Cannabis venture-capital firm Poseidon makes first investment in New York market

By Steve Gelsi

Poseidon is investing in startup PCA, which helped launch Flower Power Dispensers near Central Park in NYC

Poseidon Investment Management has invested an undisclosed amount in PCA, a startup aimed at addressing the lack of capital facing social equity license holders as they work to launch recreational cannabis dispensaries, MarketWatch has learned.

The transaction marks Poseidon's first move into the New York market, and one of the first investments in cannabis from an institutionally backed venture-capital fund in the state, which has been slower to ramp up than othes partly because of the burdensome cost of opening retail businesses.

Patrick Rea, managing director of the $20 million Poseidon Garden Fund, said the firm had been challenged by New York's complex regulatory structure and had held off making any move into the state until it found PCA.

PCA was founded last year by two former officials at New York's Office of Cannabis Management (OCM) who were familiar with the state regulations.

"We liked their unique background with OCM and they wanted a strategic finance partner," Rea said. "They understand the rules as well or better than anyone else."

PCA was founded to address obstacles that have arisen from New York's policy of awarding conditional adult-use retail dispensary (CAURD) licenses to people displaced by the War on Drugs and nonprofits that serve the former inmate community.

Also read: What New Jersey did right - and New York did wrong - with recreational-cannabis launches

Once CAURD licenses are granted, holders often struggle to come up with the capital to launch the business. A legal challenge to the CAURD process in 2023 also threw a wrench into the state's launch until it was settled this past November.

Poseidon closed its investment just as PCA was helping its first client, Flower Power, prepare for the opening on Monday by CAURD license holder Angelo Kitkas and his wife Amanda Kitkas.

Ben Sheridan and Matthew Greenberg launched PCA in 2023, which stands for Platform Cannabis Advisors, after they saw an opportunity to provide backing for CAURD license holders.

PCA's model is to provide real estate and other services to CAURD licensees in exchange for an undisclosed portion of the revenue from the business. The CAURD license holder keeps 100% of the equity in its business.

PCA also provides general advisory services, access to expert licensing and compliance consultants, accounting and chief financial officer support, an interest-free line of credit and other perks.

PCA Chief Executive Sheridan said the deal with Kitkas is structured to align the interests of PCA and the dispensary owner.

"We only do as well as our client does," Sheridan said.

PCA is aiming to solve the chicken-or-egg problem with CAURD license holders. It may cost hundreds of thousands of dollars or more to get a store open, and once it does, the dispensary may be worth exponentially more. But getting there without a pile of capital is a challenge.

PCA compares its business model to McDonalds Corp. (MCD).

"At its core, McDonald's is a real-estate development company" with nearly two thirds of its franchisee revenue in 2023 derived from rental income, Sheridan said.

"Though we aren't controlling our licensees in any way, and we don't require the licensee to follow a standard set of operating procedures the way a McDonald's might, at its core the value proposition remains the same: You pay us to build out and use our land, and we will help you become successful," Sheridan said.

Kitkas and his wife Amanda Kitkas both work at the dispensary and they've hired 26 full-time and part-time employees.

Kitkas applied for his CAURD license in September of 2022 after he had previously run an illegal pot delivery service and got busted. After winning a license in April, 2023, he found a space to rent. But after a court injunction on Aug. 7, 2023 halted the development of cannabis licenses, he ended up losing his lease.

The entrepreneur also faced the challenge of a change in state rules that required a signed lease to move ahead with a license, instead of just a letter of intent from a landlord.

That ramped up the cash requirement because prospective landlords tend to want double the traditional rate of rent for cannabis dispensaries, which are viewed as more risky than other businesses. Commercial leases also require guarantees of up to 12 months of rent.

Kitkas also applied for capital from a state-backed fund, but the injunction fouled up that transaction as well.

When the injunction was lifted in November, Kitkas was once again shopping for a location for a dispensary and heard about PCA, which helped him find his new store on 66th Street in a luxury apartment building between Central Park West and Lincoln Center.

Kitkas tapped his experience as a licensed electrician and managed to build out the space in about 28 days, with an opening on April 1.

"I fell in love with the location," Kitkas said. "The deal with PCA was extremely excellent. They're my landlords. It's still my business."

He named his dispensary Flower Power Dispensers to reference his electrician background and his love for cannabis.

Meanwhile, Sheridan said PCA has two more dispensary deals in the pipeline and it's planning to grow its business beyond that.

"Poseidon recognized the potential behind PCA's model and invested in [our company] to replicate our success in bringing Flower Power Dispensers to market," Sheridan said.

For its part, the Poseidon Garden Fund makes investments in cannabis businesses of up to $1 million each. It made its initial investment in 2021 and had not made any moves into the New York market until PCA.

Also read: Florida Supreme Court OKs adult-use cannabis referendum for November ballot in victory for pot companies

-Steve Gelsi

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04-04-24 1306ET

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