- Investors are pouring money into consumer cannabis startups.
- While it’s still early innings, investors are trying to figure out which brands will take off and capture significant market share.
- We asked some of the top cannabis investors to pick out the consumer cannabis brands they think will blow up in 2019.
Investors are pouring money into consumer cannabis startups.
While the cannabis industry is still nascent — THC, the main psychoactive component of the plant isn’t federally legal in the US — consumer brands are rapidly carving out market share in an attempt to dominate the early innings of what some Wall Street analysts say could be a $194 billion global industry by 2030.
But figuring out what consumers want out of a cannabis brand is an ongoing challenge, many of the investors have told Business Insider. Without historical data to go off of, it boils down to somewhat of a guessing game with investors using their network — and their intuition — to help figure out the right bets.
Read more: The top 12 venture-capital firms making deals in the booming cannabis industry that’s set to skyrocket to $75 billion
That, however, hasn’t stopped VCs from dumping money into startups that they feel will win the battle. There are some trends emerging too: for one, there’s been an explosion in cannabis startups focused on the higher-end female crowd, like High Beauty, which makes luxury CBD-based skincare products.
Others, like Dosist, are targeting newer consumers who want to use cannabis to help them sleep, relax, or even get aroused by precisely controlling the dosage and chemical profiles of the cannabis strains they offer in their vape pens.
And investing in cannabis does come with some specific challenges for the mainstream VCs. Many of the larger VC funds are unable to participate in the industry as they’re backed by institutions like pension funds who don’t want to risk a gamble on a federally illegal industry.
That’s carved out an area for niche funds that focus specifically on cannabis to access the most deals.
Business Insider surveyed 12 of the top cannabis investors about which startups they think will blow up or raise fresh rounds this year.
Here are their picks:
SEE ALSO: Top cannabis investors reveal where they’re placing bets, but say there’s ‘pain to come’ in the crowded CBD space
Startup: Level Blends
Recommended by: Vikas Desai, managing partner at Welcan Capital
What it does: Level Blends is a San Francisco-based company that develops and sells vape cartridges, sprays, and sublingual tablets that contain both CBD and THC.
Why it’s hot: “I’m very bullish on the sublingual category within cannabis,” said Desai. “Consumers continue to look for other form factors and delivery methods beyond combustion, vaping and edibles. Sublinguals are easy, discreet ways to offer a faster onset time and offset time in a discreet and controlled manner.”
Startup: Mary’s Medicinals
Recommended by: Todd Harrison, chief investment officer at CB1 Capital
What it does: Mary’s Medicinals CBD and THC containing consumer products, including vapes and tablets, as well as cosmetics and pet care products. The startup also has a line of CBD-infused women’s cosmetics at Saks Fifth Avenue.
Why it’s hot: “In addition to a growing chorus of raving fans, the company is exploring use-cases with the minor cannabinoids, which promise an array of new therapeutic benefits,” said Harrison.
Recommended by: Karan Wadhera, managing partner at Casa Verde
Relationship: Personal Investor
What it does: Leune is a female-founded, Los Angeles-based cannabis brand that sells pre-rolled joints and vaporizer pens.
Why it’s hot: Leune “represents the Cannabis 3.0 consumer,” said Wadhera. “It has beautiful, small footprint packaging, high aesthetic, and a consistent quality product.”
Investors: Phyto Partners, Merida Capital Altitude Investment Management
Recommended by: Larry Schnurmacher, managing partner at Phyto Partners
What it does: Founded by a Harvard MBA, Canndescent is one of the original luxury cannabis brands. The California-based company sells pre-rolled joints as well as marijuana flower.
Why it’s hot: Canndescent is the “#1 luxury cannabis brand,” said Schnurmacher. “They were the first to abandon traditional strain names and direct their product to a high-end market.”
The Lord Jones
Startup: The Lord Jones
Recommended by: Emily Paxhia, founding partner at Poseidon Asset Management
What it does: The Lord Jones makes CBD-infused skincare products, body lotions, oils, and tinctures. The company has recently inked a partnership with The Standard Hotel group and SoulCycle.
Why it’s hot: “Lord Jones is recently smart about leveraging e-commerce channels,” said Paxhia. “They’re positioned really well with their partnerships and capture lots of market share.”
Investors: Greycroft Ventures, Lerer Hippeau
Recommended by: Dana Settle, partner at Greycroft Ventures
Recent raise: $3.3 million
What it does: Prima is a California-based, consumer CBD startup founded by The Honest Company co-founder Christopher Gavigan. The company sells CBD oils and skincare products online.
Why it’s hot: Settle told Business Insider that she views CBD as a rapidly growing health-and-wellness category. “It’s almost too bad that CBD is inextricably linked to cannabis,” she said, “because it has such powerful healing qualities to it.”
Recommended by: Sean Stiefel, CEO at Navy Capital
What it does: Cann makes low-dose CBD and THC-infused beverages for the California market.
Why it’s hot: Cann is the “most exciting low-dose beverage concept we have seen,” said Stiefel. “Awesome branding, and it has two founders from Harvard Business School and Stanford Graduate School of Business who worked at Bain.”
Startup: Old Pal
Investors: Canopy Rivers
Recommended by: Narbe Alexandrian, president at Canopy Rivers
What it does: Old Pal is a low-cost cannabis brand that grows and distributes raw flower and pre-rolled joints in the California market.
Why it’s hot: “They are proudly trying to capture the low end of the market by licensing their brand to producers for low-priced cannabis,” said Alexandrian. They have the highest volume of sales in California, according to data from Headset, said Alexandrian, and a “very strong marketing background has led to Old Pal becoming an immediate success.”
Investors: White Owl Capital Partners, others
Recommended by: Vikas Desai, partner at Welcan Capital
What it does: Dosist makes precision-controlled THC and CBD vaporizers that are designed for specific moods or effects.
Why it’s hot: Dosist products are top sellers in the California market, said Desai. Plus, Desai said he expects the company will raise a “very large round” next time they hit the funding circuit.
Startup: High Beauty
Recommended by: Narbe Alexandrian, president of Canopy Rivers
What it does: High Beauty makes and distributes high-end cannabis-based skincare products focused on female consumers.
Why it’s hot: “CBD products have difficulties scaling across states and countries due to the inherent legality of the products,” said Alexandrian. “High Beauty has created a line of hemp seed oil products (branded as cannabis) that are currently being sold internationally. Their strategy of building an international brand first and then adding CBD, is a strategy that can win. They’ve been showcased in dozens of publications, in the Oscars celebrity swag bag and had a big presence at Coachella.”
Investors: Joe Montana, Carol Bartz, other angel investors
Recommended by: Carol Bartz, former Yahoo CEO and angel investor
Recent raise: $75 million
What it does: Caliva is a dispensary chain and marijuana brand in California that sells both CBD and THC containing products in brick-and-mortar stores and online.
Why it’s hot: “Their philosophy and aspiration to be the number one trusted lifestyle brand in cannabis resonates with me,” said Bartz. “Caliva is setting out to make it the highest quality, safest, and most reliable cannabis products and to provide information and education to customers to make it all accessible.”