Salveo Capital, an Illinois-based cannabis fund manager, is hoping to join the slowly growing universe of cannabis-focused investment funds in a few months after re-launching Salveo Fund I. The cannabis fund, which first launched last year to limited investor reception, is targeting $20 million to $25 million to invest in cannabis technology companies and brands.
The cannabis fund will invest in cannabis producers and companies with applications in the pharmaceuticals industry, but is more interested in finding brands that can build big consumer-facing businesses.
This is similar to Privateer Holdings, the cannabis-focused PE firm that counts PayPal’s Peter Thiel as an investor. Privateer is focused on building global cannabis brands. By our count, there are now 18 cannabis funds that have announced fundraising or closed capital (see table below).
For Alex Thiersch, managing principal at Salveo Capital, the timing is now right for fundraising as acceptance of cannabis in the US and globally grows.
“We are seeing a real maturation of the industry and by that I mean there are many more sophisticated entrepreneurs, sophisticated business people from other industries like IT, software, social media, and marketing, bringing expertise to the industry,” Thiersch told AgFunderNews.
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While the fact that cannabis remains a Schedule I substance at the federal level has kept many investors on the sidelines, an increasing number of states are legalizing the herb for various medical and therapeutic purposes, and even for recreational use.
New initiatives are generating some serious buzz about the potential market such as in California, where voters will soon consider Prop 64, an adult use statute. Also, during the last election cycle, states like Oregon, Washington, and Alaska all enacted some sort of decriminalization measure.
And recently, Surterra Therapeutics harvested the first legal cannabis crop in the State of Florida. The company manufacturers therapeutic products for medical cannabis patients.
“A lot of new initiatives are coming on. Before, we didn’t have states that were adding laws and awarding licenses, so there was a bit of a lag in the market that has started to change in about the last year,” explained Thiersch. “Now it is humming on all cylinders and we are seeing a ton of movement. There will be a lot of opportunity in the next one to two years especially if some of the big East Coast cities that are huge markets open up.”
Another major driver behind the industry’s maturation is the type of entrepreneurs entering the space.
“it can be difficult to get high-quality employees in this industry. There’s a lot of turnover, and that applies to employees from top to bottom,” said Thiersch. “Now, we are seeing this change in upper management and seeing an increased sophistication level in the entrepreneurs and business owners in the cannabis space.”
With all of these transitions and dynamics developing in the industry, the cannabis fund is keeping its eye on companies that either have the chops to become large successful brands or who may be appealing acquisitions for the large corporate players that are waiting for federal prohibitions to be abolished.
“There are companies literally popping up every day. Today we have gotten no less than 10 proposals for businesses looking for funding. We get 10 every day consistently, and a lot of them are competing with each other,” said Thiersch. “Many of them are underfunded, and most of them are going to, unfortunately, fail once larger business institutions start rolling businesses up and consolidating them.”
Once cannabis becomes legal at the federal level, Thiersch bets that consolidation will become the name of the game. Larger companies, eager to get their hands on the space, will look for companies that have been innovative leaders in their legalized regions.
This consolidation will be a good thing for the industry and make more efficient; the current patchwork of regulations surrounding the herb makes it impossible for many companies to scale nationally.
When prohibition ends
Federal prohibition also hampers cannabis research. By Thiersch’s estimate, medicinal and pharmaceutical applications for cannabis will be the most prominent endeavor once the federal regulatory ban is lifted. Legalizing cannabis at the national level will lead to better research, more consistent products, and may help transition cannabis products from counterculture to commonplace.
Even today, dispensaries don’t look like they did many years ago according to Thiersch. Now he likens them to Starbucks or Apple Stores instead of the dimly lit and hazy psychedelic outposts they once resembled. The makeover is due in part to retail experts that have become involved in dispensary design to transfer the experience to a more modern and universally appealing one.
The nomenclature is also becoming a topic of discussion, with caretakers who pick up cannabis prescriptions for chronically ill patients preferring not to use terms like ‘Bubba Kush’ or ‘Trainwreck’ when filling a prescription. Once laws are passed in larger areas like California, Florida, Boston, Chicago, and New York, this transition will likely enter warp speed, says Thiersch.
“What will Syngenta do once it’s totally legalized? There’s this massive opportunity, and they can come in and do some things that the current industry can only dream of,” Thiersch explains. “It just takes time for it to become normalized and become more mainstream. Once pharma starts researching medications that are in pill format and sold at pharmacies, I think it will take away a lot of the stigma.”
Cannabis fund table
|Fund||Type||Location||Known Investors||Portfolio Companies|
|4Front Ventures||Venture capital||Phoenix, AZ||Linchpin Investors||N/A|
|Anslinger Capital||Venture capital||Winter Park, FL||Tradiv, Headset, Dope Media, Cannabis Rep Network,|
|ArcView Group||Angel Investing Network||San Francisco, CA||CannaBuild, MassRoots,|
|CanopyBoulder||Seed stage VC||Boulder, CO||Ananas, Tradiv, Healthy Headie Lifestyle, Ganja Boxes, Grownetics, TwoCubes, Glasshous, Leaf|
|Casa Verde Capital||Venture capital||Los Angeles, CA||Snoop Dogg, Ted Chung, Even Eneman||FunkSac, Eaze|
|First Harvest Financial||Private Equity||Tampa, FL; Boca Raton, FL; Chicago, IL||N/A|
|Greenfield Capital Partners||Private equity||Bethesda, MD||BioTrack THC|
|MJIC||Multi-stage||Lake Forest, CA|
|Phyto Partners||Private equity||Boca Raton, FL||Leaf, Grownetics, New Frontier|
|Poseidon Asset Management||Hedge fund||San Francisco, CA||Meadow, Tradiv, Headset, Flowhub|
|Privateer Holdings||Private equity||Seattle, WA||Peter Thiel, Founders Fund, Michael Auerbach, Three Tree Ventures||Leafly, Tilray, Marley Natural|
|Salveo Capital||Venture capital||Chicago, IL||N/A|
|Sugar Leaf Capital (Canna Group)||PE & Debt||Pleasanton, CA||N/A|
|Tuatara Capital||Multi-stage||New York, NY||CBC Technologies, Teewinot Life Sciences, Willie’s Reserve|
|Global AgInvesting||Venture Capital||Danvers, MA|
|Anthos Ventures (Forma Holdings)||Venture Capital||Los Angeles & London||Harborside Health Centers, FLRish, The ArcView Group, Indus Holdings|
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Editor’s Note: This article was udpated on August 29, 2016.