Cannabis Law Prof Blog

Editor: Franklin G. Snyder
Texas A&M University
School of Law

Wednesday, December 17, 2014

Silicon Valley VC Makes Big Bet on Marijuana

Big-time venture capital money may be headed to the fledgling marijuana industry.  Business Insider is reporting that Peter Thiel's $2 billion Founders Fund is set to take a stake in the $75 million offering by Seattle-based Privateer Holdings, parent of Leafly and the proposed Marley Natural brand marijuana:

    Thiel's Founders Fund is likely participating in a large round of financing in a cannabis startup, Privateer. The company is raising a $75 million Series B round at a $425 million pre-money valuation, according to documents obtained by Business Insider. If Founders Fund participates in the round however, it may invest at a lower valuation. The round hasn't closed yet, so those numbers are subject to change. 

    Privateer was founded in 2011 and is positioning itself to be the leader in the weed supply chain, which the company says in its current state is fragmented, poorly managed, and largely run underground, despite "proven demand."

    Privateer quietly bought up another startup in the space, Leafly, which is like Yelp for weed products. In 2013, Privateer launched Lafitte Ventures, which focuses on medical marijuana, and Tilray, which mails medical weed to users and generated nearly $200,000 in revenue last year. Privateer is also exploring a testing facility (Arbormain) in Washington state. The founders may launch their own weed-focused investment fund, too, so Privateer can pour money into external cannabis companies.

    Medical marijuana is available in at least 22 states as well as Washington, D.C. Privateer estimates the US weed market could be a $20 billion to $50 billion opportunity. Privateer hopes to be the leader across everything from growing and processing various strains of marijuana to supplying and shipping it. It also plans to get into the accessory business, selling devices like pipes and vaporizers to users.

    Privateer is already generating meaningful revenue, although the company is not profitable. In 2014 it expects to generate nearly $11 million in net revenue, up from $1.2 million in 2013. Most of that revenue (60% to 70%) is generated by Lafitte Ventures, and the rest is from Leafly. Privateer expects to reach profitability and generate $111 million in 2015 and $440 million in 2016. 

It's a natural fit, I think.  Unike alcohol and tobacco companies, with their heavy emphasis on production and marketing, Privateer looks to be following a Silicon Valley model.  It's founded and run by Yale MBAs with significant experience in the high-tech and financial sectors.

Thiel is something of a legend in the VC world.  He was the first outside investor in Facebook, and ranked number four on Forbes's 2014 "Midas List" of the world's top tech investors.

https://lawprofessors.typepad.com/cannabis_law/2014/12/silicon-valley-vc-makes-big-bet-on-marijuana.html

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