Exclusive Interview with Intrinsic Capital Partners’ Howard Goodwin, MD
This fall, Intrinsic Capital Partners announced a $102 million equity fund focused on the cannabis industry. Partner Howard Goodwin, MD, spoke with New Cannabis Ventures about his firm’s investment approach, the Intrinsic Capital value proposition and what he sees for the future. The audio of the entire conversation is available at the end of this written summary.
Partners at Intrinsic Capital
The team at Intrinsic Capital comes together to offer expertise at the investor level and the operating level to its portfolio companies. Goodwin, a medical doctor by training, built a career investing in private and public equities. As an investor in the life sciences space, it became clear that the cannabis industry was worth exploring. After doing extensive research, Goodwin and his team concluded that the plant had medicinal value and broad applications. He and his team ultimately decided to make their move into the cannabis investing space by focusing on emerging companies with a life sciences and technology focus.
Cornelius Merlini and Gerald Stahlecker are also partners at Intrinsic Capital. Merlini has spent years as an executive at companies like Johnson & Johnson. Stahlecker, most recently at FS Investments, is a shrewd investor with a legal background, according to Goodwin. The team is rounded out by Vice President Ross Desmarais, who brings his experience in private equity to the team.
The Intrinsic Capital Portfolio
Intrinsic Capital has invested approximately $65 million of the $102 million it has raised thus far. High-net-worth individuals, family offices and institutions have been attracted to the opportunity with the firm.
Right now, the firm’s portfolio includes four companies: lab testing company Act Laboratories, software company Treez, breathalyzer company Hound Labs and hemp wellness company Elemental Brands.
The Intrinsic Capital team is thus far pleased with the growth trajectory of its portfolio companies. The lab testing company started out with operations in two states, and it is expanding to seven states, according to Goodwin. He also noted that Treez started out as a point of sale platform but has since expanded its offerings to include solutions like seed to sale tracking, data analytics and inventory management.
Hound Labs is a commercial-stage breathalyzer company. Its product can detect cannabis impairment, which has clear applications in the law enforcement and employer sectors. Additionally, the company recently announced its technology can also detect COVID-19, which opens the door for broader applications.
Intrinsic Capital’s fourth portfolio company, hemp-derived wellness company Elemental Brands, has a team of executives who come from big pharma. With their experience and relationships with traditional retail channels, Goodwin is excited about their ability to scale the business.
Evaluating Investment Opportunities
Intrinsic Capital specifically looks for companies that address pain points and bottlenecks in the cannabis supply chain. Ideal investment opportunities are high-margin and have low capital intensity, offering a high return on invested capital. The Intrinsic Capital team also looks for opportunities with high barriers to entry, but most importantly, it wants to pursue companies that are scalable.
The firm’s team begins by looking at the addressable market opportunity of a given company and then seeks to determine what about that company is differentiated and scalable–how it will capture as much of that market opportunity as possible?
Intrinsic Capital also looks beyond the immediate opportunity. Once federal legalization comes to pass, how will a company fare? Will it be replaced by larger companies, or could it ultimately be acquired by a strategic buyer?
The firm also looks for alignment with the management team. Do a company’s leaders have a clear path to success? Naturally, Intrinsic Capital also completes a rigorous due diligence process to understand a company’s finances and IP.
In this first fund, Intrinsic Capital is primarily focused on investment opportunities in the United States, but it is already doing research on global opportunities. Goodwin expects the firm’s international focus to expand in subsequent funds.
Intrinsic Capital’s interest across cannabis industry segments will also likely evolve. For example, the team is pleased with its investment in Act Laboratories, so it is not actively focusing on other lab deals at the moment. But, it is looking at opportunities in animal health. The firm is always interested in looking at new opportunities, according to Goodwin.
Working with Portfolio Companies
To-date, Intrinsic Capital’s investments have taken the form of preferred securities, but the team is not locked into a particular structure. Each investment opportunity will be different, according to Goodwin.
Intrinsic Capital was built with the intention of being more than just a capital provider. The firm views its portfolio companies as partners. The firm has a team of advisors across life sciences and technology. Leveraging this network gives Intrinsic Capital the ability to offer its portfolio companies guidance and support for any functional category of business, according to Goodwin. The firm wants to work with its portfolio companies to create segment leaders in the cannabis industry.
Taking Advantage of Open-Ended Growth
Capital is not the sole solution to the challenges in the cannabis industry. Companies also need to be able to execute. Goodwin acknowledges the execution challenges facing all early-stage companies, but he is confident that Intrinsic Capital’s team and advisor network have the strength to support their portfolio companies and to take advantage of the open-ended growth opportunities ahead.
To learn more, visit the Intrinsic Capital Partners website. Listen to the entire interview: