The cannabis device company was founded by the same team that created vaping sensation Juul.
Passing a joint is becoming increasingly passe. Pax Labs Inc., a San Francisco-based startup that makes marijuana vaporizers, is now valued at $5 billion, said two people familiar with the company who asked not to be identified discussing the terms of a private deal. The company raised $20 million in its latest funding round, according to Pax Chief Executive Officer Bharat Vasan.
Pax, part of a rising tide of marijuana device companies, makes internet-connected vaporizers that allow users to control how high they get when consuming the drug. The company’s sleek devices look like highlighter pens or USB sticks, and are operated through an app. Vapers can tinker with the app’s settings to puff a thicker plume of smoke, or lower the device’s LED light to be more discreet when inhaling in public.
The product may sound familiar to anyone who’s encountered Juul, the wildly popular and controversial nicotine vaping company recently valued at $15 billion. That’s not a coincidence. Juul’s creators, James Monsees and Adam Bowen, also created Pax. The two companies split into separate entities, Juul Labs Inc. and Pax, last year.
Pax devices are not pre-filled with marijuana bud or pods that contain marijuana-infused oils. The startup sells empty pods to other companies, which load and sell them to consumers through dispensaries in states like Colorado, California and Oregon, where recreational marijuana use is legal. The model is similar to the way Keurig Dr Pepper Inc. sells a proprietary machine that brews coffee from pods filled by bean growers.
In the past year, cannabis-related companies have seen their valuations soar amid an investor frenzy around Canada’s legalization of recreational pot. Publicly traded cannabis stocks, like Canopy Growth Corp. and Aurora Cannabis Inc., have outperformed gold and the broader market. Tilray Inc., a cannabis company that was backed by billionaire investor Peter Thiel’s Founders Fund, now has a market cap of about $14 billion—that’s almost as much as drug-testing laboratory Quest Diagnostics Inc.
Despite keen investor interest, Vasan said the company only took a $20 million investment from existing shareholders in order to avoid giving up a substantial stake and becoming overly dependent on venture capital. “This is a deliberately small round,” he said. Pax’s investors include Tiger Global Management, Fidelity Investments and Tao Capital Partners.
Pax Labs was born out of the vaporizer technology company Ploom, which was launched in 2007 by Monsees and Bowen, two Stanford students. By 2012, Ploom sold its first vaporizer, the Pax, designed to steam loose leaf marijuana buds. In 2015, Monsees and Bowen released a highly addictive nicotine-only device called the Juul. Juul became a sensation among teenagers, and quickly drew the ire of parents and regulators around the globe.
In 2017 Monsees and Bowen split Ploom into distinct companies. Both work at Juul, and have no formal executive title at Pax. Vasan says Pax and Juul decided to part after it became clear that both companies faced distinct regulatory challenges. In April, the U.S. Food and Drug Administration said it would begin investigating whether Juul marketed its highly addictive nicotine-infused pods to teenagers. Marijuana, meanwhile, is still only legal in some states, and even those laws are murky.
“We want people to understand that we’re a different company than Juul,” Vasan said. Still, Pax’s small pool of investors is almost identical to Juul’s. When Pax and Juul split, Pax shareholders received stock in both companies, Vasan said.