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The Growth of Cannabis Start-ups on Innovative VC Approach

VC Catapults Growth of Cannabis Start-ups

The legal cannabis business in the United States was estimated to be worth $9.7 billion in 2017, with the global market expected to reach $31.4 billion by 2021. Marijuana is a growing industry not just in the U.S. but also in the rest of the world. Fueling this growth are hundreds of startups which are addressing various needs and niches. Along with these startups are companies which are investing venture capital, betting on the continued growth of the marijuana industry in the next few years.

Although the federal government prohibits marijuana, recreational use is legal in 9 states, and medicinal use is legal in 30 other countries. In 2012, medical marijuana was legalized in Colorado and Washington State, and the first outlets or dispensaries were almost strictly mom-and-pop stores which were heavily regulated. Nowadays, the investments are in another marijuana-based tech, including edibles, real estate exchange platforms, point-of-sale software, grow management software, cannabis-based social media, and others.

Venture Capital Funding

In a recent report by CB Insights, a list of marijuana-based companies with disclosed funding show a diverse range. The top three companies on the list were: Tilray, a healthcare company with $47 million in funding raised; Teewinot Life Sciences, healthcare, raised $19.3 million; and Green Bits, compliance and quality assurance with $19.2 million.

Separate from these companies are others with a more creative approach to funding. One of these is Privateer Holdings. This is a funding company which invests in cannabis tech companies. Founded in Seattle in 2010, it has evolved from being a regular venture capital firm to one that invests exclusively in cannabis startups and tech companies. Privateer Holdings recently had a Series C funding which raised its total to $200 million, on valuation over $600 million.

The cannabis VC firm disclosed that it has investments in 4 companies: Leafly, Tilray, Marley Natural, and The Goodship. Leafly describes itself as the “largest cannabis website in the world.” It was designed to provide services like those on TripAdvisor and Wikipedia and has 13 million visitors per month. Users can rate and give reviews on different varieties and strains of cannabis, as well as the dispensaries.

Tilray, on the other hand, is a Canadian producer and distributor of medical marijuana. It also delivers door to door to its clients. Marley Natural is the official brand of Bob Marley. It was developed in a partnership between his estate and Privateer Holdings and is based in Seattle, Washington. It offers cannabis in different forms, body care products, as well as lifestyle and smoking accessories. The Goodship, for its part, is a manufacturer of premium recreational marijuana products including chocolates.

Opportunities for Growth

MedMen used another innovative VC approach. It has raised $53 million in funding to build a chain of stores for cannabis products. What makes it different is that even with only a small amount of funding, it has a valuation of $1 billion. According to the company, it raised $15 million from Cap-Meridian Ventures in 2016. This was used to expand its presence in California. Almost immediately, it launched the MedMen Opportunity Fund I, a private equity fund which raised $60 million. MedMen Opportunity Fund II began the following year, raising another $78 million.  It also raised $38 million through a private placement in 2018. The company had a valuation of $1 billion, with Captor Capital investing $25 million for a 2.5% share.

There are diverse opportunities for investments in cannabis startups, and VC firms are willing to invest in them. It is expected that more startups and opportunities are going to pop up in the years to come, creating a bold impact not only in the healthcare scene but in mainstream economics as well.

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