Silicon Valley venture firms have failed to invest in cannabis despite its growing into a multi-billion-dollar business. However, this isn’t necessarily a matter of preference. In general, venture capitalists love new markets with few major competitors, but when it comes to cannabis investment firms are uneasy. Most firms work under “vice clauses” or restrictions established by backers. These clauses keep firms from investing in certain sectors like firearms or drugs. Legal questions about marijuana are still unanswered. No one knows for sure how the US federal government will treat marijuana companies. Many who have invested aren’t exactly showing it off with pride.
However, none of this has stopped cannabis investing completely. According to the investment research firm PitchBook, since 2012 more than $967 million has been put into 272 marijuana companies. The industry is expected to have a $50 billion value by 2026. Family offices, private equity firms, and individuals have all become marijuana investors to fill the void left by venture capitalists. The most active investors are newcomers like the hedge fund Poseidon and the cannabis-only venture firm Phyto Partners. The two companies are the top cannabis-industry investors ranked by some deals, according to Pitchbook. Poseidon has 28 deals, and Phyto has 12.
Other traditional corporate giants are making money facilitating businesses that grow or sell marijuana and may invest in it directly. One example is Microsoft which announced a partnership with a start-up to develop software to help governments track marijuana from “seed to sale” in 2016. Another example is the venture fund, Lerer Hippeau. This company is backing Leafly, the cannabis commerce search site. Leafly gives insights into popular products in the cannabis market. Another corporate giant the beer company behind Corona and Modelo invested $191 million to purchase a 10% stake in Canopy Growth, the Canadian weed startup.
Seattle firm Private Holdings, with assets valued at $490 million by PitchBook, is buying important parts of the supply chain for growing processing and selling cannabis. It joined Lerer Hippeau in investing in Leafly. Private Holdings has also invested in Tilray, a manufacturer, and exporter of medical marijuana, and Marley Natural, a cannabis cultivation company. Even Paypal co-founder Peter Thiel’s Founders Fund is investing Privateer.
While Silicon Valley venture funds haven’t been willing or able to invest, many of the firms’ investors are free to use their own money. Managing director of Poseidon, Emily Paxhia says, “A lot of Silicon Valley VCs have invested alongside us, but those deals are confidential.” While these deals can’t be talked about it is clear that many corporations and venture capitalists believe this industry is rapidly growing and now is the time to invest.