Big investors back US cannabis industry

Other

11 Jan, 2015 04:00 PM3 mins to read

Votes to legalise cannabis in up to six more states are likely in 2016. Photo / AP

Silicon Valley has given its approval to America's burgeoning legal cannabis industry after the investors who bankrolled Facebook gave millions of dollars to drug start-ups.

Supporters of cannabis legalisation called it a "Berlin Wall moment" and a "tipping point" as money was committed by Founders Fund, the venture capital firm started by Peter Thiel, who gave Mark Zuckerberg his first US$500,000 ($638,000). Thiel has invested in New Zealand tech firms including Xero.

"We don't worry what people think about us," Geoff Lewis, a partner at the firm said, after suggestions that it was giving money to drug dealers. He added that cannabis would be a "massive industry within the next decade".

The money will help to fund Marley Natural, which will sell Bob Marley-branded strains of Jamaican cannabis for recreational users. It will also support a cannabis producer with a 18,288sq m facility in Canada and an online service called Leafly, on which users review strains and sellers of the drug. Leafly already has four million visitors a month.

Thiel and Founders Fund have previously helped to kick-start Elon Musk's space company SpaceX, and the holiday service Airbnb.

It is the first time a mainstream institutional investor has publicly put money into cannabis start-up companies.

Other Silicon Valley financiers who had feared bad publicity, or that their money would go up in smoke, are likely to follow suit. The US states of Colorado and Washington became the first to legalise cannabis for recreational use in 2012, with the first shops opening there last year. Colorado is now selling US$30 million of the drug a month, much of it to "drug tourists".

In 2014, Oregon and Alaska also voted to legalise cannabis for recreational use. Votes in six more states, including California, may take place in 2016. There are 23 states that allow the use of cannabis for medical purposes.

However, a revolt is under way. Nebraska and Oklahoma are suing their neighbour Colorado in the Supreme Court, claiming that they have been inundated with cannabis arriving from across their borders. The states claim that the cannabis legalisation violates the US Constitution and accuse Colorado of creating a "dangerous gap in the federal drug control system".

The Silicon Valley cash injection is going to Privateer Holdings, which owns Marley Natural and Leafly.

Its chief executive, Brendan Kennedy, who was educated at Yale, said: "Six to 12 months from now there will be investment banks who will have analysts following cannabis like they follow healthcare or agricultural commodities."

Taylor West, the deputy director of the National Cannabis Industry Association, said: "This is a milestone. It shows the industry is solid enough that an investment firm like this is comfortable stepping in."