Where is Silicon Valley?

With the flood of recent news surrounding traditional companies entering the cannabis industry, such as Constellations Brands’[1] investment in cannabis cultivator Canopy Growth, Coke’s interest in producing CBD-infused drinks (or not), or Altria’s[2] pursuit of cannabis cultivator Cronos Group, one surprising lack of news has come from Silicon Valley. To date, the vast majority of traditional venture capital firms have shied away from cannabis investments, citing regulatory uncertainty and vice clause[3] restrictions. While those are both certainly concerns, regulatory momentum continues to accelerate in favor of legalization and Silicon Valley VC’s could raise separate cannabis-focused funds targeted only at Limited Partners comfortable with investing in the sector.

The largest exception to this rule came when Founders Fund, led by Peter Thiel, invested in Privateer Holdings back in 2015. Privateer is a holding company that owns eight cannabis companies and is most well-known for taking Tilray public. While the amount Founders Fund invested and at what valuation were both undisclosed, the IPO of Tilray in July 2018 and Tilray’s subsequent run-up in stock price values Privateer’s remaining 82% ownership in the business at $7.7bn (as of November 5th). Even if Tilray’s shares drop in value when Privateer’s shares come out of lock-up in January, it’s safe to assume Mr. Thiel’s investment is well in-the-money.

So why has the rest of Silicon Valley predominantly ignored the cannabis industry? Are they suffering from myopia, a fear expressed by renowned tech investor Chris Sacca, “The myopia that concerns me … is that Silicon Valley is populated mostly by folks who would consider themselves winners of the traditional race, people who floated to the top of their educational institutions, who have succeeded in the ranks of their traditional businesses, who have taken risks, … and who have had great success. And yet all of that has contributed to the exclusion of a lot of the voices that I consider to be vital in … a round, robust, and exciting society, but they’ve just been beyond gentrification”. Are traditional VCs viewing cannabis with the same stigma that has perpetuated the industry for decades by viewing themselves as ‘above’ investing in the sector, without asking whether the arbitrary classification of cannabis as a drug ever made sense in the first place? Whatever the reason, it’s time Silicon Valley recognized that dynamic, tenacious entrepreneurs are driving a massive industry forward, and they need capital to continue fueling this industry’s growth.

 

[1] Constellation Brands is a manufacturer of beer, wine and spirits including Corona, Modelo Especial and Pacifico

[2] Altria is a producer and marketer of tobacco products including Marlboro, Parliament and Virginia Slims

[3] Vice clause restrictions are commonly included in venture capital fund formation documents and prohibit the fund from investing in certain sectors such as drugs, tobacco and alcohol