Two of Russia’s most famous banking pioneers have their sights firmly set on the next huge emerging market. Credit Suisse First Boston alum Boris Jordon, co-founder of Renaissance Capital over twenty years ago and ex-Goldman Sachs banker and co-founder of Troika Dialog, Bernie Sucher, believe that the U.S. cannabis industry will reap similar profits to those generated from communism’s rubble.
Jordan, a controversial backer of Boris Yeltsin’s privatization programs that made those with connections overnight oligarchs, had this to say, “It is just like Russia in the 1990s. We are talking about an industry in its infancy that needs to be built up from scratch, legalization and all.” Although still federally illegal, state-approved marijuana sales have been exploding since Californian doctors began prescribing it 1996.
Medical cannabis is now legal in 28 states. Over the last five years, eight made recreational use permissible. Even facing opposition from the administration of Donald Trump, New York financial firm Cowen & Co. predicts legal yearly sales to reach $50 billion in the next ten years. Last year, sales exceeded previous records at $6 billion.
According to Jordan, his Sputnik Group and its partners have injected more than $100 million into making PalliaTech Inc. a national dispensary chain since first investing in the Massachusetts medical device manufacturer four short years ago. The Sputnik Group, a Moscow-based private equity firm, took over the company in 2015. It now grows its own plants and will soon open outlets in 13 new states.
Jordon, who is also a member of the Council on Foreign Relations in New York, said, “Our dispensaries look like Walgreens. They are filled with oils, pills, and creams.” The 51-year-old Russian-American is on track to realizing his goal of raising a further $200 million. He plans to use this fund for investing in other market opportunities, although he is yet to make any of his partners known.
Sucher, 57-year-old former head of Bank of America Merrill Lynch’s Russian operations, is both chief executive and co-owner of Tikun Olam USA. The company is in partnership with Israel’s biggest medical marijuana supplier and is active in Washington State, Nevada, and Delaware. It has already invested $9.3 million into marketing and licensing its proprietary cannabis strains to local cultivators.
The Michigan native said over the phone, “The only thing that qualified me to be CEO was my Russian experience of taking an idea and building it into a real business in volatile, even anarchistic conditions.” Tikun Olam, which in Hebrew means, “Repair the World,” is also in partnership with publicly traded Canadian grower, MedReleaf.
Specializing in biogenetics, the Israeli firm is selectively breeding and trademarking its strains, designed specifically for treating certain medical conditions, from post-traumatic stress disorder to insomnia and chronic pain. Jordan and Sucher helped develop Russia’s capital industries after the 1991 disbandment of the Soviet Union. For well over two decades, they continued investing actively in them.
There were some setbacks for the two. Russia’s 1998 default on domestic debt burned both of them. However, they stayed in Moscow, unlike Goldman Sachs, which in the subsequent crash, pulled out of the country altogether. The accompanying commodities-driven boom of Vladimir Putin’s climb to the presidency promised new opportunities for them to capitalize on.
With depreciating oil prices and international sanctions slowing Russia’s escape from this century’s longest recession, Sucher and Jordan found a market in American weed. According to vice president of Viridian Capital Advisors in New York, Harrison Phillips, Jordan’s investments especially would guarantee him a major share of the market.
Viridian, which tracks approximately 50 traded firms via its Cannabis Stock Index, evaluates total industry investment at around $3.8 billion up until now, including last year’s $1.3 billion and even more in the first half of this year. Phillips said, “There are very few groups that we know of in the cannabis industry that is raising or have on their books over $100 million.”
They are not alone. Will Abbot is another veteran of Moscow’s markets investing in marijuana as the next exploding industry. He quit his job as the British head of equities at Bank of America Corp. in Russia just last year. He is now injecting funds into a $20 million Arizona facility that began production in March and is set to reap lucrative dividends in the near future.
Speaking from London by phone, Abbot said, “The fact that it is so hard to invest in proves the emerging markets analogy. With regulations and other hurdles, there is a very high barrier to entry.” Federal prohibition is the largest obstacle, as it increases business costs for multi-state operations, leads to punitive tax rates, and makes trading between states impossible.
The federal ban has other consequences too: Credit card firms and large banks will not do business with companies in the industry, forcing them to deal exclusively in cash. This puts them at risk of violent robbery and theft. However, with support for legal cannabis growing, there is a strong likelihood of early investors gaining the first-mover advantage.
According to a Quinnipiac University poll conducted on August 3, a whopping 94 percent of United States citizens want marijuana legal for medical purposes, while full legalization has the support of 61 percent of them. “It is a modern-day gold rush,” says Sucher. “It makes me nostalgic for what it was like starting Troika 25 years ago, but this time nobody is getting hurt.”