Although it may still be in its infancy, the potential for growth in the legal marijuana sector has many investors and taking notice. Funding platforms with the goal of supporting marijuana-related startups are on the rise, and many of them have Silicon Valley veterans at the helm. Among the primary factors now attracting investors to the still-fledgling cannabis industry is that there is still ample room for innovation.
No Lack of Demand
Compared to tech startups, companies in the marijuana business are able to leverage one important advantage. Whereas tech companies often face the need to create demand, or to at least educate their consumer base, marijuana startups face no lack of demand in North America.
A report from Arcview Market Research and BDS Analytics predicts that the legal cannabis industry will grow to $40 billion by 2021, which is a 150% increase from the $16 billion the industry produced in 2017. That growth comes as the legalization of marijuana use spreads across North America. In October 2018, marijuana became legal for recreational and medical use in Canada, and medical marijuana use was already legal in 30 U.S. states. Eleven states, plus Washington, D.C., have also legalized recreational marijuana use: Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington.
In light of such demand, investors who once backed tech firms are now funneling their funds into the cannabis industry. In 2014, the Founders Fund, from PayPal co-founder Peter Thiel, became the first institutional investor to put money into the legal marijuana industry. The fund invested in Privateer Holdings, a firm that holds multiple cannabis investments.
Also among the notable investors in the marijuana industry is Calvin Broadus, Jr., better known as Snoop Dogg. The rapper has made no secret of his affinity for marijuana, and he's now the director of Casa Verde Capital, a venture capital fund that invests in cannabis startups.
Promising Marijuana Startups to Invest In
Venture funding for marijuana startups seems to be pouring in from all directions. Rapidly becoming known as potpreneurs, leaders at marijuana startups are heavily betting on the potential for marijuana to be legalized in more states. Among those startups is Weedmaps, an app that gives users the ability to locate marijuana medical dispensaries. Recognizing the potential prospects for profit offered by Weedmaps, investors were quick to jump on board. Weedmaps was eventually purchased by General Cannabis, Inc. with a combination of stock and cash.
Another marijuana startup, Leafly, offers users the opportunity to rate and review various cannabis strains, kind of like a highly specialized Yelp just for the marijuana industry. Created by a trio of former Kelly Blue Book employees, Leafly started out as a simple side project in 2010. Within a year, it had become a full-time enterprise that soon attracted the interest of Privateer Holdings.
Soon after the private equity firm acquired Leafly, the venture began to take off, signaling just how much of a difference the right investors can make in any startup, particularly one focusing on the cannabis industry. After the acquisition by Privateer, Leafly expanded with the aim of becoming "an all-encompassing destination" for all types of marijuana users to find out more about everything related to marijuana, including which types of products are right for them and finding the dispensaries that sell what they need.
With so much growing interest in the growing marijuana cottage industry, it is hardly surprising that so many venture capitalists have turned their attention and funding to a rapidly evolving cannabis tech industry. Leafly is certainly not the only marijuana startup to attract interest from investors. As of May 2020, these cannabis startups have raised more than $10 million:
- Eaze, an app and online tool that facilitates marijuana delivery, has raised $202.5 million.
- Surterra Wellness, a cannabis-based therapy company, has raised $355.7 million.
- Greenbits, a point-of-sale platform provider for the marijuana industry, has raised $41 million.
- Canndescent, which grows, packages, and sells cannabis flowers, has raised $57 million.
- LeafLink, a wholesale management platform for the legal marijuana industry, has raised $49 million.
- Baker Technologies, a customer relationship management platform for dispensaries, had raised $12.5 million before being acquired by TILT Holdings on Nov. 21, 2018.
Working Around the Stigma of Cannabis Investing
Not all investors have been so quick to jump on the bandwagon when it comes to investing in marijuana startups. Many of them have remained hesitant due to the stigma associated with cannabis-based investments. Some do not want to become involved with investments that directly involve the production and sale of marijuana. Whether or not a firm "touches the plant" is a distinction that has become vital in the marijuana industry.
Still, there are numerous investment opportunities in ancillary businesses for investors who have a concern regarding the stigma associated with marijuana. Such ancillary businesses include firms that provide security for medical marijuana dispensaries. As the profit potential for marijuana-related businesses continues to increase, more investors who previously wished to remain anonymous regarding their investments have been more willing to be open regarding their interest in the growing cannabis industry.
At the moment, the bulk of investment money going to marijuana firms is actually making its way north of the border to Canada, where the federal government has legalized medical marijuana use. However, U.S. investments are on the rise. According to the National Institute on Drug Abuse, more than 11.8 million young adults used marijuana in 2018 alone, showing that the market will only continue increasing.