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Illustration: Sarah Grillo/Axios

Venture capitalists are investing record sums in marijuana startups, growing twice as fast as 2018.

Why it matters: These investments are a bet that marijuana will be legalized in the U.S. at the federal level, as it has been in Canada.

Details:

  • The sector garnered $1.3 billion through mid-June, compared with $1 billion for all of 2018 and $370 million for 2017, according to PitchBook Data.
  • Both the 2018 and 2017 figures were all-time hauls at the time.
  • Some of these investments are in actual cannabis growers, while others are in adjacent businesses needed to build out the industry (logistics, finance, retail, accessories, etc.). Kind of like the difference between oil producers and oilfield services.

There's a catch: Legalization would expand the total addressable market, or TAM, for growers, but could render the related startups obsolete.

  • For example, why would growers need cannabis-specific transportation companies if FedEx began working with them?
  • Why would dispensaries need specialized financial facilitators, once banks could handle their accounts?
  • And why would dispensaries or specialty retailers be needed at all, once neighborhood pharmacies and gas stations could handle the stuff?

It's a catch-22 that could slow the industry's growth, particularly given that many of the biggest venture capital firms still avoid companies that "touch the plant," to keep in the good graces of both law enforcement and their more conservative investors.

  • Despite the "record" sums, VC investment in marijuana remains relatively tiny — consider that individual tech companies have raised singular rounds larger than $1.3 billion.
  • Yes, some services brands would survive legalization, just as wine stores persist in areas where wine is sold in supermarkets. But many would disappear, and it's a prospect that could keep potential investors on the sidelines.

What we're hearing: "Investing for the short-term in specialized companies that become irrelevant after legalization has never made sense to me," says Brendan Kennedy, CEO of Tilray, the Canadian company that last year became the first cannabis firm listed on the NASDAQ. "I think these companies will eventually revert to zero."

The bottom line: VCs never needed to question marijuana's "product/market fit," as they typically do for tech startups, nor its efficacy, as they do for health-care startups. But now they need to question legalization, and what that would mean for the billions they've already invested.

Go deeper:

Go deeper

Biden's Day 1 challenges: Systemic racism

Photo illustration: Sarah Grillo/Axios. Photo: Kirsty O'Connor (PA Images)/Getty Images

Advocates are pushing President-elect Biden to tackle systemic racism with a Day 1 agenda that includes ending the detention of migrant children and expanding DACA, announcing a Justice Department investigation of rogue police departments and returning some public lands to Indigenous tribes.

Why it matters: Biden has said the fight against systemic racism will be one of the top goals of his presidency — but the expectations may be so high that he won't be able to meet them.

Caitlin Owens, author of Vitals
2 hours ago - Health

Most Americans are still vulnerable to the coronavirus

Adapted from Bajema, et al., 2020, "Estimated SARS-CoV-2 Seroprevalence in the US as of September 2020"; Cartogram: Andrew Witherspoon/Axios

As of September, the vast majority of Americans did not have coronavirus antibodies, according to a new study published in JAMA Internal Medicine.

Why it matters: As the coronavirus spreads rapidly throughout most of the country, most people remain vulnerable to it.

Trump set to appear at Pennsylvania GOP hearing on voter fraud claims

President Trumpat the White House on Tuesday. Photo: Chip Somodevilla/Getty Images

President Trump is due to join his personal lawyer Rudy Giuliani in Gettysburg, Pennsylvania, Wednesday at a Republican-led state Senate Majority Policy Committee hearing to discuss alleged election irregularities.

Why it matters: This would be his first trip outside of the DMV since Election Day and comes shortly after GSA ascertained the results, formally signing off on a transition to President-elect Biden.