The 5 top cannabis startups that VCs can't stop talking about

cannabis

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If 2020 was the year for cannabis startups to tighten their belts, trim the fat, and focus on weathering the pandemic, then 2021 is set to be a boon for the companies that have emerged mostly unscathed, investors told Business Insider.

We asked the top private equity and venture investors in the cannabis industry to name the startups they believe are poised for major growth this year. The startups that made our list range from dispensary and cultivation chains, like Ascend Wellness Holdings, to cannabis software firms like Dutchie.

Most of the investors we talked to said that startups with strong management teams that made it through 2020 will have lots of opportunity in front of them next year, as more states open legal cannabis markets, and institutional investors start getting more comfortable with the industry. 

Read more: From LeafLink to Greenbits, meet the 8 buzzy cannabis startups that raised the most cash in 2020

There was a significant uptick in VC interest in cannabis startups in 2020, particularly on the software side, around August. Two tech startups that made our list — Dutchie and LeafLink — closed large funding rounds this year.

To put together this story, Business Insider asked a representative from each of the 17 investment firms that made our list of the top investors in the industry to name two companies that are poised for huge growth in 2021.

Each investor was asked to recommend one startup they invested in and one they hadn’t. In total, investors gave us 27 names — the following five came up most often.

Here are the top five startups cannabis investors say will blow up in 2021:

LeafLink — 3 votes

Founded: 2015

Located: New York City (HQ), Los Angeles, Toronto

Post-money valuation: Declined to disclose.

Biggest funding round of 2020: $40 million closed in December 2020

Total raised to date: $91 million, according to LeafLink. The company also closed a $250 million debt facility earlier this year to support its payment product.

What the company does: LeafLink is a wholesale marketplace for the cannabis industry. The company says its e-commerce marketplace approach has “optimized and fueled the growth of the cannabis industry, creating new efficiencies in the wholesale buying process with supply-chain software and services.”

Why VCs like the company: 

DCM Ventures partner Kyle Lui says LeafLink’s payments product, LeafLink Financial, is “a much-needed solution that should see strong continued growth.”

“LeafLink, a portfolio company since January 2017, is our top pick and best performing investment,” Phyto Partners’ Larry Schnurmacher told Business Insider. He says the startup is the largest business-to-business marketplace in the cannabis industry.

Schnurmacher says his firm made its initial investment in the company’s seed round. “We believe LL [LeafLink] will be the most valuable ancillary company in cannabis,” he added in an email.

Gron Ventures managing partner Wilder Ramsey says that he likes Leaflink because it powers a third of the cannabis wholesale market in the US. This, he said, is “an incredible, winning position that would be difficult or impossible to achieve in a mature industry.”

“Their new lending and logistics products are solving critical problems in the space, allowing customers to scale compliantly with far more flexibility, and we expect the company’s services to be so ubiquitous and foundational in the space that in 10 years it will be no exaggeration to say the industry was built on Leaflink,” Ramsey continued.

Dutchie — 3 votes

Founded: 2017

Located: Bend, Oregon

Post-money valuation: $205 million, according to PitchBook. Dutchie declined to disclose a figure.

Biggest funding round of 2020: $35 million closed in August 2020. Read Business Insider’s coverage of the round here, where we got an exclusive look at the pitch deck Dutchie used to close the round.

Total raised to date: $53 million, according to Dutchie. 

What the company does: Dutchie is an e-commerce software startup that connects cannabis consumers to dispensaries and allows them to order products from their homes. It also powers online ordering tools for the dispensaries themselves. 

Why VCs like the company: 

“Dutchie was an early mover in the B2C eCommerce space in cannabis, and while not a HALLEY portfolio company, B2C eCommerce is a large component of nearly every other product and service outside of cannabis,” HALLEY Venture Partners Managing Director Steve Schuman told Business Insider. “WeedMaps’ recently announced $1.5 billion deal with Silver Spike SPAC is a validation of the growing importance of that piece of the puzzle.”

In general, Schuman said, e-commerce feels fragmented and underdeveloped in the cannabis space, and his firm continues to look for solutions to help brands and dispensaries connect with consumers and patients online.

“Dutchie is the leading e-commerce platform in cannabis,” says Gron Ventures managing partner Wilder Ramsey. “In three years it has grown from zero to more than $2.6 billion in annual GMV, making it one of the fastest-growing and most efficient commerce platforms of all time, in any vertical.”

“This performance is testament to a remarkable team,” Ramsey continued, “anchored by brothers Ross and Zach Lipson, who are setting pace for all of us in an industry characterized by torrid growth.”

“Dutchie is already a success story and they are going big with their recent raise,” said Panther Opportunity Fund’s Jordan Tritt. “Their CEO, Ross Lipson, has already exited multiple businesses in the online ordering and delivery space and his timing is right with the increased digitization of cannabis favoring online ordering.”

Grassdoor — 3 votes

Founded: 2018

Located: Commerce, California

Post-money valuation: Declined to disclose.

Biggest funding round of 2020: Declined to disclose.

Total raised to date: Declined to disclose.

What the company does: Grassdoor is a startup that sells and delivers cannabis products to consumers in Southern California. The company declined to comment for this article.

Why VCs like the company: 

Grassdoor has an impressive team and technology, Navy Capital’s Sean Stiefel told Busness Insider. The company also has a “differentiated business model to go after the DTC delivery market,” Stiefel said in an email.

“Because they developed their depot processes in parallel with their proprietary tech stack, they have been able to scale their business in an incredibly efficient manner,” said AFI Capital Partners’ Nico Richardson. “As a result, Grassdoor has become a leading delivery platform in less than two years of operation.” 

“Operating in DTC (direct to consumer) cannabis delivery, Grassdoor has a lot of competition,” Measure 8 founding partner Boris Jordan told Business Insider. “In a short period of time, the company has earned top marks from customers as the ‘go-to’ platform for cannabis on demand.”

With constant focus on efficiency and customer service, Jordan says his firm sees a bright future for the company.

 

We updated this article to clarify Grassdoor’s business model on December 30.

Connected — 2 votes

Founded: 2009

Located: Sacramento, California

Post-money valuation: Decline to disclose.

Biggest funding round of 2020: N/A

Total raised to date: $25 million Series A round closed July 2019

What the company does: Connected is a craft California cannabis brand that sells high-end flower.

Why VCs like the company: 

Connected is “the leading flower company in California with a fantastic management team,” said Navy Capital’s Sean Stiefel.

The company dominates the premium flower market in California, Stiefel said. 

“Connected Cannabis grows and manufactures high-quality cannabis flower at scale,” said Gotham Green Partners’ Jason Adler. “Compared to most craft brands in the state, Connected has differentiated itself with an ability to produce a consistent quality product at scale and seamlessly introduce new strains in a relatively short time frame.”

“We believe that the high-end flower segment will continue to benefit from several tailwinds, particularly the maturation of the consumer palate and new recreational markets with greenfield opportunities for expansion,” Adler continued.

Ascend Wellness — 2 votes

Founded: 2018

Located: New York, New York

Post-money valuation: Declined to disclose. 

Biggest funding round of 2020: $68.2 million closed in August.

Total raised to date: $208.63 million, according to PitchBook. Ascend Wellness declined to disclose a figure.

What the company does: Ascend Wellness is privately owned cannabis cultivation and dispensary chain, known in the industry as multi-state operators or MSOs. It operates in five states including Illinois, Michigan, Massachusetts, New Jersey, and Ohio.

The company said in an email to Business Insider that it focuses on limited license states east of the Rockies, “with flagship locations in desirable retail corridors serving key medical and adult-use markets.”

Why VCs like the company: 

Salveo Capital’s Michael Gruber says he believes Ascend Wellness’s presence in key states like New Jersey means it will be well-positioned for growth.

“We are an investor in the company and had added additional capital to our investment this year. The passing of adult-use in NJ this November is a huge step, and with NJ in our belief will be an amazingly good market,” Gruber said in an email. “This will also likely be key impetus to spur NY, PA, and CT to legalize adult-use as well.”

Gruber added that Salveo is “bullish in general on private MSOs that are focused on key limited license states and where they have gone deep within a limited number of states, and where management has been able to execute in an efficient manner.”

Silverleaf Venture Partners’ Andre Haroche describes Ascend Wellness’ growth as “astounding.”

“They have a fantastic management team lead by industry-veteran Abner Kurtin and we wouldn’t be surprised to see Ascend be publicly traded in the next year or so based on its momentum,” Haroche said.

Related Articles

Here's the 14-slide pitch deck that cannabis startup Sanity Group used to raise $29 million from some of Europe's top VCs and celebrity investors like Scooter Braun, Alyssa Milano, and Will.i.am

Summary List PlacementAs the cannabis industry in Europe heats up, Sanity Group, a Berlin-based CBD and medical cannabis startup, is raising millions in a bid to dominate the burgeoning market.
Sanity Group sells CBD in Germany and Austria under the VAAY brand and recently entered the UK market. It’s raised $29 million from a range of investors including Scooter Braun’s TQ Ventures, Berlin investment fund Cherry Ventures, Hotspring Ventures, AGB Venture Capital, and Atlantic Food Labs, and celebrities like the Black Eyed Peas’ Will.i.am, actress Alyssa Milano, and soccer player Mario Goetze.
The $29 million came from three funding rounds, Sanity Group managing director Finn Hänsel, told BI in an interview. The funding gave Sanity Group a valuation in the “high 9-digits” Hänsel said, but declined to disclose the specific number.
The company is looking to raise another $24 million (20 million Euros) this summer. 
Read more: Here are the 26 hottest cannabis startups that are set to take off in 2021, according to top investors
What sets Sanity Group apart from its North American counterparts, says the 38-year old Hänsel, is that the startup doesn’t grow cannabis, because that cultivation can take place in warmer climates with cheaper labor. Instead, it focuses on what Hänsel says are the more lucrative parts of the supply chain.
“Look, tell me one beer brand in the world that still grows their own hops,” Hänsel said. He added that cold countries like Germany or Canada will end up being outcompeted as growing cannabis indoors is expensive.
Sanity Group’s purview is “everything that comes after cultivation,” Hänsel says, like processing, product development, and research. 
Hänsel said it’s challenging to get investors on board with the cannabis industry, but Sanity Group’s management team, past performance, and future plans helped them raise money.
“If you invest in other markets, you probably have already a history of the market. That’s probably three to four or five years, and you already have revenues. You already have a lot of unit economics,” Hänsel said.
Cannabis, especially European cannabis, is a “very young market.”
Read more: The 5 top cannabis startups that VCs can’t stop talking about
“What also convinced investors to invest with us is that we keep that we have a good balance between already showing revenues and already having very strong brands in the market and having really an infrastructure, but on the other hand, still also having a vision for what we believe is going on in the next two to three years,” Hänsel said.
Here’s the pitch deck that helped Sanity Group raise $29 million from major investors in a bid to dominate European cannabis:Sanity Group is a Berlin-based CBD and medical cannabis startup.

Sanity Group is led by Finn Hänsel, an alum of the Boston Consulting Group and a founder of the Sydney, Australia based fashion e-commerce company The Iconic, and by Fabien Friede, who also worked with Hänsel at The Iconic.

Sanity Group has two main businesses, one focused on medical cannabis and pharmaceuticals, and one focused on “wellbeing” or branded products containing popular cannabinoids like CBD and CBG.

Raising money in 2020 was a challenge, says Hänsel. The first $22 million closed before the pandemic took hold in Europe. Hänsel says they had celebrities lined up to invest early last year, though as the pandemic forced many countries into lockdown, “suddenly everyone was insecure about how this would affect the global cannabis industry.”

The startup raised a small seed round in 2019. In February of last year, Sanity Group closed a $22 million “pre Series A” as Hänsel calls it, led by Calyx, a European fund focused on cannabis, HV Holtzbrinck Ventures, and Karan Wadhera, a managing partner of the cannabis-focused fund Casa Verde. The remaining $4.8 million came in December in the round that included the celebrity investors, Hänsel said.

THC-containing cannabis is legal in limited medical applications in Germany, though lawmakers rejected a recreational legalization bill last October.

Hänsel said investors asked questions like how does the European market compare to Canada? What will it look like in five years?

“This is something we discussed very, very intently with investors,” Hänsel said.

“I think it’s very important for a company at our stage that we have the balance that we already show that we are able to execute by showing revenues, but then also actually have a clear vision about where we think the market will go over the next five years,” Hänsel said.

Last year, the UN Commission on Narcotic Drugs reclassified cannabis to a less restrictive regime, acknowledging the drug’s beneficial medical qualities Hänsel said the UN’s move is creating a “huge movement” within the European Union of legalizing cannabis.

Sanity Group has about 65 employees, with plans to expand to over 100 in 2021, Hänsel said.

Hänsel says investors he spoke with were “really sensitive” about the background of his management team, doubly so since they were trying to raise millions and steer a startup through an industry with byzantine, rapidly evolving regulations during a pandemic.

And that’s also because it’s hard for investors to separate “the good from the bad” in cannabis as more companies pile into the industry, Hänsel said.

Investors always asked Hänsel the golden question: Will there ever be a recreational cannabis market in Germany? “What we normally say is we see ourselves two to three years behind the US market,” Hänsel said. “So we see basically medical cannabis is picking up like crazy, especially in Germany.”

We got an exclusive look at the pitch deck $3 billion valued healthtech startup Hinge Health used to raise $300 million

Summary List PlacementThe global digital health sector has unsurprisingly boomed amid the ravages of the coronavirus pandemic, with companies and consumers increasingly seeking out alternatives to in-person services.
Investors too are pouring more money into the space. One recent beneficiary is Hinge Health, which raised $300 million earlier in January to become the most highly valued private healthtech in the US, the company said. 
The Series D round was jointly led by private equity giants Coatue Management and Tiger Global and raised the valuation of startup to $3 billion, according to Hinge Health’s announcement.
The San Franc iso-based startup offers a digital clinic for musculoskeletal (MSK) pain and is available to more than 300 enterprise customers in the US. The company’s customer base tripled and revenue quadrupled in 2020, according to Hinge Health’s CEO Daniel Perez. 
“It was a very interesting year for us — in March every investor was concerned due to the pandemic, but we decided to stay the course,” Perez told Insider in an interview. “We knew there would be a counter revolution after a five or so week period where people weren’t answering the phone. We said, ‘If we can overcome this and execute we will win’  — and we were one of fastest growing companies in tech last year.”
The startup, founded in 2015, avoided layoffs or salary cuts and continued to hire last year. This new fundraising will help Hinge Health continue on its growth trajectory, with its current 550 headcount likely to double by the end of 2021, Perez said. The company was named as a healthtech company changing the industry recently.
Amid a crazy year for IPO listings in the US, and a likely continued surge into 2021, Hinge Health is primed for a debut on the public markets. 
“There was enormous investor interest when we opened the round — within 24 hours we had more than $400 million in commitments,” Perez added. “They [Coatue and Tiger Global] are the two best funds for a pre-IPO round, it’s very rare that they co-lead the same round.”
The two private equity firms’ involvement continues a trend of major hedge funds and private equity piling into late stage startups. 
Existing investors Atomico, Insight Partners, Quadrille, 11.2 Capital, Lead Edge Capital, Bessemer Venture Partners, and Heuristic Capital also participated in the funding round. Hinge Health has raised just over $426 million in total, according to Crunchbase.
Read more: Investors are pouring cash into mental health startups during a rough 2020. Here are 19 to watch, picked by top European VCs.
Despite the obvious incentives provided by public markets to buzzy startups, Perez claims that the company’s growth path is “laser focused” on growing its digital clinic for MSK.
“There is no pressure to IPO soon,” said Perez. “We’re hoping to be in a position to go public, or whatever, in 2022.”
To put Hinge Health’s rise into context, the company’s previous funding round (a $90 million fundraise in February 2020) valued the business at $428 million, one-sixth of the most recent valuation.
Perez said there’s still ample opportunity to grow further. “Healthcare is one-sixth of the US economy and around one-fifth of that is related to MSK,” he said. “That’s around 3% of [gross domestic product] so it’s a huge area of spend to disrupt.”
Check out Hinge Health’s pitch deck below: SEE ALSO: We asked 12 prominent European tech investors to pick out fintech startups they think will blow up in 2021. Here are the 20 they chose.

Checkout.com was founded by a college dropout and just became Europe's most valuable startup after raising $450 million at a $15 billion valuation

Summary List PlacementPayments firm Checkout.com is now Europe’s most valuable startup after raising $450 million at a $15 billion valuation. 
It’s one of the largest recent funding rounds in Europe and makes the company the fourth most valuable privately owned fintech worldwide.
Founded by college dropout Guillaume Pousaz in 2012, Checkout.com raised Europe’s biggest ever Series A round of $230 million in May 2019, at a valuation of $2 billion. That was followed by a $150 million Series B in June last year at a $5.5 billion valuation.
Checkout.com powers the payments process of major companies like soon-to-be-public food delivery unicorn Deliveroo, fintech giant TransferWise, and Adidas.
“We had an exceptional year last year, particularly towards the end of 2020 with around $1 billion a week of e-commerce volumes,” Checkout’s founder and CEO Pousaz told Insider. “We had no plans to raise but had remained in touch with investors who have a long-term view of the business. This is going to be a generation-defining company.” 
The startup claims to have added more than 500 new enterprise clients in 2020 including Coinbase, Pizza Hut, H&M, Grab, Klarna, Farfetch, and messaging app Telegram. The company’s competitors include Stripe, last valued at $36 billion, and Dutch payment firm Adyen, which went public in 2018.
Checkout’s financial filings for the full-year 2019, parts of which have been examined by Insider, show revenue of $146.4 million, up from $74.8 million in 2018. Adjusted EBITDA was $5.47 million for the year. The firm’s full filings are not yet publicly available, and were due to be filed with the UK’s company register on 31 December. Pousaz said that the accounts were filed on time at the end of December, but could take two weeks to appear.
Its Series C was led by hedge fund giant Tiger Global Management with participation from Greenoaks Capital and existing investors amid a boom in interest in fintech startups from the private equity world. Checkout.com claims to have tripled its payment processing volume during 2020 as e-commerce boomed during the pandemic. 
The global payments market was worth just under $2 trillion in 2019, according to research from McKinsey. Checkout’s staggering valuation is almost triple the price it reached six months ago.
“We’ve never been chasing league tables and have always been very disciplined in our approach,” Pousaz added. “Our product in the hands of some of the most forward-thinking merchants in the world which is a validation in our business. Our investors understand public markets and are investing in the industries of tomorrow.”
Amid a growth in demand for fintech, high valuations are everywhere. Payments rival Stripe could seek a $100 billion valuation in its next round, Bloomberg reported. Similarly, US challenger bank Chime hit a new $14.5 billion valuation last year while buy now, pay later giant Klarna raised $650 million at a near $11 billion valuation in September 2020.
When asked about the hot IPO market and Checkout’s chances of going public, Pousaz said: “It’s certain that we will be a public company, we have public market investors on our cap table but there is no pressure on us. The reality is that our Series A was around 20 months ago so our timing is dependent on our roadmap.”SEE ALSO: Fintech startups like Revolut and Luno are seeing a boom in demand from consumers rushing to invest in cryptocurrencies amid major bitcoin interest
Join the conversation about this story » NOW WATCH: Here’s what it’s like to travel during the coronavirus outbreak

A biotech known for its sleep and brain drugs just made a $7.2 billion bet that medical cannabis is crucial to its neuroscience ambitions

Summary List PlacementJazz Pharmaceuticals is making a $7.2 billion bet on the future of medical cannabis. 
The drugmaker said on Wednesday it will acquire GW Pharma, the maker of CBD-based epilepsy treatment Epidiolex, in a cash-and-stock deal. It’s the largest cannabis-industry deal so far. 
The deal, in which Jazz Pharmaceuticals will pay $200 in cash and $20 in Jazz shares for each GW share, represents a 50% premium on GW’s Tuesday closing price — a strong signal that the pharmaceutical giant is bullish on the future of cannabis-based medicines. 
The news sent stocks in the cannabis sector soaring on Wednesday morning, with GW shares surging over 46%. The deal is expected to close in the second quarter of this year. 
Analysts from the investment bank Stifel called the deal an “outstanding outcome” for GW Pharma in a Wednesday morning note. 
In 2018, GW was the first company to receive FDA approval for a cannabis-based drug, Epidiolex. The drug, which is essentially an ultra-high dose of cannabidiol, or CBD, is designed to treat seizures linked with two rare forms of childhood epilepsy, Lennox-Gastaut syndrome and Dravet syndrome.
Cannabis is considered a Schedule I drug by the US federal government, a class of drugs reserved for those with no accepted medical use and a high potential for abuse. Regulators moved Epidiolex to Schedule 5, similar to codeine-containing cough syrup. 
While CBD has since become a widely used consumer product, appearing in everything from lattes to skincare products, Epidiolex is so far the only FDA-approved cannabis-derived drug. 
A ‘new era’ for cannabis-based drugs
Jazz CEO Bruce Cozadd said Epidiolex has “near-term blockbuster potential” on a Wednesday morning call with investors, adding that neuroscience is a key focus area for the company.
“We think this is just the beginning for Epidiolex,” GW Pharma CEO Justin Gover said on the call. He added that what GW Pharma has been able to demonstrate over its 20-year history is that cannabinoids — the active compounds in the cannabis plant — are “real and compelling science.”
“We have potential first-in-class candidates across disease states such as autism, schizophrenia, and other neuropsychiatry targets,” Gover said. 
Getting a cannabis-based drug approved in the US was an uphill battle, GW Pharma CEO Justin Gover told Insider in an interview in 2019. He called Epidiolex’s approval the start of a “new era” for medical marijuana.
“If one applies the same rigorous standards to cannabis as they do to other drugs, they should be able to get a drug approved,” Gover said.

GW is also conducting Phase III trials for Nabiximols, a potential multiple sclerosis drug containing both THC, the main psychoactive component in cannabis, as well as CBD. The company said in the Wednesday investor call that it expects to submit a new drug application (NDA) to the FDA in the next one or two years. Nabiximols is already approved as Sativex in countries outside the US. 
The FDA has approved another THC-containing drug, AbbVie’s Marinol, which treats nausea, vomiting, and lack of appetite associated with chemotherapy and AIDs treatment. That drug contains a synthetic version of THC.
Analysts from the investment bank SVB Leerink said the deal is an “interesting strategic fit” with Jazz’s neurosciences focus, and “adds a platform of innovative cannabinoid product candidates.” 
Goldman Sachsand Centerview Partners served as financial advisors to GW, and Cravath, Swaine & Moore LLP and Slaughter and May provided legal advice. Evercore and Guggenheim served as lead financial advisors to Jazz Pharmaceuticals, which also received advice from BofA Securities and J.P. Morgan Securities LLC. 
Wachtell, Lipton, Rosen & Katz, Macfarlanes LLP and Arthur Cox LLP served as Jazz’s legal advisors. 
The cannabis industry is on a dealmaking tear, a stark reversal from last year 
The GW Pharma deal is the latest blockbuster tie-up for the rejuvenated cannabis industry, which has been buoyed by hopes that a Democratically-controlled Senate and White House will lead to relaxed regulations, and perhaps in the most optimistic scenarios, full-scale federal decriminalization or legalization.
To be sure, much of the US cannabis industry exists in a legal gray area, because many of its products are federally illegal. That isn’t the case for GW Pharma.
Many cannabis investors, analysts and other experts told Insider they predicted rapid consolidation in 2021, in a bid for scale as investors return to the industry after a horrid 2020. 
In December, Canadian cannabis heavyweights Tilray and Aphria agreed to merge in a deal that would give the combined companies a near $4 billion valuation. And the biggest US cannabis companies, like Curaleaf, TerrAscend, and Cresco Labs, among others, raised nearly $1 billion in January to fuel dealmaking. 
Nawan Butt, the portfolio manager of the European Medical Cannabis and Wellness UCITS ETF said he expects dealmaking on the medical side of the cannabis industry to ramp up.
“Today’s events should draw attention to other companies doing work in this sector and the opportunities they are exploring,” he added in an email.Join the conversation about this story » NOW WATCH: A top economist explains how weighted voting could change democracy

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