The venerable venture-capital fund Greycroft is the latest big investor to push into the trendy CBD space.
The firm participated in a $3.3 million seed funding round for Prima, a startup focusing on CBD — cannabidiol, the nonpsychoactive compound of marijuana — set to officially launch in March, along with the New York venture firm Lerer Hippeau and a few undisclosed investors.
Greycroft, founded by the VC pioneer Alan Patricof, has backed buzzy consumer startups like Thrive Market, Bird, TheRealReal, and Venmo and is seeking exposure to what's set to be a huge market; Brightfield Group, a cannabis-industry research firm, estimates that the hemp-based-CBD market will skyrocket to $22 billion by 2022 in the US alone.
While some mainstream venture capitalists — Lerer Hippeau included — have invested in both cannabis-tech and CBD companies, the Prima investment marks the first time Greycroft has actively put money into the sector.
The startup's CEO, Christopher Gavigan, founded The Honest Company — which sells nontoxic household goods — with the actress Jessica Alba in 2011. Prima's two other founders, Jessica Assaf and Laurel Angelica Myers, have long worked in the cannabis and consumer spaces.
Conversations between Gavigan and investors started last August, well before Congress passed the farm bill that legalized CBD derived from hemp. Though there was legislation on the table when the round closed late last summer, Gavigan told Business Insider that “there was some level of trust and risk-taking” on Greycroft's and Lerer Hippeau's part because no law had been signed yet.
Gavigan said he was “extremely selective” with who he talked to about investing in Prima.
“The intention was to go with industry leaders who aren't embedded in traditional cannabis or don't only invest their funds in that specific area,” Gavigan said.
Prima is set to launch in early March with an online CBD-education platform and start rolling out a line of branded products, like skin care with CBD, toward the middle of the year.
‘It's almost too bad that CBD is inextricably linked to cannabis'
Dana Settle, a Greycroft partner, told Business Insider that she had known Gavigan for a few years — they both lived in Los Angeles and were involved in similar nonprofit initiatives — and that when she heard he was raising money for a CBD startup, her interest was piqued.
Settle said Gavigan's experience in bringing products to market where “education is a significant component” was part of what sold her on the deal.
In terms of consumer education, CBD has a long way to go — and that's part of what Prima would like to fix, Gavigan said. CBD has been touted as a wonder drug, able to cure ailments from back pain to insomnia, though the research is scant.
The Food and Drug Administration and health departments across the country have sought to crack down on cafes and restaurants that sell food and drinks with CBD, saying it's not an approved ingredient.
While some large venture firms have stayed away from any investments linked to cannabis for fear of upsetting their investors, Settle said that wasn't an issue for Greycroft.
“I mean, we're obviously working within the law,” she said.
She said she viewed CBD as a rapidly growing health-and-wellness category— a sector she and Greycroft have lots of experience in — and not as part of the marijuana wave sweeping the country.
“It's almost too bad that CBD is inextricably linked to cannabis,” she said, “because it has such powerful healing qualities to it.”
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