Dec 17, 2014 · 2 minutes

Investors are riding high on marijuana startups.

Peter Thiel's Founders Fund*, for example, is reportedly participating in a $75 million Series B round in weed company Privateer at a stratospheric $425 million valuation.

But as with other growth industries as green as this, legality has still been a major concern. San Francisco's Eaze isn't called "The Uber of pot" just because it makes for a catchy startup pitch -- Like Uber, its weed delivery system faces its share of regulatory hurdles. Founder Keith McCarty tells me he is careful to avoid running afoul of local statutes, saying, "We will work within the present laws in all of the states we serve.”

The only problem? For years, state laws allowing the use of medical or recreational marijuana have contradicted the United States' federal ban on the substance. As a result, the DEA could raid medical marijuana dispensaries in California as it saw fit, even if the seller had fully complied with state laws. Granted, the Obama administration had directed federal authorities to refrain from enforcing federal drug laws that were not consistent with state laws, unless the offenders were under suspicion of some other crime. Nevertheless, the federal prohibition put pot -- and pot startups -- in a precarious legal position.

But now, thanks to the passage over the weekend of the $1.1 trillion spending bill in Congress, the federal ban on medical marijuana has been effectively lifted, removing at least one piece of uncertainty for entrepreneurs working in this space, whether they run a venture-backed startup or operate a little dispensary on Venice Beach.

"The war on medical marijuana is over," drug policy lobbyist Bill Piper told the Los Angeles Times. "Now the fight moves on to legalization of all marijuana."

For years, technology companies that facilitated sex or drug use were often hard-pressed to raise capital. But even before this week's lifting of the federal ban, investors had become far less Puritanical in their mores, whether it's the $75 million raised by Privateer or the boatloads of cash raised by Tinder and Down (formerly Bang With Friends). With marijuana quickly becoming more socially, politically, and legally accepted, the investment is this space is poised to explode. That's good news for weed entrepreneurs, but also for consumers of medical marijuana.

“As Americans are sort of cresting this majority and, in California and the Bay Area a supermajority, it’s time for patients to come out of the shadows and into the light,” said Robert Jacobs, Executive Director of the San Francisco-based dispensary and nonprofit advocacy collective SPARC.

As an aside, the prohibition lift is also a nice example of democracy in action. For decades, Republicans opposed rolling back any laws that restricted drug use. But now that so many states have passed ballot initiatives that legalize medical or recreational marijuana, many of these lawmakers have adjusted their position to be more in line with public opinion.

Here in New York, marijuana is still banned at the state level. So if I want to procure cannabis, I would need to go through some unofficial and illegal channel run by folks who I doubt have much venture capital -- unless of course you count the cash VCs drop for their own personal stashes, a sum which could make Privateer's $75 million round look like pocket change.

  • Founders Fund is an investor in Pando