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2017’s Highest-Valued Pot Companies Reveal 2 Major Insights About This Booming Industry

2017’s Highest-Valued Pot Companies Reveal 2 Major Insights About This Booming Industry

U.S. venture capital pumped over $300 million into 79 marijuana related deals in 2017 and the highest-valued venture-backed companies show two clear patterns investors should be aware of.

A growing number of cannabis-related companies have been cropping up over the past several years, likely driven by the increasing number of U.S. states that have legalized marijuana in some capacity.

The marijuana industry is ripe for innovation, and several companies and venture investors are taking advantage.

According to data and research firm PitchBook, venture capital put $303.9 million into 79 marijuana industry deals in 2017. That’s up from just $1 million in 2012 when Colorado first legalized pot.

2018 is set to smash that record. By the end of last month, there had already been 12 venture-backed deals worth $159.4 million.

But looking at the highest valued venture-backed companies in the marijuana industry, two clear patterns emerge.

The ancillary and biotech sectors appear to be poised to dominate the marijuana industry in the U.S.

Ancillary software and payroll services that specialize in the cannabis industry have seen multiple venture deals. And biotech companies that are researching and developing patents around cannabis compounds for medical purposes are attracting a lot of venture attention.

One reason venture capitalists have been attracted to the ancillary services and biotech side of the marijuana industry may be because these companies aren’t cultivators or other plant-touching businesses.

While venture capitalists love new markets with few dominant competitors, most have been anxious about getting into the cannabis market. Many firms operate under “vice clauses,” or restrictions imposed by backers—typically large institutions such as pension funds—that prevent them from investing in certain sectors like firearms, pornography, or drugs.

Beyond that, legal questions remain unresolved about how the federal government will treat marijuana companies despite legalization in a growing number of states.

But these concerns haven’t stopped investments from flowing. According to PitchBook, since 2012, more than $967 million has been put into 272 companies.

Source: Quartz.

Much of the venture money has looked toward the high-end medical side of the industry. Of the top 15 venture-backed marijuana companies, four are healthcare-specific according to PitchBook.

Teewinot Life Sciences is working on the biosynthetic production of pharmaceutical grade cannabinoids—the active chemical compound in the cannabis plant—according to the Florida-based company’s website. Last year, Tuatara Capital, a fund focused on the biotech side of the cannabis industry, led a Series B round for Teewinot, valuing the company at roughly $80 million.

And Vancouver-based Anandia Labs—a marijuana testing, genetics, and extraction services biotech company—closed $13.4 million in funding this past January, pushing its valuation to over $50 million.

Apart from biotech companies, ancillary services companies like Baker—an eCommerce platform that offers dispensaries a variety of customer engagement products like loyalty programs or online ordering—and Leaflink, a B2B cannabis marketplace valued at $50 million, have seen their valuations skyrocket as enthusiasm around the industry grows. These companies also allow more mainstream investors to get in on action since they aren’t violating any federal regulations by being involved in the industry.

Worldwide legal cannabis spending is expected to hit $57 billion by 2027, and it’s clear that as market demand grows and regulations loosen around recreational marijuana, the impact on cannabis-related companies will be huge.

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