IT has been a difficult year for cannabis investors, and as the dreaded bear continues to hit global markets, many are likely to continue to turn away from the sector towards more traditionally safe investments.
However, one cannabis venture capital fund, Oskare Capital, believes that now is a ‘great time’ to be investing in European cannabis.
Following a busy 2022 and the first close of its Oskare Fund I, BusinessCann spoke to Oskare’s Co-Founder and Managing Partner Alexandre Ouimet-Storrs to explore what makes him so optimistic about the sector.
Can you start by telling us a bit about Oskare
Oskare’s formation was a bit of an accident. When I asked our CMO and neurologist, Dr. John Rogers, if I should treat my son James with Epidiolex for his epilepsy, John couldn’t answer me right away. He did some research and then discovered the endocannabinoid system. It was not taught to him in medical school as it was only discovered in the early 90s.
We started Oskare in 2020. The idea was already brewing in our heads after we discovered the potential of the endocannabinoid system in medicine as well as the number of high quality startups in Europe seeking funding, so we quit our jobs at the end of 2019, not knowing there was a global pandemic coming. It was quite a surreal experience to raise a fund during a pandemic.
We’re based out of Paris, and we advise the fund that is based out of Ireland. We advise one fund which is called Oskare Fund I ICAV, and we had our first close this summer.
We’re focusing mostly on European investments, and we have good traction with family offices in the continent. Now that we have had a first close, our fundraising has really accelerated. The largest lesson learnt was that meeting people in person is key. We spent more than a year pitching on zoom during various lockdowns and being able to travel again has been a game changer.
With the funds from the first close, we’re looking to invest in five companies and we aim to do more as we continue fundraising. There are tons of great investment opportunities in Europe and the LPs we’re talking to are increasingly realising that.
So we’re very optimistic and there are few competitors, the generalist VC funds may do one deal here and there, but they won’t be that aggressive in the sector. It’s a great time for the sector and the valuations are extremely reasonable for the first time in many years.
What sort of companies do you select for investment?
During the pandemic, we had time to dive deep into the endocannabinoid system and we discovered many things, including the fact that pharma was looking at it again in earnest. We focused on unmet needs, treatments that don’t yet exist, and substituting treatments that are either expensive or have a really bad side effect profiles.
We looked at the different applications for the endocannabinoid system, and when you look at all these applications together, it’s a $440 billion market. So if you manage to get 1% of that by capitalising on the endocannabinoid system, that’s conservatively a $4.4 billion opportunity.
There’s lots happening in oncology, pain and central nervous system disorders. Those are the three main buckets, and those are the three main areas we’ve chosen.
We focus on the endocannabinoid system as a whole, not the cannabis plant, which makes us different to our peers. We know that the plant is part of the solution to targeting this system, but it’s only a part of the puzzle as synthetics can play a role alongside phytocannabinoids.
Our fund is split into two main areas. One of them is therapeutics, behind and in front of the counter. The other is what we call ‘picks and shovels’. Picks and shovels are solving the problems that the industry has, like getting plant based compounds to patients, educating doctors and pharmacists and providing data necessary to get these products to market
That’s our general thesis. We’re avoiding plant based compounds that target the endocannabinoid system as it’s very hard to get IP around it. Their pharmacological performance is not great either.
Also, we don’t touch production as it’s largely commoditised now and we don’t touch gimmicky CBD retail products that rely almost exclusively on marketing. We look for really good teams and very strong IP, and game changing technology and products.
As some investors pull away from the cannabis space, what do you think makes this a good time to invest in Europe?
Firstly, the investors we’ve seen pull out of the sector have typically been those who invested very early on, pre the sector crash of 2019, and are now once burnt, twice shy. Secondly, they were typically investing in North American public and private companies, both of which were seriously overvalued owing to retail investor interest and the wider macro market conditions.
Conversely, we’ve seen a good amount of new money come into the sector recently with investors realising that Europe is not North America. Medical cannabis here is not recreational cannabis in disguise, it is actually a well regulated and research driven sector that enables sustainable and substantial value creation.
What’s interesting is that in Europe, they’ve been able to do research and get grants for over ten years. Meanwhile, in North America, it’s tricky as it’s still federally illegal, so we’ve seen an absolute explosion of these types of research papers and patent filings, the bulk being in Europe.
The other thing is that a lot of family offices, our main customers, haven’t stopped investing. They still have cash and are still allocating assets. Big asset managers are maybe scared to go back into the market, but I would say there’s an increasing amount of interest in private equity and venture.
Whilst public markets falter our companies will have cash, will be developing their products, and will be properly structured and run. In five years, when things are back to normal, we will harvest.
And if you look, statistically speaking, in venture in general returns are better on vintages from ‘crises’. It’s not an easy market for everyone, but the fact that we’re up and running, we have a fund, and our deals are performing well says a lot.
Octarine just completed a €2m fundraise co-led by ourselves and DSM, and this raise is an important one because it’s the first time a real corporate outside of the tobacco companies, are actually investing in the sector. That’s really a good sign.
In sum, we’re very optimistic.
What is still holding the industry back, and what needs to change for it to flourish?
We don’t yet have access to institutional money because of poorly worded “vice” clauses in their mandates, which is the key thing holding back the sector, however, this also presents an opportunity as those investors can’t buy up all the best assets.
I speak to a lot of our peers and everybody’s saying the same thing, they can’t get institutional money. There’s still a lot of taboo in Europe with the old European money being particularly conservative, however, this presents a greater opportunity for innovative investors.
From a medical perspective, there’s also a dire need to have tested products, properly dosed, properly formulated, that doctors, patients and pharmacists understand and these are things we’re looking to improve through our investments.
Building an industry, professionalising it and making it more sustainable from a financial and ecological perspective is a big task, with a lot of work to do. Because of this, it’s a market extremely well suited to venture capital. We believe the returns will be excellent, but more importantly, that these medicines and products will significantly improve people’s lives, and often those people are those who most need help.