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Tribeca Investment Partners, owner of the world's best-performing hedge fund last year, has found its next stock pick: a tiny grower of cannabis.
The Sydney-based money manager has bought shares in the initial public offering of Cann Group, the only Australian company that has a federal government license to cultivate marijuana for medicinal purposes, according to Ben Cleary, who co-manages the Tribeca Global Natural Resources Fund with Craig Evans. The fund, which soared 145 percent in 2016, is up 2.7 percent this year through the end of March.
Tribeca is buying into an Australia medicinal cannabis firm for the first time after successful wagers on stocks in this sector in North America, helping it beat more than 10,000 funds last year to claim the crown as the world's best-performing hedge fund. Cann raised $10 million (A$13.5 million) to expand its crops and further its genetics and plant breeding program and is due to list on the Sydney exchange this month.
"It's a logical investment for us in backing experienced management and the only licensed producer," said Sydney-based Cleary. He typically researches a sector, specific companies, their projects and directors for a number of years before making an investment, he said.
Tribeca's investments in medicinal marijuana firms represent a little over three percent of the fund's A$3 billion under management, Cleary said. Cann Group is the only Australian stock the fund is eyeing in this industry.
Offshore producers are also targeting Australian pot companies. Canadian-based Aurora Cannabis Inc. has bought a 19.9 percent stake in Cann Group for A$6.5 million, Cann Group said in an emailed statement. Canopy Growth Corp., which has the world's largest pot-growing facility near Niagara Falls, is Auscann Group Holdings Ltd.'s largest shareholder. Tribeca has invested in both these North American firms.
Cleary describes the cannabis sector as a "holy grail" of investments where there are strict regulations, a growing consumer base and high margins. While it's a nascent industry in Australia compared with the U.S. and Canada, stocks doing business in the industry are trouncing returns in the broader equity market.
"I think it's a very good consumption story," he said, however "there's a whole lot of market cap being created around companies that potentially don't go anywhere."