BlackRock Inc. funds are wading into the fast-growing cannabis industry as institutional investors grapple with betting on weed.
Five actively managed BlackRock funds have become the largest institutional investor in Curaleaf Holdings Inc., the dispensary operator that announced plans Wednesday to sell its hemp-derived products in more than 800 CVS Health Corp. stores.
With a market cap of about $2.3 billion, Curaleaf is the third-most valuable U.S. cannabis firm and has risen 45% this year through Wednesday. It runs 42 dispensaries in 12 states.
While BlackRock’s Curaleaf stake is worth just $11 million, it makes the firm an early mover in a sector struggling to win institutional investment. Even though marijuana is legal in Canada, the federal prohibition on pot in the U.S. has created hurdles for domestic cannabis companies and the firms that seek to invest in them.
The U.S. classifies marijuana as an illicit substance, even though it’s legal for recreational use in 10 states. That’s made many banks and institutional investors steer clear of pot in the U.S., even as sales of legal weed last year surged north of $10 billion.
“Most institutional investors and banks have stayed on the sidelines for investing in cannabis businesses that touch the plant,” said John Brecker, a partner at Altitude Investment Management, a New York-based cannabis venture fund.
Of BlackRock’s five funds that report holding Curaleaf stock, the $878 million BlackRock Resources & Commodities Strategy Trust owns the most shares, according to SEC filings. It held about 1.1 million shares as of Dec. 31, according to the fund’s 2018 annual report.
Curaleaf comprised 0.6% of the fund’s net assets at year-end, the annual report shows. The fund invests in companies that work in natural resources and commodities, mostly in the mining and energy industries. Its top holdings are fertilizer