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Venture Capital Firms Are Weeding into the Cannabis Industry

by Meaghan Conlon

  • 24 Jul 2018
  • VC

In June 2018, Canada became the second country to legalize the use of recreational marijuana, after Uruguay in December 2013. In the US, medical marijuana is currently legal in 29 states and recreational marijuana is legal in nine states; over half of Americans questioned for a 2017 Gallup poll cited support of legalization. Venture capitalists are beginning to invest in what they see as a growing market: BlackShire Capital, a Canada-based firm actively investing in the legal cannabis industry, estimates that the collective legal cannabis market for the US and Canada will reach $110bn by 2029. 

According to Preqin’s online platform, 46 venture capital firms are actively making investments across the legal cannabis industry, spanning from medical uses to ancillary companies. The overall number (25) of cannabis-focused funds is still quite small, but in recent years there has been a sharp increase in the number of funds that invest in the legal cannabis industry, in part due to its legalization in Canada and select US states. In 2013, Privateer Holdings Fund I was the only cannabis-focused fund in market. Two cannabis-focused funds have already closed in 2018: Merida Capital Partners I, a $15mn fund closed in March, and Casa Verde Capital, a $45mn fund by rapper Snoop Dogg’s venture firm of the same name closed in June. There are currently 18 cannabis-focused funds in market, targeting an aggregate $1.2bn, including MedMen Opportunity Fund II, which is targeting $500mn and will be the largest cannabis-focused fund raised to date.  

The number of investments made in cannabis-related companies is an indicator of how this trend will continue to grow, as seen in the chart below. In 2014, the number of deals for cannabis companies increased to 11, compared with three in 2013, perhaps as a result of four states legalizing medical marijuana. There was also a large increase in 2017 as, following the legalization of recreational marijuana in several states, deals in the cannabis sector nearly doubled from the levels seen in 2016. The largest deal of 2017 was the $27mn Series B funding of Eaze Solutions, Inc., an online marketplace for ordering medical marijuana. The first half of 2018 has seen a completion of 22 deals in the cannabis industry, including a CAD 13.4mn funding round for Anandia Laboratories Inc. which develops cannabis-based pharmaceutical products.

With Rite Aid preparing to sell its first cannabis-derived drug approved by the Food and Drug Administration, deals for companies like Anandia Laboratories could become more common. As US states continue to legalize cannabis, there will likely be an increase in firms and funds operating in the cannabis sector, along with an increase in deal activity, despite not nationally legalizing marijuana as Canada has recently done.

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