Q&A with Scott Gordon of Silver Spike Capital
Silver Spike is an SEC-registered multi-strategy investment advisor focused on the cannabis industry and manager of the first cannabis-focused lending vehicle registered under the Investment Act of 1940 (“40-Act” fund).
Since its inception in 2019, the Firm has raised more than $1bn of public equity capital and deployed funds across various transactions and strategies. The $1.5bn business combination in 2021 of Silver Spike’s first SPAC with WH Holdings, a leading technology platform to the cannabis industry and operator of Weedmaps (ticker: MAPS), represents one of the largest equity checks ever written in the cannabis industry at ~$575 mm of cash proceeds.
In February 2022, the Firm launched the first cannabis-focused lending vehicle registered under the Investment Act of 1940—Silver Spike Investment Corp. (ticker: SSIC)—for the purpose of making first-lien, senior secured, middle-market loans, originated, structured and underwritten by Silver Spike. In June 2022, Silver Spike co-led a senior secured term loan of up to $170 million to Shryne Group Inc., the largest private company in the cannabis industry with the #1 and #3 California and nationwide brands, respectively.
Scott Gordon, Founding Partner, CEO & CIO at Silver Spike Capital, LLC (“Silver Spike”). Silver Spike is an SEC-registered investment advisor focused on the cannabis industry and manager of the first cannabis-focused lending vehicle registered under the Investment Act of 1940 (“40-Act” fund).
Prior to Silver Spike, Scott began investing in the cannabis industry in 2013 and soon thereafter co-founded Egg Rock Holdings, parent company of the Papa & Barkley family of cannabis and CBD products and one of the most widely known brands in California. Scott has over 35 years of investing and asset management experience. As one of the founding members of the JP Morgan emerging market debt business, he later managed the emerging market and distressed investing effort at ING Capital and the global special situations group at Bank of America. Scott subsequently led the emerging market businesses at Marathon Asset Management, Caxton Associates, and Taconic Capital. Prior to launching Silver Spike, Scott was President of Fintech Advisory, a multi–billion-dollar Family Office fund.
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How has Silver Spike been a pioneer as an asset manager in the cannabis industry?
Silver Spike brings together a unique combination of seasoned fiduciaries with cannabis industry domain expertise, risk management expertise, and investment management acumen. We excel at navigating complexity to generate returns, leveraging our extensive experience in emerging markets, credit, special situations, and distressed investing for three decades. And as early investors and operators in the cannabis industry since 2014, we saw first-hand the lack of capital or dedicated institutional sponsorship for the nascent and highly fragmented cannabis sector—giving life to the formation of Silver Spike.
The Firm has been a pioneer as the first and only multi-vertical asset manager in the cannabis industry by executing a number of first-time public market transactions and raising roughly $1bn in public market capital dedicated to the cannabis industry since its inception in May 2019.
In February of this year, Silver Spike priced on NASDAQ the first SEC-registered, cannabis-focused 40-Act fund—Silver Spike Investment Corp. (ticker: SSIC). SSIC is the first business development company formed to invest across the cannabis ecosystem primarily in the form of direct loans.
In June 2022, Silver Spike co-led a senior secured term loan of up to $170 million to Shryne Group Inc. which owns the #1 cannabis brand in California and the #3 brand nationally, representing the largest loan to a private operator in the industry.
In August 2019, Silver Spike launched the first publicly-listed SPAC focused on cannabis underwritten by a global investment bank, Credit Suisse.
Silver Spike Acquisition Corp's June 2021 $1.5bn business combination with WH Holdings, a leading technology platform to the cannabis industry and operator of WeedMaps (ticker: MAPS) represents one of the largest equity checks ever written in the cannabis sector at ~$575mm of cash proceeds.
Silver Spike has two additional publicly-listed SPACs that were launched earlier in 2021
Why is the private investment opportunity in cannabis at an inflection point?
2022 represents an intersection of several factors that provides opportunities for private capital in the space with attractive, risk-adjusted returns that are differentiated and uncorrelated to traditional markets.
The positive macro trends that fuel the industry’s growth remain undaunted: More U.S. states becoming adult-use, increasingly greater public acceptance, less stigmatization, and continued growth in industry employment and tax revenues, to name a few. Industry revenues continue to grow at a ~15% CAGR and are expected to continue doing so for the next decade. Separately, the European Union is expected to approve adult-use in 2023, thereby accelerating a global trend.
Yet, the lack of progress in federal legislation on cannabis, the complexities of a young, rapidly growing industry combined with the structural and regulatory complexities of a multi-state industry continue to discourage traditional sources of institutional capital. In addition, the equity capital markets are not expected any time soon to be a source of capital for the industry—including the less-liquid Canadian public markets where U.S.-based multi-state operators trade. (Note: Even the Safe Banking Act, which some hope may pass later this year, currently has no language that would open the capital markets to U.S.-based operators).
Consequently, investors with dedicated pools of capital find themselves in an enviable position to choose the very best projects and operators in which to invest—particularly in credit. Today, lenders can provide capital in the form of first-lien, senior secured, 3 to 4-year tenors, amortizing, floating rate, with prepayment penalties at mid-teen returns at 1x-1.5x leverage and LTVs of 20%-30% with covenants and other risk-mitigating structural features.
How does complexity amplify opportunities and play to the strengths of the investment team?
The cannabis industry is a complex, highly regulated multi-state market.
The Silver Spike investment team is comprised of investment professionals with individual careers that span three to four decades of managing risk in distressed and special situations domestically and in complex international jurisdictions that mirror many of the complexities found in the cannabis industry today.
Having successfully navigated several Fed tightening moves and episodes of financial markets crises over three decades, the investment team is uniquely qualified to assess, navigate, and successfully risk-manage a young and rapidly growing industry like cannabis.
Scott Gordon, founding member of Silver Spike and a 35-year investment professional in global special situations, distressed and emerging markets, held leadership roles at JP Morgan, ING Barings, Bank of America Distressed (International), Caxton, Marathon, and Taconic.
He is an early entrepreneur and investor in cannabis operating businesses, including California-based Papa & Barkley—an industry-leading cannabis/CBD health & wellness brand. He holds board positions at Papa & Barkley and WH Holdings, a leading technology platform to the cannabis industry and operator of WeedMaps (ticker: MAPS).
Frank Kotsen, who runs the Silver Spike credit platform, has a 24-year career in credit, including credit trading at Merrill Lynch and Bank of America and former Head of Global Credit and Special Situations at Bank of America Merrill Lynch. He ran all leveraged and investment-grade credit trading globally, including loans, bonds, CLOs, and special situations, and built and managed a ~$20bn credit asset lending business.
Our President, Greg Gentile, has a 25-year career in various leadership roles and active direct lending, risk management, derivatives, fixed income, and credit trading. These include: Founder & CEO of GMG Investment Advisors, LLC, a direct lender to the nascent Frontier and Emerging Private Credit markets; Former Managing Director and Head of Latin America Credit Trading at Barclays Capital; and Former Managing Director and Head of Emerging Markets Credit Trading at Lehman Brothers.
Dino Colonna, Partner, Investments, has managed traditional and alternative investment portfolios and advised corporations and institutional investors across the global capital markets. Previous experience includes: former managing partner at Madison Capital Advisors, a middle-market asset-backed lending and advisory firm focused on emerging growth companies in the cannabis, life sciences and tech sectors; over 10 years as an investment banker at the top-ranked Equity Capital Markets team at Barclays in London where he advised on and structured over $8bn of equity, derivative and debt transactions; and former senior research analyst at Forest Investment Management, a global multi-strategy hedge fund.
Silver Spike Partner, Credit, Umesh Mahajan has a 28-year career in various middle-market, credit, and special situations investing. These include: Former Managing Director at Ascribe Capital, a credit fund focused on value investing in middle market companies; various roles at Merrill Lynch and Bank of America in their Global Markets and Investment Banking divisions and Former Managing Director in the Global Credit and Special Situations group at Bank of America Securities, and Former Vice President at Principal Credit Group at Merrill Lynch; and a former member of J.P. Morgan’s investment banking team in Asia.
Scott Gordon of Silver Spike Capital
Scott is CEO and the founder of Silver Spike Capital. He began investing in the plant-based and health & wellness industry in 2013 and soon thereafter co-founded Egg Rock Holdings, parent company of the Papa & Barkley family of cannabis and CBD products. He is also among the pioneering investors within the burgeoning realm of psychedelics for use in mental health. Scott has over 30 years of investing and asset management experience in emerging markets. He was one of the founding members of the JP Morgan emerging market business and later went on to head the market leading emerging market and distressed investing effort at ING Capital and the global special situations group at Bank of America. Scott then went to the buy side, where he led the emerging market businesses at Marathon Asset Management, Caxton Associates, and Taconic Capital. Prior to launching Silver Spike, Scott was President of Fintech Advisory, a multi–billion-dollar Family Office fund.