Cannabis Investments Nearly Quadrupled in 2018

This year has been a turning point in the maturing marijuana market.

Cannabis-related companies raised nearly $13.8 billion so far this year, compared to just $3.5 billion in 2017, according to data from Viridian Capital Advisors, a financial and strategic advisory firm for the cannabis industry.

The spike in capital flowing into marijuana businesses in the last 12 months was driven by legislative changes both at the national level in Canada and at the state level in U.S. states like Michigan, Oklahoma and Utah. As public support for legalization grows, and growing public support for legalization—shifts that have given investors more confidence about backing companies in the space and enticed big players in the beverage and tobacco industries to make bets on cannabis products.

The surge in funding was largely driven by increasing deal size—the average deal rose to $23.6 million in 2018, up from $8.1 million last year.

“Once one company raises $100 million and starts to deploy that into the space, to be competitive in the acquisition bidding process, other operators have to raise similar amounts of capital to be competitive,” says Harrison Phillips, vice president at Viridian. “That creates a sort of positive feedback loop where these companies raise more and more capital.”

Perhaps the most notable cannabis trend of 2018 was the rush of big alcohol and big tobacco companies taking stakes in market. A splashiest was Coronoa-maker Constellation Brands’ $4 billion stake in Canopy Growth. Denver brewer Molson Coors, meanwhile, announced a joint venture with The Hydropothecary Corporation, a Canadian cannabis producer, and Marlboro maker Altria said it would invest $1.8 billion in Toronto-based Cronos Group.

The value of venture capital deals in the U.S. marijuana industry more than doubled this year compared to 2017, according to data from Pitchbook, and private equity investments in cannabis increased by more than one-third. Some of the largest VC and PE deals in 2018 went to American cannabis companies in the healthcare sector, including Verano Holdings, Surterra, and Cura Cannabis Solutions, as legal medical marijuana markets expanded.

In October, Canada became the second country to legalize recreational marijuana nationwide (after Uruguay in 2013). The amount raised by companies in the country has already been on the upswing in 2016 and 2017 as the medical cannabis program grew and prime minister Justin Trudeau announced the intent to legalize adult use.

2019 will likely be a proving year, said Phillips, as Canadian companies that have received investments will need to deliver results in the new adult use market in the early part of next year if they hope to be in a position to raise more money going forward.

In the U.S., where marijuana remains federally illegal and interstate commerce is banned, many of the companies attempting to operate in more than one of the isolated markets where marijuana has been legalized have been driven to raise funds this year as they’ve moved to either duplicate their facilities in new states or to acquire smaller businesses already established in the new region.

For this reason, it’s the larger, multi-state operators like MedMen, Green Thumb, Cresco, Palliatech, Columbia Care, all of which have already built their businesses in multiple markets, that are raising those $100 million-or so rounds, Phillips said.

Smaller U.S. companies continue to raise money to increase brand awareness, he said, and new ventures in CBD (or cannabidiol) product lines have drawn investments this year as well ahead of the 2018 Farm Bill passage. President Trump signed the bill into law on Thursday, officially legalizing hemp. The hemp plant, which has multiple industrial uses including extracting CBD, is a variety of cannabis plant with less than 0.3% of the psychoactive THC (or tetrahydrocannabinol) compound.

Even given this year’s growth, Viridian president and founder Scott Greiper predicts that 2019 will be even bigger as far as the number of investments and acquisitions in the U.S. market, which is expected to generate $23.4 billion in sales by 2022, according to Arcview Research.

The growing public support for legalization may begin to show up in legislation in 2019 as lawmakers consider a bill to allow marijuana companies to access FDIC-backed bank accounts. The U.S. surgeon general has also indicated that the federal government may move toward rescheduling cannabis to permit more medical research.

“Up until about 6 months ago, the majority of most of the activity was outside the U.S. market because of the continued issue with federal illegality and lack of commercial banking and lack of interstate commerce,” Greiper said. “Larger pools of capital, public and private, are starting to get comfortable that the U.S. market will become the largest market in the world.”

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.