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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

Big Tech's reputation takes a pandemic plunge

Expand chart
Data: Harris Poll; Chart: Danielle Alberti/Axios

Americans have fallen further out of love with Big Tech, the latest Axios/Harris 100 brand reputation poll shows.

Why it matters: Even though Americans were hyper-connected to their devices throughout the pandemic, their relationship with many of the world's biggest tech firms has continued on a downward trend, suggesting that people see their products as necessary evils.

There's an ETF for everything, except bitcoin

Illustration: Sarah Grillo/Axios

Happiness. Weed. Robots. Water. Whatever the theme, there's probably an ETF promoting a basket of stocks related to it.

Why it matters: Thematic ETFs are an investment mania side effect. There's newfound retail investor interest in narrow exposure to hot corners of the stock market. More are launching to meet the moment.

A divided nation flocks to partisan brands

Data: Harris Poll; Chart: Danielle Alberti/Axios

Americans are leaning into companies that have strong political positions, in the wake of one of the country's most divisive election years.

Driving the news: New rankings from the Axios/Harris 100 poll — an annual survey to gauge the reputation of the most visible brands in the country — show that brands with clear partisan identifications are becoming more popular.