- The cannabis-edibles brand 1906 closed an $18 million funding round led by Navy Capital.
- The funding round brings the company's valuation to between $40 million and $50 million.
- In an interview with Business Insider, 1906 CEO Peter Barsoom discussed some of the challenges around raising capital for cannabis companies in the private market, why he wants to expand eastward, and the benefits of keeping a lean team.
- Barsoom gave Business Insider an exclusive look at the pitch deck that 1906 just used to raise the funds. Read on to see the full deck.
- Click here for more BI Prime stories and subscribe to our weekly cannabis newsletter, Cultivated.
Raising money in the cannabis industry is hard. Peter Barsoom, the CEO of 1906 — a Colorado-based cannabis-edibles brand — can attest to that.
His company closed an $18 million funding round on Tuesday, bringing the infused-chocolate maker's valuation to between $40 million and $50 million, the company said. The round was led by Navy Capital, a cannabis-focused fund in New York City, and included a variety of high-net-worth people and repeat investors.
Barsoom shared the pitch deck that he used to raise this round exclusively with Business Insider. You can scroll down to see the full deck.
Barsoom, who came to cannabis after working in senior roles across Morgan Stanley, Merrill Lynch, and Blue Mountain Capital, said it took seven months to close the funding round.
"We did see headwinds like anybody in the cannabis space," Barsoom told Business Insider over the phone. "The fallout from the IPO bubble happened fast and furious."
Once plentiful, at least at the early stages, growth capital has slowly dried up for cannabis companies as public companies in the sector have seen their share prices crater. That has made venture investors wary of startups in the space, Barsoom said.
"I think that many companies went out to the public markets thinking that capital was infinite and time horizons were infinite," Barsoom said. "So I think what we're seeing today is likely to be the Pets.com and the Webvans of the cannabis space."
For that reason, Barsoom said he was focused on keeping 1906 private — for now.
"The right set of capital that needs to fund this industry is growth capital, and not necessarily public-market capital. So there was a mismatch that led to a bubble and sharp decline," Barsoom said.
But for long-term investors, Barsoom said the thesis held that cannabis "is one of the most exciting and fastest-growing segments of the economy that anybody has witnessed in our history."
1906 is using the fresh funding to expand to the East Coast
This latest funding round builds on 1906's prerevenue raise in 2016, when the company raised $2.7 million.
With the fresh capital, Barsoom is looking to expand 1906's low-dose THC and CBD infused chocolates to new state markets, including Michigan, Illinois, and Massachusetts — states where he says the company can generate the highest return on invested capital.
"California is a crowded market," Barsoom said. "I'm from the East Coast. We think our brand has a strong resonance with East Coast consumers and has an East Coast sensibility."
To that end, 1906 released a line of "Drops," or pressed tablets that contain low doses of THC and CBD, as an alternative to the company's infused chocolates.
The company isn't the only brand to release a line of infused tablets. The cannabis startup Dosist — which is known for its vapes — released tablets in October as well.
And despite the expansion plans, Barsoom believes in running a "lean team."
"We've seen — literally in the last week or two — hundreds of layoffs in the industry, where companies have unfortunately overextended themselves with hiring and that has resulted in a pretty significant pullback," Barsoom said. "We're focused on disciplined growth, adding people where critical and staying lean, and kind of, finally, not overextending ourselves."
See the pitch deck that 1906 used to raise $18 million below:
Barsoom said he liked the idea of edibles with outcomes and effects that are tightly controlled.
"You don't want to play Russian roulette with a substance when you have no idea when it's going to hit, or how long it's going to last," Barsoom said.
Despite the challenges around being a "plant-touching" company, Barsoom said the "growth and true returns" were going to come from consumer brands.
Barsoom said he wanted to bring an "East Coast" sensibility to 1906's product offerings.
"What we fundamentally believe is that most consumers want to use cannabis because of the specific functional benefit that it gives, whether it be relief from pain, help with anxiety, sleep, or energy," Barsoom said.
