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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

Why migrants are fleeing their homes for the U.S.

Illustration: Eniola Odetunde/Axios Photo: Herika Martinez /Getty Images 

Natural disasters in Central America, economic devastation, gang wars, political oppression, and a new administration are all driving the sharp rise in U.S.-Mexico border crossings — a budding crisis for President Biden.

Why it matters: Migration flows are complex and quickly politicized. Biden's policies are likely sending signals that are encouraging the surge — but that's only a small reason it's happening.

Cities' pandemic struggle to balance homelessness and public safety

Illustration: Sarah Grillo/Axios

Addressing homelessness has taken on new urgency in cities across the country over the past year, as officials grapple with a growing unhoused population and the need to preserve public safety during the coronavirus pandemic.

Why it matters: It’s led to tension when cities move in to clear encampments — often for health and safety reasons — causing some to rethink the role of law enforcement when interacting with people experiencing homelessness.

Biden to sign voting rights order to mark "Bloody Sunday" anniversary

President Biden will sign an executive order today, on the 56th anniversary of "Bloody Sunday," meant to promote voting rights, according to an administration official.

Why it matters: The executive order comes as Democrats face an uphill battle to pass a sweeping election bill meant, in part, to combat a growing number of proposals introduced by Republicans at the state level that would restrict voter access.