Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Hemp and CBD Companies
Transcript
- Lucas: Private equity has rolled up everything from car washes to funeral insurance. But there's one fragmented industry that's been flying under the radar — hemp and CBD. Luna: I was wondering when we'd get to this. The cannabis-adjacent space always felt like the next frontier. Lucas: It is — and it's happening right now. Let's look at a specific deal. In late 2025, a pe backed platform called Brightfield Group acquired Charlotte's Web Holdings, one of the best-known CBD companies in the US. Luna: Charlotte's Web — the one that went public in 2018 at a valuation near a billion dollars, right? Lucas: Exactly. At its peak, the company was worth over $900 million. Brightfield Group bought it for roughly $85 million. That's about a 90 percent haircut. Luna: That's brutal. So the thesis here isn't growth — it's buying distressed assets and consolidating. Lucas: Correct. Brightfield Group isn't a household name. It was formed by a consortium of PE firms — I've seen reports that involve middle-market shops out of Chicago and Denver. They've been quietly acquiring smaller hemp extractors and distributors since 2023. Luna: So the playbook is familiar. Buy a struggling marquee name for cheap, then bolt on smaller operators to create a scaled platform. Lucas: That's the idea. The hemp market is massively fragmented. There are hundreds of small growers, processors, and brands. Most are family-run or small-cap public companies that have seen their stocks crater. PE sees an opportunity to clean it up. Luna: But there's a regulatory cloud hanging over all of this. The FDA still hasn't fully legalized CBD as a food additive or dietary supplement. Lucas: Right — and that's actually the bet. The industry has been lobbying for years. In 2024, the FDA finally started a rulemaking process for CBD as a dietary supplement. If it passes, the addressable market opens up enormously. PE is positioning ahead of that. Luna: So it's a regulatory arbitrage play. They're buying while the stigma still keeps institutional capital on the sidelines. Lucas: And the multiples reflect that. Charlotte's Web traded at a price to sales ratio of about 1.6 when it was acquired. Compare that to a typical consumer health company — that might trade at 3 or 4 times sales. If the FDA provides clarity, those multiples could expand. Luna: One thing I find interesting — and I want to hear your take — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these. So if these conversations have moved your work forward in some small way, it's a simple way to keep them going. Lucas: Yeah, and it matters because this is a topic that doesn't get a ton of mainstream coverage. We can keep digging into niche roll-ups only because that support exists. Luna: Exactly. Alright — back to hemp. You mentioned the supply chain challenge. Can you unpack that? Lucas: Sure. Hemp is an agricultural crop, which means it's subject to weather, pests, and variable yields. A lot of these small operators have inconsistent quality. PE firms that roll them up need to standardize extraction, testing, and packaging. That's not trivial. Luna: So it's not just financial engineering — there's operational work involved. Lucas: Absolutely. Brightfield Group, for example, has been building a centralized extraction facility in Kentucky. They're trying to create a consistent supply chain that can deliver the same product batch after batch. That's what large retailers — think CVS or Target — require before they'll carry CBD on shelves. Luna: And that's the endgame. Get CBD into mass retail. But the stigma is still real. Do LPs have an appetite for this? Lucas: It's mixed. Some public pension funds still have policies against anything cannabis-related. But hemp-derived CBD with less than 0.3 percent THC is federally legal. A growing number of institutional investors are okay with it. I've seen university endowments dip their toes in. Luna: So the capital is there, but it's cautious. Lucas: Exactly. And that caution is why valuations are depressed. PE firms that can stomach the regulatory risk are getting in at attractive entry points. If the FDA rule goes through, these platforms could be worth significantly more. Luna: What about the risk that the FDA doesn't act, or that state-level restrictions tighten? Lucas: That's the biggest risk. There's also the threat of synthetic cannabinoids or delta-8 THC products creating confusion in the market. But the PE thesis is that the trend is toward normalization, not away from it. Luna: So this looks a lot like the early days of the dental roll-ups. Fragmented market, regulatory overhang, a few bold buyers. Lucas: It's very similar. The difference is that hemp has a commodity component. You're not just buying recurring revenue from patient visits — you're buying a crop that can fluctuate in price. That adds another layer of complexity. Luna: Are there other notable deals besides Charlotte's Web? Lucas: Yes. In 2024, a PE firm called Vertical Wellness acquired a competitor called Irwin Naturals' CBD line. There was also the merger of two large extractors — GenCanna and Bluebird Botanicals — backed by a family office. The pace is picking up. Luna: So the roll-up is real. But I have to ask — is it too early? Could the regulatory rug get pulled? Lucas: It's possible. But PE firms are betting that the FDA's dietary supplement pathway is the most likely outcome. And if it happens, the first movers will have a huge advantage. They'll have the scale, the retail relationships, and the supply chain. Luna: And if it doesn't happen, they're stuck with a bunch of hemp farms and tincture bottles. Lucas: Exactly. It's a high-risk, high-reward bet. But that's exactly the kind of situation where private equity tends to thrive — asymmetric upside if the thesis plays out. Luna: It's a fascinating parallel to the other roll-ups we've covered. But I think the hemp space has a wildcard that the others don't: the plant itself. Lucas: Yeah, you can't just consolidate a dental practice and suddenly have a bad harvest. Agriculture adds real operational risk. That's why the best PE firms in this space are hiring people with agribusiness experience, not just finance backgrounds. Luna: So if I'm a listener who wants to track this trend, what should I watch? Lucas: Watch the FDA's dietary supplement rulemaking. Watch the consolidation in extraction capacity — if a few big players control most of the processing, that's a sign. And watch the multiples on public CBD companies. If they start to recover, the PE exits could be lucrative. Luna: And the biggest names to watch? Lucas: Charlotte's Web is now private, but its performance under Brightfield will be a bellwether. Also keep an eye on Green Roads and Medterra — both are midsize and could be acquisition targets. Luna: Alright, I'll be watching. And I'll be curious to see how this one ages. Lucas: Me too. The hemp roll-up is still in its early innings. By next year, we might see a few clear winners — or a cautionary tale.