Cannabis Industry Attracts Mainstream Investors
January 9th, 2015
Policy, Top Story
The cannabis industry has historically been limited to wealthy backers, since legal banking access remains elusive. At the same time, many start-ups have been unable to innovate in the space, because raising capital has been difficult. Growing and selling marijuana has become a rich-man’s game that relies on connections to make it happen. Fortunately, these trends may be changing thanks to two important deals announced this week.
The cannabis industry has been largely off-limits to investors. While there are a handful of public companies targeting the space, the majority of them haven’t risked getting involved with actually growing and selling marijuana in states where the drug has been legalized. Many of the companies are also micro-cap stocks trading over-the-counter, which means they involve a lot more risk than mainstream investors are comfortable taking.
Prominent venture capitalists are now beginning to setup funds targeting the space, which are open to accredited investors. Geoff Lewis and Peter Thiel’s Founders Fund, a $2 billion fund famous for investing in Facebook and SpaceX at an early stage, recently announced its first investment in the burgeoning cannabis industry. The move comes despite the fact that cannabis remains illegal in many states and on a federal level.
Founders Fund purchased a minority stake in Privateer Holdings, the Seattle-based company that owns Leafly.com. As a sort of Yelp for pot, Leafly provides marijuana buyers with information about the types and prices of pot that are available in a given area. The company hopes to turn a profit this year and raise another $56 million to complete its $75 million financing round, according to documents filed with the SEC.
Founders Fund is primarily a venture capital fund focused on investing in early-stage ventures to help entrepreneurs build big businesses. In fact, Peter Thiel is famous for having worked with Elon Musk to create PayPal and subsequently founded Palantir. The investment in Privateer Holdings could pave the way for broader investment in cannabis entrepreneurs that want to innovate in the space and help grow the industry.
The involvement of a major venture capital fund does more than just provide funding, they help bring credibility to the industry in both the financial world and in the government. With a strong political lobby, the tech industry could provide some key backing in the government, where many are still convinced that the drug has no medical purpose. In the financial world, banks may begin to feel more comfortable when dealing with billion-dollar investment funds.
All of these factors could make it much easier for future entrepreneurs to start cannabis businesses. With a greater number of businesses starting, the industry could see faster growth and greater acceptance among the public and among investors. The SEC’s crowdfunding regulations could also open up the market to the average person rather than just accredited investors capable of investing in these large funds.
The cannabis industry has been rapidly changing even before the Founders Funds’ involvement. In its 1,600-page federal spending bill, the U.S. government lifted its ban on medical marijuana late last year. A new measure prohibits the federal government’s Department of Justice – including the DEA – from interfering with state-level medical marijuana laws that have been legally passed and implemented.
The amendment is positioned to become law through September 30th and would then need to be renewed each Fall, which means that medical marijuana will remain on the table for debate on a regular basis. Among marijuana advocates, there is hope that these debates will spark larger conversations about the drug’s status as a Schedule I Controlled Substance considered to be as dangerous as heroin.
The cannabis industry promises to be an interesting place in 2015 as these trends continue to change the landscape.
This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.
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