One of the top venture capital firms in the world is taking advantage of the increasingly hazy realm of marijuana law.
Founders Fund is pouring money into Privateer Holdings, a private equity firm in Seattle, Wash. Privateer Holdings was first launched in 2010 and directs investments into medical and recreational sectors of the marijuana industry. The undisclosed investment from the fund run by Peter Thiel, a co-founder of PayPal, is listed as being in the millions.
“Founders Fund is known for making some of the most lucrative and radically transformational investments of the past decade,” said Privateer Holdings CEO Brendan Kennedy in a press release Jan. 8. “With this investment they are signaling that they, like us, believe that the end of prohibition and the social harms it causes is inevitable.”
The federal government classifies marijuana as a Schedule 1 drug, like of heroin and ecstasy, but is facing increasing pressure from states as they move to legalize medical and recreational marijuana. The large investment could represent a watershed moment for the growing marijuana industry, which many investors have deemed too risky in the past. Legal marijuana saw sales last year totaling up to $2.6 billion, according to The ArcView Group, a company that conducts research on the marijuana industry.
“This investment from Founders Fund is just another marker that we’ve probably reached a tipping point for the industry. From a historical perspective, there are a lot of similarities between the end of alcohol prohibition and our current trajectory with marijuana. We’re probably going down a similar path,” Leslie Bocskor, managing partner of Electrum Partners and founder of the Electrum Report, told The Daily Caller News Foundation.
“Yes, there were investors that have backed out the industry in the past and there will be more. This is still a battle. These next two years will be a battle. But we’ll also see many more investors come in. The positive news will outweigh any negative news. They’ll be following the Founders Fund.”
According to Bocskor, one of the best indicators that the federal government won’t start cracking down on marijuana is a recent memo from the Department of Justice regarding Native American reservations in the U.S. It stated that if they were to engage in cultivation or production of cannabis for recreational or medicinal purposes, the federal government wouldn’t seek enforcement action.
“I have not been able to find a single instance in the last 40 years where the federal government has given the Native American governments anything and then subsequently taken it back,” Bocskor said.
Terra Tech founder and CEO Derek Peterson reflected on the announcement and how much the cannabis industry has changed since he started his company in 2010, at a time when it was one of the first firms to enter the medical marijuana industry.
“The reality of waking up one morning and getting arrested for assisting to the cultivation of a Schedule 1 narcotic doesn’t seem to exist anymore. In 2010 that existed. Any one of us could have been picked up. A lot of people are still going to sit on the sidelines until federal regulations change. But now that name-brand people are putting money in, people are going to want to join the ball game. That’s Wall Street 101.
“Before, the only investors were people really willing to speculate. It’s transitioned from that into an environment where we’re seeing more institutional money. Now, we’re seeing a better risk appetite.
“It took us a year to raise a million dollars back in 2010. This year, we’ve raised close to 10 million dollars this year alone,” Peterson told TheDCNF.
Others, however, were skeptical of what large investment from top funds might mean for the drug moving forward.
“There is so much money now entering the field that has no interest in pot’s medicinal purposes and the well-being of the people who are consuming it. They are just looking at ways to make more money,” Anthony Franciosi, founder of Ant’s Organic marijuana, told TheDCNF. “That said, it is very important that the investing is done with finesse and with a focus on high quality cannabis and the consumers’ final well-being, not just on producing high yields of product to make more money.”
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