Let's make one thing clear: Brendan Kennedy, co-founder of cannabis company Privateer Holdings, does not like images of pot leaves. Branding-wise, he believes the marijuana industry is its own worst enemy.
"Everything is named 'canna-something' or 'mari-something,' with a green and black logo and pot leaves," he says. Cannabis will be a mainstream product, he insists, but it has to lose the cheesy subculture clichés first.
That explains why Kennedy looks at home wearing a grey suit (no tie) in the downtown Manhattan headquarters of Privateer's newest subsidiary, Marley Natural. The room is indistinguishable from the office of any other startup, with exposed brick walls and rows of uncluttered West Elm tables. I suppose I expected beaded curtains and five-foot bongs, but the only evidence that the space is occupied by a marijuana seller is a single portrait of Bob Marley, the company's namesake, in the entryway.
Today the company moves one step closer to legitimacy, securing a large round of institutional funding, a first for the industry.
Founders Fund, the investment firm created by Peter Thiel, has joined a Series B round of funding worth $75 million for Privateer Holdings. More than $50 million of the round has closed so far, including a $15 million convertible note from February of last year. The entire round will officially close in a few weeks, Kennedy says. Founder's Fund has not disclosed the exact amount of its investment beyond "multi-millions" of dollars.
The funding from Founder's Fund is a significant milestone for Privateer, which, in addition to Marley Natural, operates Tilray, a mail-order service for medical marijuana in Canada, and Leafly, a sort of Yelp for dispensaries. Large investment firms have been wary to do business with marijuana companies, even in states like Colorado where the drug is legal, because it remains illegal in the eyes of the federal government.
When Privateer Holdings got its start in 2011, Kennedy pitched 500 investors over the course of two years. It was a struggle to scrape together a $7 million Series A round of funding from high net worth individuals and family offices. Four years later, investors are more open-minded. The first investor Kennedy ever met, who passed on the deal in 2010, decided to joined Privateer's Series B.
Founders Fund, an early investor in Facebook (fb), Airbnb, and SpaceX, became comfortable making a marijuana investment after a year and a half of diligence on Privateer, partner Geoff Lewis says. When he first became interested in the category, he realized how few real opportunities there were. The entrepreneurs fell into two categories, he says: either they've been in the industry for a long time, which means they were operating illegally at some point, or they have a gold rush mentality, looking to make a quick buck. Privateer impressed him with the way it navigated the complex legal environment, and the fact that it delivered everything Kennedy has said it would.
Both Tilray, which has 100 employees and shipped 35,000 packages last year, and Leafly, which has four million monthly unique visitors, expect to turn a profit in 2015. But those companies serve medicinal marijuana customers; Marley Natural is Privateer's entree into recreational use. Kennedy is keenly aware that the branding of legal recreational cannabis will have an impact on how mainstream his industry becomes. Partnering with the family of Bob Marley was "such an obvious move," he says. The announcement alone garnered two billion media impressions, and the attention allowed Marley Natural to recruit talent and form new partnerships. Not to mention the instant brand recognition. "It takes time to build a brand," Kennedy says. "We skipped five to ten years with that announcement."
With today's announcement, Privateer becomes the most well-funded company in a burgeoning industry predicted to be worth $35 billion. With the addition of a brand name institutional investor like Founders Fund, Kennedy is hoping his toughest customers—banks and investors—will take notice.