As the cannabis industry in Europe heats up, Sanity Group, a Berlin-based CBD and medical cannabis startup, is raising millions in a bid to dominate the burgeoning market.
Sanity Group sells CBD in Germany and Austria under the VAAY brand and recently entered the UK market. It's raised $29 million from a range of investors including Scooter Braun's TQ Ventures, Berlin investment fund Cherry Ventures, Hotspring Ventures, AGB Venture Capital, and Atlantic Food Labs, and celebrities like the Black Eyed Peas' Will.i.am, actress Alyssa Milano, and soccer player Mario Goetze.
The $29 million came from three funding rounds, Sanity Group managing director Finn Hänsel, told BI in an interview. The funding gave Sanity Group a valuation in the "high 9-digits" Hänsel said, but declined to disclose the specific number.
The company is looking to raise another $24 million (20 million Euros) this summer.
What sets Sanity Group apart from its North American counterparts, says the 38-year old Hänsel, is that the startup doesn't grow cannabis, because that cultivation can take place in warmer climates with cheaper labor. Instead, it focuses on what Hänsel says are the more lucrative parts of the supply chain.
"Look, tell me one beer brand in the world that still grows their own hops," Hänsel said. He added that cold countries like Germany or Canada will end up being outcompeted as growing cannabis indoors is expensive.
Sanity Group's purview is "everything that comes after cultivation," Hänsel says, like processing, product development, and research.
Hänsel said it's challenging to get investors on board with the cannabis industry, but Sanity Group's management team, past performance, and future plans helped them raise money.
"If you invest in other markets, you probably have already a history of the market. That's probably three to four or five years, and you already have revenues. You already have a lot of unit economics," Hänsel said.
Cannabis, especially European cannabis, is a "very young market."
Read more: The 5 top cannabis startups that VCs can't stop talking about
"What also convinced investors to invest with us is that we keep that we have a good balance between already showing revenues and already having very strong brands in the market and having really an infrastructure, but on the other hand, still also having a vision for what we believe is going on in the next two to three years," Hänsel said.
Here's the pitch deck that helped Sanity Group raise $29 million from major investors in a bid to dominate European cannabis:
Sanity Group is a Berlin-based CBD and medical cannabis startup.
Sanity Group is led by Finn Hänsel, an alum of the Boston Consulting Group and a founder of the Sydney, Australia based fashion e-commerce company The Iconic, and by Fabien Friede, who also worked with Hänsel at The Iconic.
Sanity Group has two main businesses, one focused on medical cannabis and pharmaceuticals, and one focused on "wellbeing" or branded products containing popular cannabinoids like CBD and CBG.
Raising money in 2020 was a challenge, says Hänsel. The first $22 million closed before the pandemic took hold in Europe. Hänsel says they had celebrities lined up to invest early last year, though as the pandemic forced many countries into lockdown, "suddenly everyone was insecure about how this would affect the global cannabis industry."
The startup raised a small seed round in 2019. In February of last year, Sanity Group closed a $22 million "pre Series A" as Hänsel calls it, led by Calyx, a European fund focused on cannabis, HV Holtzbrinck Ventures, and Karan Wadhera, a managing partner of the cannabis-focused fund Casa Verde. The remaining $4.8 million came in December in the round that included the celebrity investors, Hänsel said.
THC-containing cannabis is legal in limited medical applications in Germany, though lawmakers rejected a recreational legalization bill last October.
Hänsel said investors asked questions like how does the European market compare to Canada? What will it look like in five years?
"This is something we discussed very, very intently with investors," Hänsel said.
"I think it's very important for a company at our stage that we have the balance that we already show that we are able to execute by showing revenues, but then also actually have a clear vision about where we think the market will go over the next five years," Hänsel said.
Last year, the UN Commission on Narcotic Drugs reclassified cannabis to a less restrictive regime, acknowledging the drug's beneficial medical qualities Hänsel said the UN's move is creating a "huge movement" within the European Union of legalizing cannabis.
Sanity Group has about 65 employees, with plans to expand to over 100 in 2021, Hänsel said.
Hänsel says investors he spoke with were "really sensitive" about the background of his management team, doubly so since they were trying to raise millions and steer a startup through an industry with byzantine, rapidly evolving regulations during a pandemic.
And that's also because it's hard for investors to separate "the good from the bad" in cannabis as more companies pile into the industry, Hänsel said.
Investors always asked Hänsel the golden question: Will there ever be a recreational cannabis market in Germany? "What we normally say is we see ourselves two to three years behind the US market," Hänsel said. "So we see basically medical cannabis is picking up like crazy, especially in Germany."
