First Round: Pot luck

Private equity investors love a niche strategy these days. And strategies don’t get much more niche than that of Privateer Holdings, a new US investment group founded by Silicon Valley Bank alumnus Brendan Kennedy.

According to an article in Upstart Business Journal, Kennedy and his partners are in the process of raising a $7 million fund – to buy cannabis.

Ok, not exactly. To be more precise: they plan to “buy and grow marijuana-related businesses”. The theory is that as marijuana continues its steady progress towards legalisation (possession is already legal in Washington and Colorado, while 18 states allow it to be used medicinally), this is going to become a huge market – perhaps as big as $50 billion, Kennedy believes. “This is the biggest opportunity I’m going to see in my lifetime,” he told UBJ. “The Berlin Wall of cannabis prohibition is crumbling.”

According to Kennedy, people in the pot industry are “good people … but not always sophisticated in terms of business acumen”, which is presumably a polite way of saying that they sit around in their pants all day watching daytime TV. So there’s a need for someone like Privateer to help with professionalisation, he argues.

Being a visionary sort of magazine intro section, First Round can see the appeal – if only because the data room would be so much more fun than for your average private equity deal. The only problem is going to be when LPs see the management accounts, and realise that the firm has been expensing $1 million a year on Rizlas and Doritos.