Answer extracted from The Single Source podcast — listen to the full episode below.
How does investing in limited license cannabis states create competitive advantage?
Coda Capital focuses on limited license states where cultivation, manufacturing, and retail licenses are restricted, creating scarcity value and natural protections for operators. This niche approach gives them access to a credit-starved market that other private creditors overlook, eliminating direct competition and positioning them as price setters rather than price takers.
Scarcity as a protective moat
In limited license states, the restriction of cultivation and manufacturing permits creates a fundamental supply constraint. This scarcity automatically protects operators from new entrants and gives existing license holders a defensible market position. As Brendan Fay explains in the episode, the cannabis industry has a $5.4 billion maturity wall due within the next 24 months, yet traditional private credit firms have largely avoided the sector due to regulatory complexity and federal banking restrictions.
Coda Capital's deliberate focus on these constrained markets means they've spent years understanding which states to prioritize and how to structure transactions in each jurisdiction. This specialized knowledge barrier keeps them ahead of competitors who lack the operational expertise to navigate the legal and regulatory landscape of cannabis lending.
Dominance in an overlooked lending gap
Most private credit firms treat cannabis as either too risky or too complex to underwrite profitably. This hesitation leaves operators in limited license states with severely limited capital options. Coda Capital operates in a credit-starved space where they face minimal competition, giving them pricing power that would be impossible in crowded markets like traditional commercial lending or real estate debt.
Fay's personal entry into cannabis through medical necessity—he was diagnosed with rheumatoid arthritis four and a half years ago and found medical marijuana transformative—combined with his partnership with a vertically integrated Missouri operator, gave him ground-level insight into operator pain points that distant capital providers miss. This positioned Coda Capital to deploy capital at two times leverage or less, compared to five to ten times EBITDA that competing private credit firms demand elsewhere.
"Lenders in this space are going to be price setters rather than price takers, whereas in a lot of other private credit industries there's so much competition that private credit firms are price takers instead."
Brendan Fay — Founder and CIO of Coda Capital, a US-based private credit firm specializing in cannabis lending. Fay was diagnosed with rheumatoid arthritis four and a half years ago and discovered the therapeutic value of medical marijuana. Partnering with an owner-operator vertically integrated across cultivation, manufacturing, and retail in Missouri, he founded Coda Capital to address the shortage of quality capital and credit solutions in the cannabis industry.
For deeper context on how Coda Capital structures deals and manages operator relationships, listen to the full conversation where Brendan Fay discusses the specific transaction types and risk management approaches that distinguish his firm in this emerging market.
See also
How should global investors allocate to a high-conviction India strategy within a diversified portfolio?
Treat India allocation as a high-conviction alpha sleeve rather than India beta, as most global portfolios already have India exposure through EM funds or similar vehicles.
What historical pattern has characterized India's performance relative to other emerging markets?
Historically, every time India has underperformed other emerging markets, that underperformance has reversed within 12 months, every single time.
How does active share differentiate a concentrated emerging market fund from benchmark indices?
Duro Capital does not run a consensus India book, with active share over 88% and consistently over 85%, creating a portfolio that looks very different from benchmark indices.