By: Skylar Marshall, Associate
The data is in and venture capitalists’ interest in the legal cannabis market is only increasing. 2018 set a new US record of $1.2 billion of VC investment in cannabis startups. Already in 2019, VCs have invested nearly $1.6 billion through 126 deals, according to
PitchBook. That’s nearly half a billion dollars more than last year with data through July 19, and the trend continues to be white hot.
Despite many local hurdles like stringent regulations and high taxes, more than 40% of VC investments this year have gone to companies headquartered in California. California was the first to legalize medical cannabis in 1996 and roughly 20 years later it legalized recreational marijuana. Now, the state is seeing some of the largest VC-backed cannabis deals in the country.
In April, San Francisco based
PAX Labs secured $420 million and was valued at $1.7 billion, setting the record for the largest VC-backed cannabis company in the US. Flow Kana out of Sacramento raised $125 million in February, and San Jose based Caliva procured $75 million in January.
Other large deals outside of California include Atlanta based
Surterra Wellness, a developer of cannabis-based medical products, which raised $265 million, and Grassroots out of Chicago with a $90 million raise. While adult-use marijuana is anticipated to have the largest growth trajectory within the cannabis industry in the next few years, medical marijuana held 70.3% of the global market share last year, according to research firm Grand View Research. Source: PitchBook Grassroots Cannabis, also a developer of cannabis-based medical products, announced recently that it has agreed to be acquired by Curaleaf for a purchase price of $875 million.
The top VC players in the industry currently include Florida-based
Phyto Partners (nine deals), Arcadian Fund (five deals), and Gotham Green Partners (five deals). VCs are investing in both plant-touching companies and ancillary industry businesses, including cannabis tech startups that provide software and hardware to the industry. Source: PitchBook
Grand View Research predicts that the cannabis market in the US is expected to grow at 24.1% over the next six years. While many publicly traded cannabis companies have been having difficulties lately on the stock market, innovative products and an increased market size seem to have kept VC interest high (no pun intended).