Cannabis company CEO Christine De La Rosa has won seed backing from the family office of a Silicon Valley investor for her debut $50 million venture capital fund aimed at minority entrepreneurs in the legal marijuana business.
The People’s Group Fund will deploy from $250,000 to $1 million-plus per investment to cannabis businesses owned by women, African-Americans, indigenous people, and people of color.
“The cannabis industry was created by Black and brown people in the informal market,” Del La Rosa said in an interview. “My company came out of the legacy market and transitioned into the legal market. We’re building an ecosystem through the fund to invest in really amazing founders with really great existing businesses or business startups.”
Chad and Tenah Dyer have committed an undisclosed amount of capital from their family foundation as seed investors in the People’s Group Fund, De La Rosa said. According to his LinkedIn page, Chad Dyer worked as chief information officer at venture capital giant Sequoia Capital for 13 years and left the firm in October, 2020.
De La Rosa’s company, The People’s Ecosystem, operates a non-store retail cannabis business in California. The company is also reopening its storefront dispensary in the Bay Area, planning a cultivation site in New Mexico and developing business plans in Illinois.
For investors, De La Rosa said she offers access to her contact list of cannabis entrepreneurs, as well as off-market deals available only to them.
For portfolio companies, she offers entrepreneurs lessons from her path in the cannabis business for either launching their business or making it more profitable.
De La Rosa said her fund also aims to increase the tiny portion of venture capital money allocated to people of color and women. One in five cannabis companies are minority owned. Only about 2.6% of venture dollars across all industries went to minorities and 2.2% was allocated toward women, according to Project Diane.
In an effort to compensate neighborhoods most severely impacted by the War on Drugs, states have allocated cannabis licenses free or at reduced cost to people of color in those areas. However, once these licenses get awarded, it’s been difficult for these businesses to get up and running because of the steep startup costs. Many of the licenses ended up getting sold to large operators instead. Some of these transactions have come under criticism for being unfair to the seller.
De La Rosa held a degree in humanities when she embarked on her legal cannabis business in 2015 in California. She didn’t know much about raising capital, nor do many other BIPOC (Black, indigenous and people of color) that run cannabis businesses nowadays.
“A lot of folks who are in the cannabis space around social equity or people of color don’t have access to information about capital or how to get capital,” she said. “Most social equity cannabis company leaders including mine did not go to school for business. You can know everything and you can still not get funding.”
De La Rosa said she’ll work with her portfolio companies to help them approach investors with powerful presentations and a strong understanding of all the ground rules of raising capital.
De La Rosa officially launched her venture capital fund in March. The firm will track the impact of investments at BIPOC- and women-led cannabis, as well as job growth, to help the fund’s Impact investors keep tabs on the work their capital is doing. Along with the altruistic intentions in the practice of Impact investing, the fund expects to generate a strong return for its backers, she said.
Most institutional investors would not be able to back De La Rosa’s venture capital fund because of federal prohibition on cannabis as a Schedule I controlled substance. Transactions involving plant-touching cannabis companies remain closed off in the U.S. banking system and this prevents any large institutional investors from taking part. However, private money through family offices and individuals has been a source of capital for cannabis businesses.
In California, there were seven Black-owned retail storefront dispensaries out of approximately 723 retail licenses given or .009% of the California dispensaries as of June, 2021. Two more Black-owned dispensaries are set to open up in LA to make a total of nine.
The Cannabis ETF /zigman2/quotes/213173823/composite THCX -2.80% was down 2.6% Tuesday, but has gained 4.9% in the year to date. The AdvisorShares Pure US Cannabis ETF /zigman2/quotes/220307682/composite MSOS -3.14% was down 2.7% and has lost 12.8% in the year so far. The S&P 500 /zigman2/quotes/210599714/realtime SPX -1.90% has gained 16%.