Americans’ attitudes toward marijuana are rapidly evolving, as evidenced by the growing number of legalization and anti-prohibition efforts currently under way in a majority of US states. Meanwhile, the regulatory foundations of state programs, while shaky at times, are beginning to sure up. With both California’s and Canada’s recreational programs coming online within the next year, many believe the dam is about to break.
The trend toward legalization is creating a wide array of investment opportunities. In the past year, wealthy venture capitalists have been opening up their checkbooks and pouring tens of millions of dollars into the cannabiz in a bid to capitalize on this “Green Rush.” And it seems that the torrent of capital won’t be subsiding anytime soon.
Among the noted investors are Peter Thiel, co-founder of PayPal. Thiel is no stranger to biotech and made a fortune with the cancer drug startup Stemcentrx. Thiel’s Founders Fund has sent millions to Privateer Holdings, a Seattle-based private equity firm that backs research into medical marijuana products, among other cannabis-related ventures. Many see Thiel’s foray into cannabis as the first public endorsement of the industry from a major biotech investor.
What’s driving investments?
Growing acceptance and legalization
Growing favorability toward marijuana is quickly changing the attitudes of the big dogs.
Presently, more than 50 million adults in the United States regularly use marijuana. A 2016 survey from Gallup and a more recent poll from CBS News in April of this year found that over 60% of Americans want to see pot legalized across the country. And a full 88% believe that marijuana has medical benefits.
Given that a majority of states have already legalized cannabis for medical use, and seven states and DC allow recreational use, many investors are betting that the federal government will eventually relent and regulate marijuana in much the same way as alcohol.
Big investors have also been instrumental in helping the legalization effort to build up steam. Thiel contributed $300,000 to the California ballot campaign that paved the way for legalization. MassRoots, one of the largest technology platforms for the cannabis industry, announced last October that it raised $250,000 for marijuana legalization campaigns and nonprofits across the country. And Florida’s MMJ initiative was bankrolled by attorney John Morgan, who recently announced his intention to invest $100 million into the cannabiz.
Super-sized sales projections
They don’t call the cannabiz the “Green Rush” for nothing. The marijuana industry is one of the fastest growing markets in modern times.
Oakland-based cannabis investment and research firm The Arcview Group has helped about 600 wealthy individuals invest more than $131 million in cannabis companies since 2010. Arcview calculates that the North American market for legal cannabis sales was $6.7 billion in 2016, up 30% from the prior year. In their estimation, North American legal sales growth should average 26% through 2021 bringing the market up over $20 billion annually.
Pot has been legal for medical use in California since 1996, but California legalization of recreational marijuana could blow the state wide open. Recreational sales, which take effect on January 1st, will create huge cash flows. Experts say the market for marijuana and related products in California will reach $6.5 billion in 2020. If California’s recreational program is a success it will likely spark legalization efforts elsewhere.
“California is the sixth largest economy in the world. Colorado and Washington are pilot studies by comparison,” said Troy Dayton, CEO of The Arcview Group.
Another big boost could come if California State Treasurer John Chiang succeeds in building a parallel banking system to support the industry. It would circumvent federal strictures that prevent cannabis businesses from securing traditional loans, and if successful, could open the floodgates of investment.
Canada represents another huge opportunity for investors, as our neighbors to the north have announced that marijuana will be fully legalized by July of 2018.
Cannabiz stocks up 100% in past year
Over the trailing year, the average marijuana stock price of companies with a market cap of $200 million-plus has more than doubled. Companies with that fall into that category include GW Pharmaceuticals, INSYS Therapeutics, Aphria, Aurora Cannabis, Canopy Growth Corporation, Corbus Pharmaceuticals, Cara Therapeutics, Zynerba Pharmaceuticals, Axim Biotechnologies, Medical Marijuana, Inc., Arena Pharmaceuticals, MedReleaf and Scotts Miracle-Gro.
Most big publicly traded companies have shied away from investing in the industry. That includes pharmaceutical and biotech giants with the resources to develop FDA-approved drugs. Large venture firms, which receive money from public companies and pension funds, also have steered clear due to uncertainty about federal rules and high risks, as well as morality clauses in their investor agreements.
Institutional investors are almost certainly keeping a close eye on the cannabis industry and formulating strategies to implement once the federal government finally ends its prohibition of marijuana and hemp products.
Rising stock prices can also be chalked up to individual investors, who are making the plunge in record numbers in hopes of catching the leading edge of the tsunami. Multitudes of inexperienced investors are anteing up their hard-earned dollars without doing their due diligence or knowing the risks involved.
Some recent big name, big money cannabis investments
Below are just a few of the big investments which have been announced recently. Some are buyouts, some are loans, and some are cash infusions. Some are internal investments by companies hoping to expand their presence in the industry. All of them are signs of the Green Rush flood gates opening. Here we go.
In March of 2017, a group of investors, led by a Los Angeles investment firm, purchased a controlling stake in High Times in a transaction valued at about $42 million. The acquisition deal is one of the largest in the history of the cannabis industry. The new owners have rebranded the company as High Times Holding Company, according to a news release. Adam Levin, founder of the L.A. investment firm Oreva Capital, will serve as the interim CEO and chairman until a permanent chief executive is brought on. A spokesperson for Levin said High Times and the Cannabis Cup together were valued at $70 million. The investor group bought a 60% stake in the two properties for about $42 million. Other stakeholders in the new ownership group include musician Damian Marley, MassRoots, Ean Seeb of Denver Relief Consulting, James Curnin of the Le Parker Meridien hotel family, and James Bailey, an investor in Eaze and other MJ ancillary tech companies.
HERB recently raised $4.1 million in seed funding to further develop its technology. The funding is earmarked for the launch of its new technology platform, the growth of HERB’s video studios, new key personnel hires, and two new office locations in Los Angeles and New York. The round was led by Lerer Hippeau Ventures with participation from Slow Ventures, Michael Lazerow, Bullpen Capital, Shiva Rajaraman, Liquid 2 Ventures, Tobias Lutke, Harley Finkelstein, and Adam Zeplain. Joe Montana, hall of fame quarterback and investor in HERB, was quoted in the announcement saying, “During our research into the cannabis industry, it became clear to both myself and our team at Liquid 2 Ventures that HERB was the most professionally run business for relevant, informative, cannabis content.”
In early July 2017, MassRoots acquired Odava, Inc. in a deal worth $12 million. Odava is a leading point-of-sale and regulatory compliance platform for cannabis dispensaries. Odava’s main integration to state regulators is through Franwell, Inc.’s METRC system, which was recently awarded the contract for California’s cannabis regulatory reporting system. And more recently, MassRoots announced the acquisition of CannaRegs, Inc. in a stock deal valued at approximately $12 million. CannaRegs is a technology platform which tracks changes in cannabis regulations and taxation at the municipal, state and federal levels. Founded by former Federal Reserve regulator Amanda Ostrowitz in 2014, CannaRegs is a cash-flow-positive and debt-free company with more than $450,000 in contractually-obligated annual revenue. This past July, MassRoots announced it had closed a $1.2 million private placement of common stock and warrants.
AmeriCann has secured $10 million in equity to build a massive cannabis cultivation and processing facility in southeastern Massachusetts. The 1 million-square-foot facility in Freetown, Mass. could be one of the largest commercial marijuana facilities in the United States. Massachusetts Medical Cannabis Center in near Fall River. The publicly traded AmeriCann promises a “sophisticated, technologically advanced facility” that “will become a center of excellence for quality, consistency and efficiency.” The first phase will consist of a 130,000 square-foot greenhouse, laboratory and research center. AmeriCann does not grow or distribute marijuana itself. Coastal Compassion, Inc., will lease that facility. The 52-acre site was purchased in 2016 from the Boston Beer Company, makers of Sam Adams, for nearly $4.5 million.
EAZE secures another $27 million
Investors at Bailey Capital have invested $27 million into San Francisco technology and app firm, EAZE. Launched in 2014, Eaze connects customers through its mobile app or website to delivery drivers from local dispensaries in most major California cities. The deal includes participation from DCM Ventures, Kaya Ventures and FJ Labs. The latest round brings Eaze’s total funding to $52 million. Eaze will use the financing for continued expansion throughout California and other states, “to provide safe, convenient and professional access to legal marijuana.” James Bailey has also joined the board of directors bringing relevant industry experience as an investor in PAX Labs, High Times and MedMen. This announcement of additional capital comes at a time when Eaze has experienced rapid growth, seeing a 300% year-over-year increase in gross sales through its platform and now facilitating over 120,000 deliveries per month.
Silicon Valley venture firm Benchmark Capital has helped to launch some highly successful tech companies including, but not limited to: Dropbox, Instagram, Snapchat, Twitter, Uber, Yelp and Zillow. They recently invested $8.1 million into Hound Labs, Inc., creators of the patent-pending Hound marijuana breathalyzer. Hound Labs recently announced the start of clinical trials to verify the efficacy of its field-tested device. The device measures the amount of recent THC (the psychoactive ingredient in cannabis) in a person’s breath, which can indicate if a marijuana user is currently impaired. Hound Labs hopes their marijuana breathalyzer will be an essential tool for law enforcement and employers who want to know who is impaired from recent use of marijuana, versus those who merely test positive from having used marijuana the day before, or even weeks earlier.
California-based startup MedMen recently raised more than $60 million for its investment fund. In a filing with the Securities and Exchange Commission, MedMen Opportunity Fund L.P., which launched in 2016, said it has reached $60 million out of the $100 million it is seeking. The fund aims to pursue strategic investments in “large addressable markets that are supply-constrained and have high barriers to entry”, and focus on diverse assets and geographies. It will also own a portion of MedMen’s management company, which will serve as the fund’s captive operating partner, providing resources and operational oversight for the fund’s assets. MedMen is partnering with Chicago-based Wicklow Capital, the primary investor in Pharmacann, which holds medical marijuana licenses in both Illinois and New York.
Terra Tech Corp
Terra Tech Corp., a cannabis-focused agriculture company, signed a non-binding letter of intent to acquire 50% of NuLeaf Sparks Cultivation, LLC, and NuLeaf Reno Production, LLC. The acquisition is expected to fast track Terra Tech’s cultivation and production facilities allowing them to introduce their IVXX wholesale brand as well as support increasing demand for cannabis products throughout Nevada. NuLeaf Sparks holds a Nevada medical cannabis cultivation license and is in the process of constructing a 30,000 square-foot cannabis cultivation facility in Sparks, Nevada. NuLeaf Reno holds a Nevada medical cannabis production license and is in the process of constructing a 15,000 square-foot cannabis production facility in Reno, Nevada. Both facilities are expected to be completed by the fourth quarter of 2017.
Cronos Group, Inc.
Cronos Group recently announced that it had secured a commitment letter for $40 million in debt financing with Romspen Investment Corporation (“Romspen”). The money will be used to fund the continued construction of its 315,000 square-foot expansion. Romspen has agreed to provide the $40 million loan to the company’s wholly-owned licensed producer, Peace Naturals Project, Inc. The loan is secured by a first mortgage on the real estate. Under the loan, the company retains its ability to enter into equipment financing arrangements.
Maricann Group Inc.
Maricann Group has entered into an agreement to acquire 100% of the issued and outstanding shares of NanoLeaf Technologies, Inc., a biotech company possessing licensing rights to a number of globally patented technologies that provide proven pharmaceutical, nutraceutical, cosmetic and functional beverage drug delivery formulations. NanoLeaf, through its licensing agreement with Vesifact, has developed and marketed the first cannabinoid standardized dose softgel capsule in a nano-dispersed drug called VESIsorb.
Steep Hill Labs, Inc.
Steep Hill recently closed a second $2 million investment round. Since the beginning of 2017, Steep Hill has grown over 50%. Steep Hill says the money will allow the company to scale up to meet the demands of the rapidly emerging California market and provide an opportunity to add key personnel within California. Steep Hill’s foundation was built on testing and analyzing medical and recreational marijuana to ensure compliance with public safety standards. In 2008, Steep Hill opened the first commercial cannabis lab in the United States. Since the beginning, the company has been investing in lab testing, research and development, licensing, genetics and remote testing. Steep Hill has labs in California, Maryland, Alaska, Hawaii, New Mexico and Washington. The company has performed over 250,000 cannabis tests since it began testing in 2008.
Tilray Canada, Ltd.
Medical cannabis research and production company Tilray announced recently that it will invest up to $30 million in a second cultivation and processing facility located in Enniskillen, Ontario. Their two facilities will generate a combined production capacity of up to 51 metric tons per year. Tilray was the first licensed producer to legally export medical cannabis products from North America to the European Union, Australia, New Zealand and South America. Currently, Tilray products – including pharmaceutical-grade whole flower, oils, and capsules – are available in 6 countries spanning 4 continents. The company is aggressively expanding international distribution of its products with plans to export to 5 additional countries by the end of 2017.
Lift Co., Ltd.
Canadian cannabis media and technology company Lift, recently raised $3 million in institutional Series A funding. According to the company’s announcement, it’s the largest round of funding for any Canadian cannabis technology company to date. Founded in 2014 as a simple educational website for medical cannabis patients, Lift has since grown and expanded its offerings across Canada, becoming one of the country’s most recognized cannabis brands.
Green Bits, Inc.
Green Bits, a retail management platform for the legal cannabis industry, recently completed a $2.2 million investment with help from Snoop Dogg’s Casa Verde Capital and several prominent Silicon Valley entrepreneurs. Green Bits will use the proceeds to accelerate sales, customer support and product development as the company expands into new geographic markets, including California, Maryland and Nevada. Green Bits provides a retail platform built to address the unique needs of cannabis retailers.
Privateer Holdings, Inc.
Privateer Holdings recently announced it has reeled in an additional $58 million — a mix of equity and a convertible note — which is part of a larger round that Privateer expects to close at around $100 to $150 million. This pushes total funding to date to $140 million for the seven-year-old company. Marley Natural is one of Privateer’s portfolio companies. Privateer previously raised $40 million as part of a convertible note in November. In April 2015 it raised a $75 million Series B round from top investors like Founders Fund, the venture capital firm started by PayPal co-founder Peter Thiel, who was also an early investor in companies like Facebook, LinkedIn, Yelp, SpaceX and others. Privateer claims to employ more than 500 people in 7 U.S. states and 7 countries.
Cannabis Wheaton Income Corp.
Cannabis Wheaton Income Corp. recently purchased Canadian MMJ company ABcann for $15 million of common shares at an agreed upon valuation of $2.25 per share. The investment forms part of a larger phased investment by Cannabis Wheaton to fund an additional 50,000 square feet at ABcann’s second production facility. The joint expansion is in addition to ABcann’s current construction plans for a 100,000 square-foot purpose built facility, with both being located on ABcann’s 65-acre Kimmett property in Napanee, Ontario. ABcann was one of the first companies to obtain a production license under the Marijuana for Medical Purposes Regulations, which it received on March 21, 2014. It obtained a sales license on December 31, 2015. ABcann’s flagship facility in Napanee, Ontario contains proprietary plant-growing technology, including environmentally-controlled chambers capable of monitoring and regulating all variables in the growing process.