Cannabis as an investment: The audacity of dope BRENDAN KENNEDY received an engineering degree, started a software firm and sold its assets to Boeing, studied for a Yale MBA and then joined a Silicon Valley bank reviewing new-business proposals. His latest venture takes a sharp turn off the beaten path. Mr Kennedy has become an investor in the marijuana business. The business case for funding the cannabis industry rests on two things. The first is its scale. Many of the novel ideas Mr Kennedy appraised during his job in Silicon Valley, from electric cars (Fisker and Tesla) to daily coupons (Groupon), had potentially large markets. Marijuana is already an established business. After six months of research and interviews with growers, dispensaries, trade publications and political organisations, Mr Kennedy believes the American market to be worth $50 billion. The second is that despite its heft, the cannabis industry operates like, well, a grass-roots movement. The drug's legal status is messy: although medical marijuana is legal in 18 states and in the District of Columbia, cannabis is illegal elsewhere in America. For social reasons, too, the industry is unfinanceable through normal channels. People in the business lack expertise in everything from branding to staffing. Data are scarce. Formal benchmarks for quality, such as tests for the presence of contaminants including mould, mildew and pesticides, do not exist. Neither do proper classifications for the different varieties of the drug. Thousands of strains of cannabis can be grown, many with odd names like Apollo 11, Sour Kush, Broke Diesel and the less-than-mellow Chernobyl. Characteristics vary, too. Some strains depress; some stimulate; some suppress nausea, a key reason why marijuana is used by cancer patients undergoing chemotherapy. Consumers cannot compare what is legally produced in California with what is legally produced in Colorado - to say nothing of what is illegally sold in New York's Washington Square Park (where a small army of salesmen all have the same patter: "Smoke. The good stuff"). At first, Mr Kennedy wanted to create a cannabis-focused venture-capital fund but concerns about legal liabilities, as well as a desire to take majority stakes in portfolio firms, led him and a few partners to set up a different sort of fund, called Privateer Holdings. Its first investment is a website, Leafly, which offers user reviews on dispensaries and varieties of cannabis. An app was created for both Android and iPhones and there are now 50,000 downloads a month (for the forgetful, the password hint is "favourite strain"). Work is proceeding on how to add information on things like each variety's content of tetrahydrocannabinol (THC), the active chemical in cannabis. Mr Kennedy says Privateer has received over 200 investor pitches since November: potential acquisitions include a testing lab and a clothing company. The fund is now raising another $7m privately, and a public offering is possible once the Securities and Exchange Commission finalises new rules on "crowd-sourced funding" and small public flotations. That will write a new chapter in the story of high finance.