Willie Nelson's Marijuana Brand Gets Private Equity Backing

Dow Jones Newswires

The Red Headed Stranger just scored some green, in more ways than one.

A New York private equity firm is backing country singer and songwriter Willie Nelson's endeavor to sell marijuana in Colorado and Washington.

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Tuatara Capital is leading an investor group financing the Willie's Reserve cannabis brand for sale in the two states' recreational markets, "and also other states as regulations allow," according to a news release.

"We're really excited to partner with someone like Willie, who embodies this spirit of American entrepreneurship and conviction to a cause," said Tuatara Chief Investment Officer Al Foreman.

Mr. Nelson announced the Willie's Reserve effort earlier this year, telling the Guardian, " I've bought a lot of pot over the years, and now I'm going to sell some back."

Mr. Foreman said Tuatara was introduced to the Willie's Reserve team as a potential financial sponsor several months ago. Other participants in the transaction include a mix of institutional and individual investors, Mr. Foreman said.

Mr. Nelson, famed for such songs as "On the Road Again" and "Crazy," has long been known as an outspoken advocate for--and user of--marijuana. He is a co-chairman of the National Organization for the Reform of Marijuana Laws advisory board and in 2010 launched the TeaPot political party under the motto "Tax it, regulate it and legalize it!"

The latter movement arose from one of Mr. Nelson's several arrests over the years on charges of marijuana possession after a sheriff in Texas found about six ounces of the substance on his tour bus in November 2010. The singer entered a "no contest" plea to a misdemeanor charge of possession of drug paraphernalia, agreeing to pay a $500 fine without jail time.

The Willie's Reserve brand will be grown, distributed and sold by local businesses in Colorado and Washington, the release said. The two states in 2012 passed ballot measures to make the growing, transportation, sale and possession of cannabis for recreational use legal on the state level. The drug remains a Schedule I controlled substance as defined by the U.S. Controlled Substances Act, meaning the federal government maintains it has "no currently accepted medical use."

In November, voters in Oregon and Alaska approved the retail sale of marijuana for recreational use. Dispensaries in Oregon can begin selling recreational cannabis starting Oct. 1. A similarly taxed and regulated market isn't expected to be up and running in Alaska until next year.

Launching as a Pacific Northwest-based venture, the Willie's Reserve brand will look to potentially expand into those developing markets, and is "also keenly looking to the other states that are looking to put adult recreational-use measures on the ballot in the 2016 election year, " Mr. Foreman said.

Nevada has approved the inclusion of a recreational-marijuana measure on its 2016 ballot, and advocates are working on similar proposals in states such as Arizona, Maine, Massachusetts, California, Michigan, Missouri and Florida.

Launched in 2014, Tuatara focuses exclusively on investments in the legal cannabis industry. The firm states on its website that it will "only support companies operating legally in states with cannabis regulatory schemes that comply with the guidance that has been issued by the U.S. Department of Justice."

The Justice Department in February 2014 released guidelines for financial institutions offering services to marijuana businesses that comply with state laws. Such financial institutions won't face federal prosecution under the current administration as long as the businesses they deal with avoid selling cannabis to minors; agree not to divert marijuana to states where it remains illegal; and avoid the use of firearms or violence to sell their product.

Willie's Reserve transaction is the first investment for Tuatara, said Mr. Foreman, a former managing director with Highbridge Principal Strategies.

The firm's other principals include Mark Zittman, a former senior managing director at Guggenheim Partners Capital Markets Group; Marc Riiska, formerly a senior director at SS&C Technologies.; and Robert Hunt, a Colorado attorney and founder of cannabis consulting firm Consult Canna.

As of the end of July, Tuatara had raised $25.8 million toward its debut fund, Tuatara Capital Fund I,  according to a filing with the Securities and Exchange Commission.

Financial terms of the firm's investment in Willie's Reserve weren't disclosed, but Mr. Foreman said the firm is focusing on growth-stage investments in companies with proven management.

"We're looking for teams that have built companies previously," Mr. Foreman said. "We're not really focused on early-stage risk with this industry. Our goal is to support the types of operators and high-quality teams that have established businesses and who know the compliance environment."

Willie's Reserve isn't the first celebrity-branded cannabis line to attract the attention of an alternative investment manager. In November, Privateer Holdings, a firm focused on legal marijuana and related projects, teamed up with the family of the late reggae singer Bob Marley to launch the Marley Natural line of cannabis products.

Privateer earlier this year closed a $75 million funding round with the support of Founders Fund, the firm co-founded by early Facebook backer Peter Thiel.

Write to Thomas Dunford at thomas.dunford@wsj.com