Marijuana is big business, and I don’t mean in the illegal sense. Pot is slowly eradicating its misconception as a drop out drug for bums and hippies, which its been labeled as since the early 60’s.
Often perceived as a recreational drug for liberal, free spirited and creative types, marijuana or weed as its commonly known has become an interesting and subjective choice for startups and venture capitalists alike.
The legalise pot movement is nothing new and has been in existence for years, advocates for medical usage are on the rise and investment capital is flowing into this interesting business niche, with fresh investors eyeing up the Marijuana Startups.
For example, did you know that angel.co lists 345 companies with 1,626 investors and over 6,000 followers interested in the business of marijuana and with an average valuation tag of $4.5M, thats no small number for a startup either.
Legal cannabis gained a higher profile earlier this year, after Seattle pot-investment firm Privateer Holdings closed a $75 million funding round. The deal included the first mainstream venture capital involvement in the sector, from Peter Thiel’s Founders Fund.
Privateer Holdings: a Seattle-based private equity firm that secured a 30-year licensing deal to use Bob Marley’s name and likeness to sell “heirloom Jamaican cannabis strains” and other Marley-branded merchandise. In a recent funding round, Privateer Holdings raised $75 million, bringing its total pot to $82 million and making it the best-funded player in the fledgling marijuana industry.
Privateer’s success is thanks at least in part to its licensing deal with Marley’s family. The firm’s Marley Natural brand launched last year and aims to start selling its products worldwide by the end of 2015. Leveraging Marley’s fame is a bit of a no-brainer for the industry. Not only do people rightly associate Marley with marijuana use, but the reggae icon’s image has already been used to sell everything from coffee to clothes. In fact, Forbes estimates that Marley was the fifth-highest paid dead celebrity last year, with postmortem earnings of around $20 million in 2014 alone.
However, Privateer has more in stock than just Marley Natural. Another of the firm’s holdings is Leafly, an online directory that lists weed strains and shops as well as articles and discussions, and that went from 100,000 visits a month in 2012 to 5 million a month this year, according to TechCrunch. Another Privateer company is Tilray, which farms, packages, and sells pharmaceutical-grade cannabis in Canada.
Currently, medical marijuana is legal in 23 states in the US, with recreational use legalized in four. With its array of brands, Privateer can target this growing market from multiple angles — observing trends and tastes on Leafly, and supplying the product via companies like Tilray. Privateer Holdings CEO and co-founder Brendan Kennedy told TechCrunch that the firm wants to create brands that “inspire trust [and] create legitimacy.”
But there’s plenty of other VC interest in legal weed, and it’s likely just the beginning of investor interest in “potpreneurs.” Quite a few legal-pot startups are publicly traded penny stocks, so everyman investors can get a piece of the action, too.
At first, many VC investors wanted to remain anonymous with their pot investing, but now more are coming out of the shadows and publicly announcing their interest in the sector.
To give you an idea of the types of marijuana startups that are attracting venture capital, here are a dozen other cannabis startups that have raised over $1 million to date (data compiled by CB Insights, the MoneyTree Report by PricewaterhouseCoopers (PwC), Crunchbase, and other research):
Leafline Labs ($12.4M) — This Minneapolis-based medical-marijuana startup has the involvement of several members of the family that owns nursery company Bachman’s Inc. Leafline is one of only two cannabis companies that Minnesota has licensed to operate in the state. Leafline raised its funding from 113 individual investors.
Four Twenty Investments ($10M) — A private investment firm based in Toronto, Four Twenty did a $10 million debt financing in December. The firm invested an equal sum in Nhale, a publicly traded grow-technology company based in Houston that plans to acquire other pot startups.
Palliatech ($10M) — This New York City producer of marijuana-based pain medicines is also a grower and distributor. PwC reports funders include Russian VC firm Gruppa Sputnik OOO.
Vida Cannabis ($9.39M) — The Ottawa-based pot producer most recently raised nearly $5.8 million in a private placement last July. Part of the funding went to purchase a secure, hydroponic production facility in Nova Scotia.
CannTrust ($3.79M) — A Canadian medical cannabis producer, CannTrust is owned and operated by pharmacists. It raised $1 million of its funding this month, CB Insights reports.
MedMen ($3.75M) — This provider of turnkey management services to the legal-pot industry is based in Los Angeles. MedMen raised all of its funding in November, to expand operations to Nevada and Illinois. Backers included Florida-based N Squared Management.
Agricare ($2M) — Chicago-based Agricare raised its funding in October, though funders weren’t disclosed. Besides its hometown, the company is also in the licensing process to set up operations in Peru, Ill.
Eaze ($1.5M) — Funding for this San Francisco pot-delivery app came from technology microfunder Fresh VC in November.
MassRoots ($1.2M) — A social network for the cannabis community, MassRoots most recently raised $500,000 in September. Funders include investor network The ArcView Group, and Dutchess Opportunity Fund, a fund of global investment firm Dutchess Capital.
Aquarius Cannabis ($1.16M) — This marijuana branding company raised most of its funding from angel investors at its October launch, CB Insights reports. It’s based in the
This list is far from comprehensive — it’s just a sampling of the types of pot-related businesses that are interesting investors at this point.
It’s notable that most of these startups aren’t based in the traditional VC hubs of Boston or Silicon Valley. Indeed, many pot startups are based in Canada, where medical marijuana is already federally legal.
So we have established that the pot industry is not just for growers anymore. Tech entrepreneurs with high ambitions are also finding money in applying startup solutions to the budding industry.
There’s already the on-demand delivery startups like Meadow and Eaze which will deliver medical marijuana to your door. Pax has brought Apple-esque simple design to vaporizers.
Even the “Birchbox” subscription box model has come to cannabis.
The Guild is the incumbent in the market, but a new 500 Startups-backed startup, Love, Nancy, is growing first by selling only Hemp products, which are legal to ship in all 50 US states.
But, startups aren’t stopping at delivery. Two new Y-Combinator backed companies are tackling the cannabis industry by going after its business, not the product.
First, Serica is tackling one major problems for the medical cannabis industry: payments. It’s still a cash-based industry and these aren’t transactions people want on their credit cards, nor are banks willing to have a medical cannabis company on their bottom line.
Serica, though, is a venture capitalist’s dream because it combines uses the blockchain to track and record every purchase, and gives companies an easy way to accept payment online. The startup has already signed a deal with the second largest e-commerce site for medical cannabis to become the only online payment option for the site, its founder Taariq Lewis said at Y Combinator’s demo day on Tuesday.
Other startups, like Transcend Lighting, are increasing the profits of the growers themselves. Its LED lighting increases profits by switching farms to lower energy-consuming lights. The company isn’t limited to cannabis, but it’s an industry that’s taking off and one that Transcend can’t ignore.
The “Uber for marijuana” services may have already carved out their space, but the next wave of startups like Serica and Transcend are coming into maximize all other parts of the cannabis industry.
So it seem that investing in pot is no smoke!