EXCLUSIVE
The MGO | ELLO Alliance, a partnership forged to provide professional services to the cannabis industry, launched a new, cannabis-focused investment bank on Tuesday. Spearheaded by financial veteran Hershel Gerson, boutique investment firm ELLO Capital seeks to fill a void in the cannabis financial services niche, providing much needed investment and advisory services to the emerging industry.
“We are essentially a one stop shop,” Gerson said. “Some of the other banks in the industry have certain products that they are really good at...whereas we can be really much more holistic in our advice and, as we go to our clients, give them the best capital solutions and advice relative to where they are in the market today.”
Gerson, who joined ELLO Capital from Macquarie Capital, brings 20 years of experience in investment banking to the team. He’ll be joined by a roster of seasoned financial professionals, including Jacqueline Bennett, formerly of J.P. Morgan’s Investment Bank; Dan Nicholls, the former vice president of one of the cannabis industry’s first venture funds, MJIC; and Danny Hurwitz, who brings with him 24 years of experience at firms like Goldman Sachs, Robertson Stephens, and BTIG. Evan Eneman, CEO of the MGO | ELLO Alliance, served 12 years at PwC, before breaking into the cannabis industry, co-founding a number of financial firms, including Snoop Dogg’s Casa Verde in 2015.
ELLO Capital will focus on guiding U.S.-focused cannabis, hemp, and ancillary companies through mergers and acquisitions, capital raises, and private placements. The company also aims to assist “traditional CPG companies that are looking at how to navigate the CBD or cannabis world,” like Altria, Diageo, and Constellation, Gerson said.
“[There] is no one that has the breadth and depth of services and experience that we have across the cannabis, hemp, and impacted industries that we do. So that's really the collective platform that is really unique and differentiated as the first of its kind,” Eneman said.
Although ELLO Capital may assist companies with go-public ambitions, Gerson explained that isn’t the bank’s primary focus, especially in a space that has been defined in recent months by mega-mergers and acquisitions, like the deal Curaleaf struck last week to acquire Chicago-based Grassroots for $875 million.
“Today’s M&A and financing decisions are shaping the future of cannabis, as witnessed by deals like the Canopy Growth and Acreage transaction, the Curaleaf and Grassroots deal, and the Green Growth Brands and Moxie merger,” Gerson said in a statement.
Plus, Gerson said he thinks a lot of cannabis companies jumped the gun in pursuit of the sky-high valuations found only on the public markets, when perhaps the private markets would have been a more appropriate choice.
“People are enamored by the significant multiples that are out there in the public markets. The private markets are generally a little bit more disciplined, but what they don't realize is when they go to the public markets it’s a small liquidity event,” Gerson said. “It’s one of the reasons why I generally think that the private markets are a better place given where we are in the cycle, given the early phase of the cannabis industry and these companies.”
Experts have long been skeptical of the exorbitant valuations of some cannabis companies, especially top tier, Canadian companies trading on U.S. exchanges. In recent months, cannabis stocks have crept lower amid a series of dampening headlines and disclosures, including former Canopy Growth ($CGC) CEO Bruce Linton’s ouster and CannTrust’s ($CTST) regulatory breach. In some cases, market-moving disruptions are nothing more than the natural life cycle of a specific company, Eneman said, but Gerson added that the market has begun showing signs of a broader shakeout, especially when it comes to these high valuations.
ELLO Capital’s launch coincides, rather serendipitously with a hearing by the Senate on the SAFE Banking Bill, which seeks to provide much needed banking services to the cannabis industry by providing safe harbour to banks looking to support cannabis businesses in legal states. Supporters of legalization on Tuesday will testify before the Committee on Banking, Housing, and Urban Affairs.
“It’s certainly helpful first and foremost for an industry that is in desperate need of banking and infrastructure," Eneman said. “That helps tremendously, which allows us more flexibility with how we advise and support our clients. On the flip side it also opens up a more competitive landscape from a banking standpoint.”
He added that he’s not confident there is enough support for the bill in the Republican-controlled Senate, but he applauded the progress the bill seeks.
Although neither Gerson nor Eneman would disclose what sorts of deals the company will focus on first, Gerson said ELLO Capital has “close to 10 mandates right now, from capital raising, to M&A, to helping facilitate a public offering on a U.S. exchange.” The first announcement from ELLO Capital could come as soon as the fourth quarter of 2019.
