Venture capitalists descend on Canada’s marijuana industry

If Prime Minister Justin Trudeau’s pot bill get passed, Canada will become only the second country in the world (after Uruguay) to legalize the retail sale and use of weed. As it stands right now, medical marijuana is already legal in about 20 countries.

Let’s just crunch the numbers for a second. The medical marijuana market in Canada alone is worth about $500 million. If legalization does take place, the overall retail market for weed could grow 10-fold, to $5 billion, according to a recent research report by Deloitte. If you factor in the subsidiary markets for weed — growing, testing labs, lighting and security systems — you’re looking at a figure of approximately $22.6 billion. That’s big money, and where big money is, big business will go.

When you think about the marijuana industry right now, you probably associate it with the big licensed producers — Canopy Growth Corporation, Aurora Cannabis, and Aphria, to name a few. But there’s another aspect to the cannabis industry; the people who are trying to make money from it.

Venture capitalists are investors that have an eye for tech startups whom they think have the potential to grow into unicorn companies. Recently, VCs have started turning their attention to weed. American VC firms like ArcView Group, Poseidon Asset Management and Peter Thiel-backed Privateer Holdings have already invested hundreds of millions in the cannabis industry, with the home that at least one of the startups they have targeted will discover the “next big thing” in weed products or services.Keep in mind that just six years ago, none of these VCs had any interest in weed.

Initiative Capital is a Toronto-based VC fund that is eyeing a new kind of technology related to the production of THC oil. This technology, pioneered by Montreal-based biotech startup Hyasynth Bio, creates THC oil out of yeast. Apparently, yeast, under the right conditions, can produce THC and cannabidiol, the same two substances contained in the cannabis plant. Cannabis, or cannabis derivatives are not involved in the production of this strain of THC whatsoever.

“What we’re altering is the DNA inside the yeast, which is the blueprint for how they live and grow,” CEO Kevin Chen told VICE Money when we visited him at Hyasynth’s lab recently. “Instead of growing normally, and producing carbon dioxide to raise your bread, we’re telling it to make cannabinoids, which are these active compounds from cannabis.”

Initiative Capital, finds Hyasynth’s technology fascinating, and potentially lucrative, because of the speed at which they are able to produce THC from yeast, compared to extracting THC from the cannabis plant.

“You think about the flowering time of a plant — the fastest you can really get to producing THC and CBD if you’re using cuttings, is maybe two months,” Michael Miller of Initiative told VICE Money. With yeast, says Miller, THC and CBD can be produced within days.

According to the Marijuana Business Daily, an American-based newsletter of sorts for marijuana investors, the amount of money funding weed startups or expansions has risen 900 percent in the span of two years. Some, in fact, fear that there are too many investment dollars chasing too few worthy weed investments.

Miller disagrees. He points out that the key to doing well in the marijuana business as an investor is to get a head start and establish themselves as leaders in the field.

“If [Hyasynth’s] technology is compelling as it appears, they could actually be in a very dominant position in the Canadian market. The amount of oil being consumed in Canada is exploding, so if they are going to be the key ingredient in that oil, I wouldn’t be surprised if they could make millions and millions of dollars in a very short period of time.”

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