- Investors have poured over $1.6 billion into cannabis-tech startups in 2021.
- Investors including Tiger have backed startups providing services to the growing cannabis industry.
- These startups provide ways for investors to bet on legalization without much of the risk.
Cannabis tech is having a moment.
Startups that provide software and other services to the cannabis industry are on a fundraising tear this year, raising millions from deep-pocketed investors and going public at eye-popping valuations.
As of November 9, investors have poured over $2.6 billion into the cannabis industry, up from $1.45 billion last year, according to the data provider PitchBook. Of that $2.6 billion, over $1.6 billion has gone to cannabis-tech companies — the bulk of it going to US startups.
The latest spurt of cannabis tech deals includes some of the biggest and most well-known funds, including Peter Thiel’s Founders Fund, the powerhouse Tiger Global, and Thrive Capital, along with the $7.5 billion Eminence Capital.
For the largest venture-capital or private-equity firms, investing in cannabis tech is a way to bet on the spread of cannabis legalization in the US, the biggest market, without the risk that comes with selling an illegal substance.
Cannabis is considered a Schedule I controlled substance by the US federal government, though a number of states have legalized it for medical and recreational use. In Canada, it’s a different story: The country became the second, after Uruguay, to federally legalize cannabis in 2018.
Think of these cannabis-tech startups as the picks and shovels that supported the gold rush in the 19th century. They provide services like inventory management, marketing, payroll, customer retention, and everything else cannabis shops need to survive and thrive — but they don’t sell cannabis itself.
“As an investor, if you’re thinking about wanting to participate in this gold rush, and you want to be in the United States, the only way to do that is playing cannabis tech,” said Jeffrey Harris, the CEO of Springbig, a software company that helps dispensaries market their products and retain customers. Harris said he also invests privately in cannabis-tech startups.
Tech has been a bright spot for the cannabis industry
In the past, traditional venture and private-equity funds saw cannabis tech — and the cannabis industry, more broadly — as too small and complex to be a worthwhile investment, Emily Paxhia, a managing partner at Poseidon Asset Management, which invests in cannabis and cannabis-tech companies, told Insider.
These traditional venture funds are now recognizing how fast the cannabis industry is growing, Paxhia said.
Plus, because cannabis is federally illegal in the US, most big tech platforms don’t service the industry. That’s the reason all these niche startups have sprouted up to work with the cannabis industry, instead of, say, Amazon or Oracle building their own platforms, Paxhia said.
“Innovation comes from areas that big companies can’t quickly build to address,” Paxhia said. “It’s hard to pivot.”
Poseidon last month led a $19 million funding round for Flowhub, a cannabis-tech startup.
Tech has been a bright spot for the broader industry, which has suffered in recent months as federal legalization in the US hasn’t materialized and companies struggle to bring consumers out of the illicit market and into legal shops.
“I think because of the maturation of the industry, the destigmatization of the industry over time, more and more traditional tech investors are OK with deploying capital in the space,” Flowhub CEO Kyle Sherman said.
Deals, deals, deals
Cannabis-tech companies that want to raise money or go public are on fertile ground.
Springbig said on Tuesday that it planned to list on the Nasdaq through a combination with Tuatara Capital Acquisition Corp., a blank-check company known as a special-purpose acquisition company, or
. The deal would give the combined company a valuation of over $500 million.
Springbig is far from the only cannabis-tech company to announce a megadeal in recent months:
- The cannabis-information site Weedmaps went public on the Nasdaq in June through a SPAC merger. The deal valued the company at about $3 billion, or around $20 a share. Since then, the stock has declined over 40% to under $12 a share, which is similar to the experience of other publicly traded cannabis stocks.
- Leafly, a competitor to Weedmaps, announced in August it would go public through a SPAC deal of its own with Merida Merger Corp. The deal would give Leafly an equity value of over $530 million, the company said.
And on the private side, there’s even more action:
- The Bend, Oregon, cannabis e-commerce startup Dutchie in October closed a $350 million Series C funding round led by the billionaire Dan Sundheim’s D1 Capital, Insider reported. The round gives Dutchie a valuation of about $3.75 billion — and comes just seven months after Dutchie raised $200 million.
- In December, the New York City cannabis-tech platform LeafLink raised a $40 million Series C funding round, led by Peter Thiel’s Founders Fund and Josh Kushner’s Thrive Capital.
- The data and compliance startup Fyllo closed a $40 million Series C funding round in November, Insider reported. While Fyllo didn’t disclose its valuation, the company has raised close to $100 million since August 2020.
- The Denver inventory and compliance startup Flowhub landed $19 million in October in what the company called a strategic funding round — which included investors like Jay-Z — giving the company a $200 million valuation. The 6-year-old company said it had raised nearly $50 million to date.
- The New York City cannabis-marketing platform Surfside closed a $4 million seed round in August led by Casa Verde Capital — a cannabis-focused fund that counts rapper Snoop Dogg as a cofounder.
Software is a less risky way to bet on the upside of legalization for big-name investors
Traditionally, the cannabis industry has been fueled by investments from family offices or firms that are specifically focused on cannabis and have the expertise to navigate the regulatory gray areas between federal and state rules around cannabis legalization.
It’s been more difficult for institutional investors to back “vice” industries like firearms, tobacco, gambling, and now cannabis, Insider has reported.
But tech — even when it serves the cannabis industry — is far enough removed from the risk, and it provides a way for these investors to bet on the upside of legalization without dabbling in selling cannabis itself, investors have previously told Insider.
“You can’t really hide from the opportunity,” Fyllo CEO Chad Bronstein said. “It’s a great symbol for the space to show the opportunity here.”