Venerable VC fund Greycroft Ventures 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 CBD startup which is set to officially launch in March, along with New York-based venture firm Lerer Hippeau and a few undisclosed investors.
Greycroft, which was founded by VC pioneer Alan Patricof and has backed buzzy consumer startups like Thrive Market, Bird, TheRealReal, and Venmo, is seeking exposure to what’s set to be a huge market. The Brightfield Group, a cannabis industry research firm, estimates the hemp-based CBD market will skyrocket to $22 billion by 2022 in the US alone.
While some mainstream VCs have invested in both CBD and cannabis-tech companies, Lerer Hippeau included, 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 non-toxic household goods —with actress Jessica Alba in 2011. Prima’s two other founders, Jessica Assaf, and Laurel Angelica, both have long histories working 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, “there was some level of trust and risk-taking” on both Greycroft and Lerer Hippeau’s part because no bill had yet been signed, Gavigan said in an interview.
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,” said Gavigan.
Prima will officially launch in early March with an online CBD education platform and will start rolling out a line of branded products like CBD-containing skin care products towards the middle of 2019.
On Greycroft’s side, partner Dana Settle told Business Insider she had known Gavigan for a few years — they both lived in LA and were both involved in similar nonprofit initiatives — and when she heard he was raising money for a CBD startup, her interest was piqued.
Settle said that Gavigan’s experience in bringing products to market where “education is a significant component” is part of what sold her on the deal.
In terms of consumer education, CBD, or cannabidiol, has a long way to go — and that’s part of what prima would like to fix, said Gavigan. CBD has been touted as a wonder drug, able to cure ailments from back pain to insomnia, though the research is scant.
The FDA and health departments across the country have started cracking down on cafes and restaurants that sell CBD-containing food and drinks, 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 this wasn’t an issue for Greycroft.
“I mean, we’re obviously working within the law,” she said.
She views 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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