firm is backed by The Supreme Cannabis Company Inc (TSE:FIRE), the $500mln Toronto-listed seed-to-consumer business

brewdog bottles
Patrick Morton, Supreme Heights chief executive, would like to bottle the driving ethos that has created a vibrant craft beer industry in the UK

It says a great deal about the potential of the UK and European cannabis industry that one of the market leaders in Canada has set up a special investment vehicle to find the best new start-ups on this side of the pond.

Supreme Heights is being backed by The Supreme Cannabis Company Inc (TSE:FIRE), the $500mln Toronto-listed seed-to-consumer business.

According to Patrick Morton, Supreme Heights chief executive, he and his team are looking for the Brewdog of the CBD industry.

The hipster-run, crowdfunded Scottish brewer is an object lesson on how a passion project can morph into a very significant business.

Motivated entrepreneurs

Recognising this, the Supreme Heights team is looking for similarly motivated young entrepreneurs who have a passion for the cannabis industry.

“The over-arching theme is authenticity,” says Morton.

“We want to find people who are doing this for the right reasons, who share similar values of sustainability, innovation and community.

“I think the craft beer industry is a good analogy. In a market that’s very crowded, a few UK brands have done a fantastic job of differentiating themselves.”

Now, at this point I realise I’ve thrown around a few terms and made some general assumptions about the readership’s understanding of the European cannabis market.

Here in the UK, the industry took a giant leap last year with the case of young epileptic Alfie Dingley, who was one of several high profile cases that paved the way for the legalisation of medicinal cannabis.

It’s fair to say there remains some uncertainty around the law, and, specifically, the Proceeds of Crime Act 2002, while the British medical establishment has not been particularly proactive in prescribing cannabis. So, it’s been more of a baby step than a giant leap for the UK.

By contrast, Germany appears to have embraced the drug’s medicinal use and, as befits the stereo-type, has quickly and efficiently created a regulatory framework around its use.

That means the Germans in terms of development are currently streets ahead of the UK in cultivating this new industry – though don’t count on this always being the case.

But for the time being at least, the focus in Britain will be on CBD-based products rather than medicinal formulations of cannabis.

CBD likely to be the UK focus 

For the uninitiated, CBD, or cannabidiol, is the non-psycho-active extract from the cannabis plant. When used, the solution it is thought to help with anxiety, cognition, movement disorders and pain. It is also being used in cosmetics and pet care.

THC, or tetrahydrocannabinol, is what makes people high. And, according to experts, it will be some time before the UK is ready to legalise recreational cannabis.

If CBD is set to be the bedrock of the emerging UK cannabis industry, then one source of funding for its growth is likely to be Canada, the only western economy to fully legalise weed.

Canada for a long time has also been the centre for capital that has funded the cultivation and commercialisation of the plant in the US, which has a schizophrenic attitude to the whole process.

A growing band of American states has legalised the medicinal use of weed, and some have gone further to sanction its use recreationally.

However at a Federal level, cannabis is still very much illegal. And, while the chances of the Feds arriving flack-jacketed and toting automatic weapons outside California’s dispensaries are almost zero, the banks, lawyers and accountants in the States aren’t willing to take the chance.

So, the Canadian markets have tended to be used as the source of risk capital.

And this brings us nicely back to Supreme Cannabis and its offshoot Supreme Heights, which is looking to deploy “several million dollars” in Europe, according to CEO Morton.

“It’s a pretty fragmented industry with some scrappy brands over here; many plagued by inefficiencies. We are looking for those differentiated brands that are developing high quality products and are trying to scale quickly,” he says.

“Supreme Cannabis brings some supply chain improvements such as access to low cost CBD as well as distribution expertise, marketing, back office and, of course, the capital. We want to be an accelerator or incubator.”

Innovative companies 

Supreme Heights wants to back innovative CBD companies rather than take them over. So it plans to take mid-sized minority stakes; something in the order of 20-50%.

It wants to raise further cash from outside investors, which is likely come via a private funding round with a stock market listing still at least a year away.

Established long-only funds in the US have registered their interest, as have UK merchant banks and small-cap investment funds.

“As Supreme Cannabis has an established its track record, it has gained a lot of access to capital in Canada. And I’d say the interest has been surprisingly strong from those looking to co-invest. The concept is resonating,” says Morton.

“It’s a rare feeling, but I don’t think money will be a problem. There’s a lot of interest.”

Quick facts: Supreme Cannabis Company Inc

Price: 0.21 CAD

Market: TSX
Market Cap: $102.49 m

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