Cannabis Startups Taking in Sizable Funding Rounds
The cannabis industry is moving so fast these days, we hardly have any time to partake ourselves because we’re too busy trying to keep track of all of the IPOs and mega investments into these newly minted billion-dollar corporations like Aurora Cannabis (ACB) and Aphria (APHA). While there were certainly plenty of listings on U.S. exchanges in 2018, cannabis companies really piled into a second-tier exchange in Canada called the Canadian Securities Exchange (CSE) to the extent that $3 billion of the $4 billion raised on the CSE last year was related to marijuana, according to the MJ Daily. There are now 140 (and counting) cannabis stocks trading on the CSE. In all the IPO frenzy, it’s easy to forget that cannabis startups are also raising big amounts.
We published a list of the five biggest cannabis startups only two years ago, but it might as well have been 200 years. The industry is no longer relying just on venture capital firms specializing in cannabis, but attracting interest from all types of investors, including celebrities like former 49ers quarterback Joe Montana. The so-called green rush is certainly chasing after a mountain of greenbacks: Worldwide legal cannabis spending hit $12.2 billion last year, according to cannabis research firm Arcview Group, which predicts it will pop to $16.9 billion by the end of 2019.
Short-term Cannabis Startups
The industry is so dynamic that some of the largest investment rounds to cannabis startups so far have seen them already turned into mergers, acquisitions, and IPOs.
For instance, Chicago-based Verano Holdings, founded only last year, took in $120 million in October. This month, Harvest Health and Recreation (CSE:HARV) out of the Phoenix area acquired Verano for $850 million. Verano reportedly brings to the table licenses and operations in 11 U.S. states and territories, including seven cultivation licenses and 37 retail licenses. By the end of this year, the combined company expects to have more than 70 dispensaries, 13 cultivation facilities, and 13 manufacturing facilities in operation.
Another cannabis startup that took in a mega-round last year was Acreage Holdings (there are a lot of holdings companies in the cannabis industry). It raised a reported $119 million in a Series E in July 2018. By November, Acreage (ACRG) in New York had joined the CSE Club and has a market cap of more than $2 billion. Ditto for Chicago-based Cresco Labs (CSE:CL), which took in $100 million last October and then listed on CSE in December, with a market cap already near $3 billion. This week it acquired a Florida cannabis company called VidaCann for $120 million.
And then there’s a Boston-based cannabis company called Tilt (CSE:TILT). You’d have to be pretty stoned to understand all the intricacies of what happened, as MarketWatch pointed out, but a four-way reverse merger brought together “a delivery-software company, a customer relationship management app, a Massachusetts cannabis producer and marijuana-farming operations in British Columbia.” That Massachusetts company was Sea Hunter Therapeutics, which had raised $76.3 million in July last year before the November merger. In January, Tilt acquired Phoenix-based Jupiter Research, which designs, develops, and manufactures vaporization technologies, for $210 million.
Got all that? Now let’s talk about some of the largest investments in cannabis startups while they’re still startups.
The Largest Private Funding Round for a Cannabis Startup
San Francisco-based Flow Kana, founded five years ago, took in what’s being billed as the largest investment round for a cannabis startup to date at $125 million last month. Total funding is $147.5 million. The company has also positioned itself as the first “sustainable, sun-grown cannabis brand,” with designs on becoming the Whole Foods of cannabis. It has partnered with more than 30 small marijuana farms in northern California with names like Lady Sativa Farms and Water Dog Herb Farm that emphasize organic and biodynamic farming practices.
The heart of the operation is the Flow Kana Institute, which occupies the former home of the Fetzer family wine empire in Mendocino County. There’s an 85,000-square-foot facility for testing, processing, manufacturing, and distributing product. But the 80-acre property is also being developed into an education and wellness center.
What’s Tilray Doing on This List?
We covered Privateer Holdings almost exactly two years ago, but we’ve talked about it plenty considering that one of the companies in its portfolio is Tilray (TLRY), which perhaps more than any other public cannabis company traded on a U.S. exchange has represented the volatility of the market right now. Seattle-based Privateer Holdings itself took in $100 million in January 2018, with total funding at $228 million, and has more than a half-dozen companies in its portfolio including brands like Leafly and Marley Natural.
Investments Heavy in Chicago
Yet another Chicago-based startup, Grassroots Cannabis, raised $90 million this month (saying it more than doubled its original goal due to investor demand), to bring its total funding to a reported $165 million. Grassroots Cannabis produces its own line of flower strains, concentrates, vapes, and edibles, which are sold in its 15 dispensaries in 11 states, according to Forbes. In addition, it has 62 licenses to grow, process, and sell cannabis in eight states where medical cannabis is legal and three where it’s allowed recreationally, Forbes reported. The company reportedly had revenue of $30 million in 2018, with projections to reach $360 million in revenue by 2020. Consider that Tilray reported about $43.3 million in total revenue last year and has a current market cap of $6.6 billion (and falling), and you can see that value is slightly skewed.
Celebrities Investing in Cannabis Startups
Founded in 2015, Caliva out of Silicon Valley made headlines when it raised $75 million in January, not so much because of the high-dollar amount but because of some of the names on the investor list, which included former Yahoo! CEO Carol Bartz (earning her a seat on the startup’s board) and the aforementioned Joe Montana. Caliva is very much about Californication of cannabis, with its operations focused on its home state. The company said the money infusion will go toward growing its product portfolio and expanding wholesale distribution, among other plans.
It recently added a new line of THC-CBC-based pain lotion creams, above, to its product line.
Chewing Gum and Cannabis
Founded in 2014, Atlanta-based Surterra Wellness is also known for one of its key investors – chewing gum billionaire William “Beau” Wrigley Jr. Wrigley led a $65 million Series C in August that was later followed by a $54.6 million raise comprised of debt and other types of financing. In November, he also took the reins as CEO of the startup, which has raised a total of $145 million. Surterra has licenses in Florida and Texas, operating 14 “wellness centers” and more than 300,000 square feet of canopy throughout Florida. The company expanded from 100 to more than 500 employees in 2018, and also inked a deal with Jimmy Buffett’s Margaritaville brand to create a new medical marijuana brand, Coral Reefer, because obviously Parrotheads get high a lot if they continuously listen to that friggin’ song over and over and over again.
Supply Chain Cannabis Startup
Not every startup picking up big rounds in cannabis actually grows and sells weed. Founded in 2013, Florida-based Metrc took in $50 million in October from Tiger Global Management, a large mainstream investment firm, and Snoop Dogg’s Casa Verde Capital. The startup was spun out of company called Franwell Inc. that develops supply chain technology, such as RFID tags for tracking products in the food and agriculture industries. While Metrc isn’t the only cannabis startup offering seed-to-sale solutions, it dominates the industry with 11 state contracts for tracking product under state laws.
As of late last year, Metrc had registered more than 85,000 users and tracked more than 20 million cannabis plants and 19 million packages.
A Cannabis Inhaler
We first came across Israeli startup Syqe Medical in our roundup of the biggest marijuana startups back in 2017. Since then, the company raised $50 million in January to bring total funding to $83 million. As we’ve written previously, Israel is at the forefront of cannabis medical research. It offers both a consumer and professional-grade inhaler that delivers precise doses using preloaded cartridges.
The device is connected to a cloud-based platform that allows caregivers to monitor and control the dosage to the handheld wireless-enabled inhaler.
These are heady days in the nascent cannabis industry. While 2018 was definitely the year of the cannabis IPO, this year may see a pullback from that strategy, as more cannabis startups attract larger investment rounds without the need to rush to the public markets for capital. One also has to wonder just how sustainable the whole enterprise is at this point, but we don’t expect the momentum to slow any time soon. That’s especially true given the real potential for the world’s biggest cannabis market, the United States, to enact some sort of federal-level legalization over the next couple of years.
Are you paying too much in transaction fees to your broker? Check out a brokerage firm called Zacks Trade that's offering $1 trades for U.S. stocks and options until 2020. After that, you'll pay just $3 a trade or a penny a share, whichever is greater. It's one of the cheapest brokers out there and you can also trade stocks on foreign stock exchanges. Trade US stocks and options for as low as $1 per order until 2020.