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Cannabis fundraising booms despite federal crackdown

While Attorney General Jeff Sessions has made it hard for marijuana businesses to bank their growing piles of cash, dealmaking continues apace.

As California gets used to the legal recognition of marijuana for recreational consumption, industry proponents are asking the public to eschew derogatory words such as “pot” and “weed” and use the more scientific “cannabis” instead.

If the aim of such attempts is to gain broader acceptance, however, the strategy does not seem to be convincing Jeff Sessions. On January 4, three days after legal sales started in California, the US Attorney General rescinded an Obama-era policy that discouraged federal prosecutors from bringing charges wherever state laws have declared the drug legal.

In addition to creating confusion around whether or not the sale of Cannabis is legal in such states, one effect of the move has been to put a freeze on related bank activities, leaving businesses with few options but to hold bags of physical cash.

Unfazed investors

Yet, so far, Sessions’ actions have failed to slow down fundraising in the sector. A Cannabis deal tracker put together by Viridian Capital Advisors, a New York-based firm, shows that $158 million was raised by related businesses in the second week of January – nearly seven times the amount collected during the same period last year.

What’s more, deals are getting bigger. That lumpy total was raised across 17 deals, ‘only’ about twice more than the number of transactions sealed in the second week of January 2016. That continues a trend observed in 2017, during which a total $263 million was raised – more than 10 times the amount garnered in 2016.

The sectors targeted leave little doubt as to what, on the part of investors, motivates such transactions. With legalization of recreational marijuana now a reality in six US states, capital is seeing opportunities in cultivation and retail – which received more than $175 million in equity investments last year.