Sean “Diddy” Combs has agreed to purchase licensed marijuana operations in three states for up to $185 million, adding a new business to a portfolio that includes fashion, media and spirits.
If approved by U.S. and state regulators, the deal could create the nation’s largest Black-owned and licensed cannabis company. Mr. Combs said he wants to use the business as a platform to increase Black participation in the cannabis industry.
He said he decided to enter the market to help address long-running inequities. Black people have been disproportionately arrested for marijuana crimes, research has shown. They also comprise a tiny percentage of those making money from the legal cannabis market. In the 26 years since California first legalized medical marijuana, cannabis has grown into a $27 billion legal business in the U.S. and is projected to reach $42 billion in annual U.S. sales by 2026, according to data service BDSA.
Many Black entrepreneurs seeking to open legal cannabis businesses say they have been hampered by limited access to financing, capital and banking services, among other barriers to entry.
“It’s diabolical,” Mr. Combs, 53 years old, said in an interview. “How do you lock up communities of people, break down their family structure, their futures, and then legalize it and make sure that those same people don’t get a chance to benefit or resurrect their lives from it?”
The hip-hop impresario is purchasing the cannabis operations from Cresco Labs Inc. and Columbia Care Inc., two of the largest cannabis businesses in the U.S., which must divest assets in several states as part of a planned merger.
Under the deal, a new company controlled by Mr. Combs would acquire nine retail stores and three production facilities in New York, Massachusetts and Illinois. His company would pay $110 million in cash and $45 million in debt financing, plus additional money based on certain market-growth milestones. Cresco and Columbia agreed to merge in March.
Cresco Chief Executive Charlie Bachtell said he shares Mr. Combs’s goal of increasing diversity within the legal cannabis industry. The industry can’t grow to its full potential unless it does so, he added.
Mr. Combs’s foray into cannabis follows a recent move by rapper Jay-Z, born Shawn Carter, to create a fund to invest in minority-owned cannabis startups.
Mr. Combs said he has been considering an investment in the cannabis industry for several years. Tarik Brooks, president of Mr. Combs’s company, Combs Enterprises, began conversations with Cresco in 2018 about a potential partnership and Mr. Combs’s desire to change the industry.
No deal came together, but Cresco last year appointed Mr. Brooks to its board. Mr. Brooks recused himself from Cresco board discussions on the divestiture, the companies said.
Mr. Combs has worked on consumer brands for years. He founded the fashion brand Sean John more than two decades ago and recently reacquired the brand. He also has developed several beverage brands, including partnerships with Diageo PLC on Cîroc vodka and DeLeón tequila.
Among the assets in the cannabis transaction, Mr. Combs’s company would acquire retail locations in Manhattan, Brooklyn and Chicago. Marijuana dispensaries in New York currently sell only for medical use. The state plans to begin awarding recreational marijuana retail-store licenses this year. It has reserved the first round for people who have a close relative with a prior marijuana conviction. New York has said that existing medical operators later will be allowed to open recreational stores.
Mr. Combs grew up in New York City’s Harlem neighborhood in the 1970s. He said many of his friends were arrested on marijuana offenses. More recently, researching the legal cannabis industry, he came across statistics that he said lit a fire under him.
Between 2010 and 2018, a Black person was 3.6 times as likely as a white person to be arrested for marijuana possession in the U.S., even though Black and white people used marijuana at similar rates, according to a report from the American Civil Liberties Union.
Black-owned businesses made up less than 2% of the roughly 40,000 cannabis companies in the U.S. as of June 2021, according to a report by cannabis website Leafly and consulting firm Whitney Economics.
“Two percent?” Mr. Combs said. “All the years, all the pain, all the incarceration…To me, it was important to do a big deal like this.”
Mr. Combs said his new company would build new cannabis brands, hire people who have prior marijuana-related convictions and assist Black and brown people interested in obtaining cannabis licenses.
Cannabis is still illegal under federal law. President Biden said he would pardon all prior federal offenses of simple possession of marijuana and would call on federal regulators to review how the drug is classified. (Full Story)