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Ever since Colorado legalized cannabis for all adults in 2014, the cannabis industry has blossomed, with a multitude of companies competing to scale up as more states legalize the drug.
With so few institutional investors ready to write checks to cannabis companies — marijuana is still considered a Schedule I drug by the US federal government — the industry has given rise to a number of sector-specific firms that deeply understand the nuances of investing in such a highly regulated and fragmented market.
Besides Lerer Hippeau and Slow Ventures, these cannabis-specific funds mostly raise money from private investors or family offices that may have a higher risk appetite than the average pension fund. They get into top startups before the bigger players begin throwing their weight around, and can quickly adapt to shifting regulations and consumer sentiment.
In the US, most funds focus on ancillary companies, which are startups that provide software and services to the cannabis industry, or biotech firms focused on the agricultural or pharmaceutical side of the industry, rather than investing directly in companies that touch the plant itself. It's a method for skirting federal marijuana regulations, though some funds will invest directly in plant-touching businesses.
But now that Canada's set to legalize marijuana this month, more capital is rushing into the market than ever before. Because the country has federally coherent regulations, some of Canada's biggest banks have pushed into space, either underwriting deals or helping cannabis startups go public.
Last year the total value of all venture deals in the cannabis space across the globe was just under $378 million, according to analytics firm PitchBook. By the beginning of October, that number nearly doubled, to $643 million. To put that growth in perspective, in 2012, the first year PitchBook had data available, there were only two deals in the cannabis sector — worth just $300,000.
According to some estimates, cannabis may become a $75 billion industry in the next few years.
To get a handle on who's cutting early-stage deals in the fledgling industry, Business Insider pulled data from PitchBook and reached out to the top venture-capital firms in the industry. (New deals are happening all the time, so we'll keep updating as we learn more.)
Here are the top venture-capital firms in the cannabis industry:
SEE ALSO: Rising stars of marijuana's investment scene everyone from Wall Street to Silicon Valley should know
Casa Verde Capital counts Snoop Dogg and Goldman Sachs veteran Karan Wadhera among its partners.
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Location: Los Angeles
Deal Count: 15
Los Angeles-based Casa Verde Capital has made 15 venture investments in the cannabis industry, according to Karan Wadhera, the firm's managing partner. It was founded in 2015 by a team that includes the rapper Snoop Dogg, but it really started building out its portfolio in the summer of 2016, Wadhera said.
Like other US-based firms, Casa Verde invests in ancillary businesses, including Dutchie, an online-ordering platform, and Eaze, a cannabis-delivery company.
"The ancillary space presents some of the most compelling investment opportunities," Wadhera told Business Insider. "These businesses are especially exciting as they can scale the quickest with the smallest amount of capital."
In June, Casa Verde participated in a Series A funding round into Oxford Cannabinoid Technologies, a biotech startup researching cannabinoid medicines, along with the venture arm of the tobacco company Imperial Brands.
Altitude Investment Management is a New York City-based firm that's raised $25 million.
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Location: New York
Deal Count: 15
The New York City-based Altitude Investment Management has made 15 deals since the firm's launch in 2017, according to Jon Trauben, a partner in the firm.
Altitude invests in both ancillary and plant-touching companies, with a focus on data and analytics.
"Data and clarity in the cannabis market is lacking, so having a strong network to tap into is essential," Trauben told Business Insider. "We think it's critical to invest in the industry on a portfolio basis to diversify exposure and manage known and unknown risks."
Altitude's portfolio consists of startups across a range of verticals, such as PathogenDx, a DNA-testing firm geared toward cannabis; Flowhub, a point-of-sale-software service for dispensaries; and Green Flower, a digital-media outlet.
Merida Capital is a New York City-based fund that invests in later-stage startups.
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Location: New York
Deal count: 40
New York City-based Merida Capital has made 40 investments in 22 cannabis companies, Mitch Baruchowitz, a managing partner, told Business Insider.
Baruchowitz, a former corporate lawyer, founded Merida in 2016 after being involved in the cannabis industry since 2010. Unlike other firms on this list, Merida mostly invests in later-stage companies, rather than in seed rounds.
Baruchowitz believes two of the hottest areas to invest in the cannabis sector are agricultural technology and data analytics.
To that end, Merida has teamed up with private-equity fund Pegasus Capital to invest in Vividgro, a state-of-the-art lighting and growing system for indoor greenhouses.
Baruchowitz said data is going to be the "most disruptive" evolution of the cannabis market.
"When data becomes actionable, when the data sets become big enough, it's going to be like whiplash for the market," Baruchowitz said. "When data moves into the space, all of that historical or even instinctual behavior goes away."
Merida has made multiple investments in New Frontier Data, a cannabis-industry analytics firm, along with compliance platform Simplifya, among other investments.
See the rest of the story at Business Insider