CA - Bengal Capital FY2023 Letter
2024-02-10 03:40:00 ET
Summary
- The Bengal Catalyst Fund continues to perform well in early 2024 as well - as of this writing, the Fund is now solidly in the green since inception vs. MSOS -75%.
- Instead of SAFE Banking, the latest “catalyst” is the perceived likely rescheduling of cannabis by the DEA from Schedule I to Schedule III as recommended by HHS.
- The DEA rescheduling process is much more bureaucratic than democratic at this point and any lineup with election milestones is more than likely to be just random.
- We believe there is a window to deploy significant capital into a strategy that mixes positions in higher credit quality larger MSOs with some higher risk bets in debt of carefully selected lower quality companies into a portfolio that combines strong cash on cash returns with outsized upside potential from debt extension/modification equity sweeteners.
Dear Investor,
The Bengal Catalyst Fund, LP's (the " Fund ") performance (preliminary, net of fees, and unaudited) is presented below alongside that of MSOS, a US cannabis-focused ETF. We do not consider MSOS a benchmark, but we do believe it is the closest equity market proxy for the US cannabis industry, so we view it as a reasonable indicator of cannabis investor sentiment.
We are, of course, happy with the Fund's performance in 2023. With the industry backdrop of improving sentiment (MSOS up ~47% YTD), our Fund continues to perform well in early 2024 as well - as of this writing, the Fund is now solidly in the green since inception vs. MSOS -75%.
We want to start this note by addressing an important juxtaposition, as we've recently had a few folks describe us as bearish. Just as when we started our Fund in 2021, we remain excited about the underlying growth and the vast opportunity set and total addressable market presented by the cannabis industry. We believe our underlying concerns mainly with respect to the (1) core operating capabilities and (2) capital allocation strategy of many of the larger, more visible companies in the sector are a large reason we've been able to preserve capital in what's been a miserable investment environment for cannabis equities.
We prioritize people and capabilities over assets, albeit with a deep understanding and experience base within the individual markets and the respective asset values. We continue to see fantastic opportunities to deploy capital in the cannabis space. Although we don't actively fundraise, we welcome new limited partners that are aligned with our approach and we believe we're well positioned to generate strong long-term returns with our highly concentrated, fundamentally-driven and actively engaged investment strategy.
A few reminders:
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Your results may vary from those above depending on time of investment
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The above figures do not include the results of any side pockets
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We expect our returns to be volatile given the illiquidity and concentration of the Fund's portfolio. Regarding the last point, we fully expect that there will be periods in which we underperform the broader cannabis equity market as we seek to generate sustainably better longer term returns.