Venture Capital Invests in Marijuana

Despite growing momentum toward marijuana legalization, big-name investors have largely stayed on the sidelines of the budding industry, content to hold out until federal prohibition is one day repealed.

But legal cannabis now has the backing of a major tech investor — one that could inspire other established financial players to join the green rush.

Founders Fund, a leading San Francisco venture capital firm partly run by PayPal co-founder Peter Thiel, said Thursday that it was making a multimillion-dollar investment in a cannabis-focused private equity firm called Privateer Holdings.

The announcement gives the legal pot sector a shot of credibility as it continues to grapple with conflicting state and federal laws, limited access to banks and no shortage of fly-by-night investors who have sullied the industry with pump-and-dump schemes.

Six to 12 months from now there will be investment banks who will have analysts following cannabis like they follow healthcare or agricultural commodities. - Brendan Kennedy, Privateer's chief executive.

"This is a milestone," said Taylor West, deputy director of the National Cannabis Industry Assn. in Denver. "It says there are real opportunities within this industry for outsiders to benefit, and it shows the industry is solid enough that an investment firm like this is comfortable stepping in."

Founders Fund is a heavyweight in Silicon Valley circles. The firm's $2-billion portfolio includes Airbnb, Lyft and Spotify. It's known for its moonshot investments — it backs SpaceX, Elon Musk's private spaceflight company.

Founders Fund partner Geoff Lewis said Privateer was chosen because it had broad, long-term ambitions and owned vertically integrated brands that handled many aspects of the business, including growing marijuana and reviewing strains.

"Privateer Holdings has emerged as the market leader in legal cannabis, which we believe will become a massive industry within the next decade," Lewis said. "We've been evaluating the cannabis industry for several years, and we haven't seen another company that comes close to Privateer Holdings in terms of strategy, professionalism, talent, expertise and potential for growth."

Privateer's chief brand is Leafly, a website that operates much like Yelp by reviewing dispensaries, strains and doctors. Site visitors contribute to a valuable trove of growing user data that could help market cannabis products down the road.

Privateer, a Seattle company run by three business school graduates (two from Yale), has also invested in Marley Natural, a premium cannabis brand founded by family of the late reggae legend Bob Marley, and Tilray, a Canadian grower, processor and distributor of medical marijuana.