The investing side of the cannabis industry is finally starting to mature, albeit slowly and in spurts.
Privateer Holdings Inc., which ranks as the first private equity fund focused solely on cannabis, announced this week that it has closed a $7 million round of Series A funding. The Seattle-based firm will use the money to invest in companies that provide ancillary products and services to the cannabis market but don’t actually handle the plant, with the goal of creating “trusted, approachable” brands targeting patients and general marijuana users in states with marijuana laws on the books. It also will also use money from the fund to start its own companies that can address unmet needs.
“Our main interest is in companies that have the opportunity through marketing and branding to elevate the conversation and change the conversation” about cannabis, said Brendan Kennedy, the CEO of Privateer Holdings. “We’ll also be looking for holes in the industry, particularly when ti comes to the types of companies and entities you see in other industries but for some reason do not see yet here.”
While the amount is relatively small in the general investment world – private equity funds targeting other sectors often raise tens or even hundreds of millions of dollars – it is a big deal in the marijuana space for several reasons:
#1. Professional funding options (including bank loans) are relatively scarce in the cannabis industry, meaning entrepreneurs must mainly rely on their own savings, credit card debt and investments from family members and friends. The emergence of a private equity fund with millions of dollars to invest gives some of the more promising startups another option when seeking funding.
#2. The pedigree of Privateer’s leadership team brings credibility to the fund and to the larger industry as a whole. Its three founders all held executive-level positions in other areas of the business world – including operations, investment banking, private equity and sales – while two have MBAs from Yale. This one of the most qualified management teams on the funding side of the cannabis industry when it comes to investment experience, business know-how and educational background.
#3. The fact that Privateer was able to close its first round of fundraising proves the private equity concept in this industry and shows investors from different backgrounds are indeed willing to pony up significant sums. Investors in Privateer’s fund run the gamut, including everyone from tech entrepreneurs in Silicon Valley and investment bankers in New York to ranchers in the Midwest and oil executives in Texas. Privateer said investor interest in cannabis is growing rapidly, and the firm is already planning another fundraising round with a target of landing at least $25 million. This could also pave the way for new private equity and venture capital funds, convincing other professionals and investors to get involved.
#4. Privateer’s serious, professional approach will help improve the industry’s questionable image, which will benefit the cannabis business in the long run by making it more appealing to the public and outsiders in general. “We are tired of the clichés – pot leaves, Cheech and Chong, and nurses in bikinis,” Kennedy said. “We are moving the cannabis industry out of the shadows and into the light.”
Privateer’s track record of investing in and nurturing companies is short: It acquired Leafly.com – which offers patient reviews of strains and dispensaries – in 2011. But it seems to be off to a good start. Privateer says it has helped grow Leafly’s revenues and traffic substantially, and the company is now expanding into new areas.
Here are some highlights from Privateer’s recent fundraising round, according to Kennedy…
Time spent raising money for the fund: 12 months
Number of investors that contributed: More than a dozen
Amount each investor/investment group contributed: $50,000 to more than $1 million
Minimum amount each investor/investment group contributed over last two months: $500,000
Number of fund investors who are currently in the cannabis industry: Zero