When Washington Initiative 502 legalized the sale and consumption of recreational marijuana beginning in 2014, it resulted in neither the immediate billion-dollar boon its proponents had hoped for, nor the armageddon of unchecked addiction, child consumption and auto fatalities predicted by the law’s detractors.
But one thing was certain: a new industry had come to Washington, and there was money to be made.
Now, Seattle-based Privateer Holdings — a forward-thinking private equity firm that specializes in legalized marijuana — is betting big on a bid to transform the legal pot industry from a hodgepodge of growers, activists, consumers and sellers into a genuine corporate juggernaut — but not without the help of some creative branding.
Privateer Holdings and the Bob Marley Connection
Bob Marley is so synonymous with smoking pot that the late reggae legend’s website plainly states “for better or worse, no individual in history is more closely associated with smoking marijuana … than Bob Marley.”
When people think of pot, they think of Bob Marley, and vice versa.
This fact was not lost on Privateer Holdings when it worked with the Marley family estate to have the singer’s name attached to a new line of pot products, Marley Natural.
When Marley Natural launches in late 2015, it will be the crown jewel in the Privateer portfolio, which already includes Canadian cannabis company Tilray and Leafly, a cannabis information resource that consumers and patients can use to find doctors, explore new marijuana strains, conduct research and gather news.
Selling the Bob Marley name to pot smokers is a fairly easy undertaking, but selling the marijuana industry to the investment world has proven to be a far greater challenge.
Legitimizing a Recently Illegal, Taboo Industry
Although it now enjoys legal status in Washington and other states, as well as the District of Columbia, marijuana is still illegal as far as the federal government is concerned.
This fact, according to Puget Sound Business Journal, was not lost on the skittish investors that Privateer was attempting to woo in its quest to secure the capital needed for its mission of incubating existing marijuana companies and creating new ones.
“It is hard for mainstream investors to commit money because of the risk involved,” said Chris Walsh, editor of Marijuana Business Daily, a publication that covers business, financial and investment news associated with the marijuana industry.
“Risk has gone down substantially in recent years, but these businesses are still illegal at the federal level,” he said.
Just as the Bob Marley name legitimizes Privateer to cannabis consumers all over the world, the firm worked hard to establish credibility on the other side of the fence with the businesses and investors that Privateer needed to finance its endeavors.
“Privateer has done just as much, if not more, than any company in the industry to increase the legitimacy of marijuana as an investment in a real business,” Walsh said. “When you get people of [Privateer CEO] Brendan Kennedy’s pedigree, you open up a whole new door to mainstream business investors.”
Pot Goes Corporate
Privateer is on a mission to ditch the stereotypical, lava-lamp-and-pot-leaf stoner image, which is so closely associated with marijuana culture, and replace it with the kind of polished, corporate identity required to attract deep-pocketed investors.
Privateer, and the marijuana industry as a whole, took a big step toward achieving this legitimacy when Founders Fund, a venture capital firm headed by PayPal cofounder Peter Thiel, joined a round of Series B funding, as Fortune reported when the deal was first inked. The entry of Founders Fund gave other big investors the confidence to go all in, according to MSN.
The result? Privateer completed a $75 million round of funding, bringing its total holdings to $82 million and making it the best-funded player in the entire country when it comes to the pot industry.
“The Privateer deal with Founders Fund is one of the biggest — if not the biggest — stories in industry in past year,” Walsh said.
Big Money for Washington and the U.S.
Although Privateer — and by association, Seattle — is leading the charge as the first big, brand-name private equity firm to secure major investors, the company is hardly alone. Chicago-based PharmaCann raised $20 million, and Minnesota-based Leafline Labs brought in $12 million. According to Inc., investment in the pot industry grew by an astounding 941.5 percent in 2014, as investors dumped $104.5 million into the industry in the last two fiscal years alone.
For Seattle, and Washington in general, this has resulted in a limited financial haul so far. According to the Seattle Times, at least 99 pot shops operate in the state, with eight in Seattle. Together, they have brought in $64 million in the last six months of 2014, adding $16 million to state coffers through excise taxes. But those tepid statistics may not reflect the size of the iceberg just below the surface.
“The numbers were much lower than everyone expected, including us,” Walsh said. “But the program got started much later than originally envisioned and it ran into strong initial headwinds and turbulence. The industry has really started hitting on all cylinders now and it’s on track for a much bigger total in 2015.”
Fortune anticipates the marijuana industry will balloon into a $10 billion industry by 2018. Time predicts that 18 states will have legalized marijuana for recreational use by 2020.
“We’ve heard rumblings that you’re going to see a company get on the NASDAQ or another prominent exchange in the coming years, if not this year,” Walsh said. “We project this year. Investors who don’t get involved will look back and realize they missed the best chance in a generation — the best chance since tech.”
Although a pot-hostile government could always be just one presidential election away, Walsh believes the train is now moving too fast to stop.
“The industry has reached a turning point,” he said.