A top marijuana-focused fund is raising $75 million to make venture investments in pot companies

Paxhia

Poseidon Asset Management, a marijuana-focused fund, is raising $75 million to go after Series A or later investments in marijuana companies, said Morgan Paxhia, a managing partner.
The fund will be divided across four verticals in the marijuana industry, though Paxhia said he's particularly bullish on ancillary tech.
Poseidon has a solid track record: The fund got into buzzy vape startups Pax and Juul early on, and sold off their position in Aphria, a Canadian cannabis producer, before it was targeted by short-sellers.

A leading marijuana-focused firm run by a brother-and-sister team is raising a new fund.

San Francisco-based Poseidon Asset Management is looking to raise a total of $75 million for its venture-focused Fund II, said Morgan Paxhia, Poseidon's managing partner. Already the fund has raised $15 million in its first close, he said.

Paxhia said Poseidon's new fund will focus on Series A stage or later investments in marijuana companies.

"In the grand scheme of things in the venture world, $75 million is still small," Paxhia said. "But we think it's the right size for staying nimble and being able to capitalize on good deals."

Paxhia said the new fund will focus across four different verticals in the cannabis industry, including industrial hemp, branding and retail, cultivation and processing logistics, and ancillary software-and-data startups.

Bullish on marijuana tech

Paxhia said he's particularly bullish on marijuana tech companies.

"We've been investing in ancillary technology since the beginning," Paxhia said. "It's generally seemed to receive the least amount of capital, the least amount of interest."

The fund has already made two investments in marijuana tech startups that will close before the end of the year, though Paxhia declined to name them.

"We think the marketplace is very much misunderstanding how scalable, and how large the addressable market is for that segment," Paxhia said.

A lot of funds see the vertical as "too competitive and too hard to understand," Paxhia said. "So for us, that was a good time to lean in."

While Pahxhia said that his firm has received a lot of interest from big funds, the fund will "touch the plant" — that is, invest directly in companies that sell marijuana to consumers — so no large institutional investors will come onboard yet.

"It's just a question of getting them over the starting line in terms of compliance," Paxhia said. Because marijuana is considered an illegal, Schedule I drug by the US federal government, most institutions shy away from investing in the industry.

But, "they're doing their homework," Paxhia said. "As soon as they're greenlighted, they're going to be coming in."

That greenlight could take the form of the States Act, bipartisan legislation that would block the federal government from going after state-legal cannabis businesses.

Ancillary tech companies are seen as safer places to put money by most investors, as they don't deal with marijuana directly. Mainstream venture funds, including Lerer Hippeau, have invested in startups like the New York City-based Leaflink, an online platform for marijuana dispensaries.

A solid track record of exits

Poseidon has a solid track record of exits.

The firm got into buzzy vape startups Pax and Juul ahead of the curve and sold off their position in Aphria — the publicly-traded marijuana producer in Canada that has been targeted by short-sellers in recent weeks — earlier this year.

Poseidon also invested in Green Thumb Industries, an Illinois-based marijuana producer that went public on the Canadian Securities Exchange earlier this year, and in PharmaCann, which was acquired by the marijuana retailer MedMen in October, among other exits.

"We're in all the largest deals in the cannabis industry to-date," Paxhia said. "That's why we're up over 100% this year."

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