The cannabis industry is starting to mature and develop into a huge, multi-billion dollar a year sector. The dramatic increase in investment in cannabis companies is strong evidence of this. Many investors will wait to invest in emerging markets to see what the most successful venture capitalists do. The most successful venture capitalist firms are now investing large amounts of capital into the cannabis industry, and this trend looks set to not only continue but to increase dramatically. To learn more about the continuing increase in cannabis investment by venture capitalists, read on.

The Spread Of Legalization

As anyone looking into the cannabis market already knows, the last few years have seen a dramatic spread in cannabis legalization. There are now 10 states (and Washington D.C.) in which recreational cannabis is legal. There are now 33 states in which medical cannabis is legal. Both of these numbers are expected to increase dramatically over the coming years. The increase in the number of states that allow cannabis use, whether medical or recreational, is mirrored by the increase in the percentage of Americans who support legalization. This number varies widely, but most polls put the percentage of Americans who support legalization at more than 60 percent. If anything, the spread of legalization has lagged behind the support for legalization due to political inefficiency. This data supports the conclusion that the spread of legalization will continue.

The Next Big Thing

When states first started to legalize cannabis several years ago, cannabis investment quickly became a hot topic. However, most of the venture capitalist firms held off for years. The legal situation surrounding cannabis was (and still is) murky, especially with the federal laws regarding marijuana. Nobody was sure that the federal government wouldn’t simply step in and put a stop to everything. Also, there were few to no states that had made cannabis recreationally legal. Investing in cannabis was “the next big thing,” and many small private investors were interested. There were even several high-profile celebrities leading the initial investment push. However, venture capitalists stayed silent at first to ensure that the cannabis industry was more than a passing fad. This even led to the creation of some venture capitalist firms specifically targeted at the cannabis industry. Over the last few years, however, the venture capitalists have started to get involved with cannabis investment in a big way.

Growing Legitimacy

The cannabis industry has become more and more legitimate in the past years. This has played a big part in getting venture capitalists to invest in this sector. The biggest and most successful venture capitalist firms are quite high-profile. They receive a lot of press, especially amongst tech publications, and they are very sensitive to bad PR. Thus, they often stay out of anything that could be controversial in any way to protect their brand. The increased legitimacy of cannabis businesses in the eyes of Americans has played just as large a role in getting the venture capitalists involved as the financial stability of the industry has. As previously mentioned, the percentage of Americans who support cannabis legalization, at least for medical use, has dramatically increased over the last few years. This, in a way, has permitted high-profile venture capitalist firms to enter the fray.

Increasing Venture Capitalist Investment In Cannabis

Venture capitalist investment was a relative trickle until a couple of years ago, then it picked up rapidly to well over $800 million in 2018. The total amount of venture capitalist investment in cannabis was only around an eighth of this in 2014. This may still sound like a lot, but it certainly isn’t when it comes to venture capital investment. This increased to around half the 2018 total in 2017, which is when cannabis investment started to become mainstream for venture capitalists. As with the growth of the cannabis industry as a whole, the growth of venture capital investment is continuing to increase at an exponential rate. It has become a must-have in the portfolio of every venture capitalist, with a sense among these firms that not investing in the cannabis space is tantamount to being left behind by the competition.

Biggest Recent Deals In Cannabis

2018, the last year for which complete data is available, saw many of the biggest single investments in the cannabis space from venture capitalist firms yet. The biggest venture capitalist investment was the Series C round of funding that was raised by a company called Privateer Holdings. Privateer, which is based out of Seattle, is itself a private equity firm that only invests in the cannabis space. They were able to take home a hefty $100 million in their Series C, putting them well ahead of any other single round of funding venture capitalists invested in during the 2018 cannabis business. Privateer’s high-profile holdings include the app Leafly, which allows consumers to find nearby cannabis products. The second-largest round of funding was the $55 million taken home by Surterra Wellness, a company that runs a chain of medical dispensaries in Florida and other lucrative markets in the United States.

Top Cannabis Venture Capitalist Firms

There are two different types of venture capitalist firms involved in the cannabis industry. Some firms invest only in this sector, and there are firms whose portfolios extend beyond cannabis. Even as the cannabis industry has matured, the early cannabis-only firms still lead all venture capitalist firms in completing the greatest number of investment deals. For example, the New York firm Altitude Investment Management led the way in 2018 with a total of seven different investments in cannabis companies. Altitude only invests in cannabis companies. So does Casa Verde Capital, which completed six separate cannabis investment deals in 2018. Casa Verde Capital is a very high profile firm because it was founded by the rapper Snoop Dogg. Casa Verde has been a top cannabis venture capitalist firm since the dawn of the industry. Prestigious venture capitalist firms that have portfolios extending beyond cannabis have also made waves in the industry recently. For example, Tiger Global Management, which has been one of the top venture capitalist firms in recent years, completed three cannabis investment deals in 2018.

2019 On Pace To Be A Record Year

As anyone researching the recent history of venture capital investment into the cannabis industry could easily predict, 2019 is well on its way to being a record year. There were over $1.2 billion in cannabis investment deals completed by May 2019. This means that the first five months of 2019 saw about 50% more venture capitalist investment in cannabis than all of 2018, which was in and of itself a record-breaking year. If this pace continues, then the whole of 2019 will see over $2.5 billion in venture capital cannabis investments. This is nearly three times the amount of venture capitalists invested in the cannabis industry in 2018. Of course, the amount invested by venture capitalists may increase at an even faster pace in the last half of 2019, given the already meteoric increase seen so far this year.

Recreational Vs. Medical

To understand the venture capital investments into the cannabis industry, it is important to look at how much is invested into the recreational side of things versus how much is invested in the medical side. In the past, the split was about even. This was the case in 2018. However, the landscape has changed radically so far in 2019. Venture capitalists have invested over twice as much in recreational cannabis as compared to medical cannabis. There are several reasons for this. The first and simplest is the increase in the number of states that allow recreational cannabis. For example, Illinois, home to the fourth-largest city in the country by population (Chicago) and one of the most populous states in the Midwest region, recently legalized recreational cannabis. There is a second reason, however. The complex, ever-changing and widely varying medical laws of the various states that allow medical cannabis to deter many companies from scaling up to cover multiple states. This, in turn, results in lesser venture capitalist investment in medical cannabis.

Early Stage Vs. Late Stage Investments

Another split in venture capitalist investment in the cannabis space that is interesting to look at is early-stage investments versus late-stage investments. As those familiar with venture capitalist investment likely already know, emerging markets have more early-stage investments from venture capitalist firms. If an industry is just starting to take off, most of the companies that are involved in this industry will be relatively young. However, cannabis is starting to transition from being an emerging industry to being an established industry. There are still many early-stage investments into start-ups in the cannabis industry. However, the balance is starting to tip toward late-stage investments. In the first half of 2019, over $600 million was invested in late-stage funding versus around $500 million in early-stage funding. 

Massive Increase In Private Equity Investment

While private equity investments are a whole different ballgame than venture capitalist investments, it is still important to look at what’s going on in that space to gauge the health of the industry as a whole. Private equity investments generally lag behind venture capital in terms of the amount invested. This is certainly true in the cannabis industry, where 2018 saw over $400 million of private equity investments into cannabis. While this is around half the amount of venture capital investment in 2018, it is still a significant increase. 2017 saw roughly one-tenth of this amount of private equity investment in the cannabis industry. While this rate is certainly not sustainable, it is clear that private equity investments into the cannabis industry are growing very quickly, just as venture capital investments are growing. 

Marijuana Investment Will Only Increase

Some say that the growth of the cannabis industry will soon slow down, or that it is a bubble that will soon pop. However, analysts believe that cannabis will only continue to grow at a rapid pace for at least the next decade or so. While cannabis is roughly a 50 billion dollar industry now, it is projected to grow to $80 billion by 2030. This estimate takes into account an annual growth rate of roughly 4%. It is also important to note that this estimate assumes that the federal government will legalize cannabis, which is far from a certainty. The previous estimate for the growth of the cannabis industry pegged the valuation in 2030 at roughly $75 billion. The increase of $5 billion was done to reflect a more rapid rate of growth than even the original fairly optimistic estimate. It is certainly within the realm of possibility that the cannabis industry will continue to outperform even the most positive estimates, especially given the increase in investment from venture capital firms.

Christopher Wright

Meet Christopher Wright, aka Blue, successful radio host and creator of Cannabis Talk 101. As well as CEO of Cannabis Talk Network. For over a decade now, Chris has had his hands in all faucets of the Cannabis Industry. From medicinal marijuana dispensaries and cultivations to controversial cannabis activism, Chris is a pioneer for the cannabis movement.