- We asked some of the top cannabis investors to tell us which startups they're most excited about in 2020. We took that list and narrowed it down to 15 startups based on which companies came up the most.
- Cannabis tech companies like Flowhub and LeafLink generated the most votes on our list.
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Despite tough times in the broader cannabis industry, investors who have bet on the burgeoning space say things will turn around as we enter the 2020s.
While venture-capital investing in cannabis surged above $2 billion last year, money flowing into cannabis startups slowed down toward the end of 2019 as the industry faced a number of headwinds, including vape-related illnesses, and a public markets slump that catalyzed a wave of layoffs across the industry.
That hasn't deterred cannabis-focused investors, who say they're investing cautiously in startups from cannabis tech to brands that sell THC and CBD products.
But, like any new industry, investors picked favorites, startups that they expect will grow rapidly in 2020 and beyond.
The list's methodology
In order to put together this list, Business Insider interviewed 15 cannabis-focused venture and private equity funds and asked which companies they were most excited about this year, whether they've invested or not. Their answers ranged from B2B software platforms that cater to cannabis companies to product testing labs, and cultivation companies.
The list below features the 15 startups that investors mentioned most often.
Cannabis tech startups were the most popular: Flowhub, with five votes, took the top spot on our list, followed by LeafLink, with four votes. Wurk, with three votes, also landed high on our list.
Three businesses that all directly touch the plant-Grassroots, Flow Kana, and Ascend Wellness-landed some top slots on our list with three votes each.
We used data provided by the companies or from PitchBook and Crunchbase to report how much money each startup has raised and its valuation, when available.
How investors decide to bet on a cannabis startup
There are a lot of factors that determine whether or not investors will bet on a startup.
Michael Gruber of Salveo Capital said his firm considers close to 1,200 deals a year. He said he decides not to invest in many of them because timing or focus may not align with his own firm. He said that many of the startups he looked at in 2019 were valued too highly, even though they were strong brands or good companies.
Some VCs only invest in particular parts of the industry, and others avoid plant-touching businesses altogether since THC, the component in cannabis that gets you high, is federally illegal in the US.
Juan Martinez, a principal at Measure 8, said that they're avoiding the "completely overhyped" CBD market. Martinez said his fund looks to make 6-8 investments per $100 million fund, and doesn't subscribe to the "spray and pray approach."
For other investors, taking a long term view that cannabis will eventually be legal in the US - whether that is in a few years or decades down the road - is crucial to making investment decisions today.
Krishnan Varier, a managing partner at Arcadian Fund, told Business Insider he decided not to invest in companies that were trying to address the lack of access to banking as those businesses have not proven an ability to be profitable once cannabis is federally legal.