Last week, the venture capital firm run by Peter Thiel — a co-founder of PayPal and an early investor in Facebook, SpaceX and Spotify — invested millions of dollars in a marijuana company.

The investment, in a firm called Privateer Holdings — which owns Leafly, an online database of marijuana information, and the cannabis brand Marley Natural, named after Bob Marley — was heralded as a watershed moment for the fledgling cannabis industry, accompanied by positive headlines like the one in The Los Angeles Times: “Venture capital firm gives marijuana industry a shot of credibility.” In Silicon Valley, the deal was greeted as the latest disruptive change-the-world investment.

But the injection of venture capital money into the cannabis industry will put pressure on some emerging fault lines.

Public pension funds and university endowments are increasingly shying away from putting their money in so-called sin industries and focusing on more “socially responsible” investments, but it’s unclear where marijuana falls on this spectrum. Is marijuana closer to the health care industry, given its benefits for certain ailments, or should it be lumped into the same category as cigarettes, alcohol, gambling, guns and, in some quarters, fossil fuels and sugary soda?

The outcome will have profound implications for the future of the marijuana industry and the involvement of traditional sources of capital: venture capital, private equity and Wall Street.


A venture capital firm run by Peter Thiel has invested in Leafly’s parent company.Credit Fred Prouser/Reuters

Big investors like the Rockefeller family are already shaping their investments based on their worldview, committing to divest themselves of fossil fuel assets, for example. Just last week, 300 faculty members at Stanford University — which is reportedly an investor in Mr. Thiel’s Founders Fund — sent a letter to its endowment calling for it to divest itself of its fossil fuel investments.

Cerberus Capital Management, the private equity firm, has been trying to sell the Freedom Group, the largest American manufacturer of firearms and ammunition. Cerberus came under pressure from some of its pension fund investors after the 2012 massacre at an elementary school in Newtown, Conn., which was carried out with a Bushmaster semiautomatic rifle made by Freedom.

According to Kiplinger, about 490 publicly traded funds have some kind of social mission — like the TIAA-CREF Social Choice Equity Fund — representing more than $569 billion.

So is cannabis socially responsible or ethically objectionable?

The nation’s biggest banks — JPMorgan Chase and Bank of America — thus far refuse to allow marijuana companies to set up accounts. Even smaller local banks refuse to provide services to the industry.

Geoff Lewis, a partner of Mr. Thiel, who is a longtime libertarian, said he thought the industry was misunderstood. “If I thought it was a sin industry I would not have made the investment.”

Before investing, however, Mr. Lewis said he did engage in some “soul-searching,” which “involved digging into all the medical, social and addiction research around cannabis.” He said he concluded that “there are very real health benefits when used correctly for the right indications” and that “the narrative around cannabis being a gateway drug to more dangerous substances is false, and the science failed to convince me there is an addiction problem with cannabis — certainly less addictive even than caffeine according to many studies.”

He also made a broader point about the potential social impact of supporting the legalization of marijuana. “Cannabis possession is a significant contributor to prison overcrowding, which I believe is a major societal problem,” Mr. Lewis said. He added, “I do think one gating factor for the end of prohibition will be professionalized companies with brands consumers can trust, and this played into the Privateer investment decision.” Still, he added: “This was a business decision first and foremost. We think this is a good investment, separate from any S.R.I. stuff,” referring to socially responsible investing. “I’m agnostic on whether it’s S.R.I., but I certainly don’t think it is socially irresponsible.”

Mr. Lewis is not alone in his investment thesis. Legal marijuana businesses raised $104 million in 59 deals last year, according to CB Insights, a research firm that monitors deal-making. Most of them were relatively small: LeafLine Labs, a licensed grower and distributor of medical marijuana in Minnesota, raised $12 million, CB Insights reported. Aphria, a medical marijuana grower and supplier based in Canada, raised $6 million.

Investors can tap into the industry through the public stock market, buying into small growers and companies that make items for growing and distributing. There’s even a marijuana stock index, MJIC Marijuana Index, which tracks companies involved in and related to the business.

Mr. Lewis, however, is worried that the cannabis industry may be vulnerable to the same schemes as any other nascent sector that has not gained widespread acceptance.

“I am concerned about the public getting involved in the near term and getting burned — lots of penny stocks in this industry and most of those companies are really sketchy.”

While the marijuana industry may ultimately turn into a sustainably profitable sector, the chances that big investors will jump in “probably won’t happen en masse until full recreational legalization in the U.S.,” Mr. Lewis said.

In the meantime, questions about whether the industry is sinful or virtuous will continue to hang over it.

Andrew Ross Sorkin is the editor at large of DealBook. Twitter: @andrewrsorkin

A version of this article appears in print on 01/13/2015, on page B1 of the NewYork edition with the headline: Ethical Questions of Investing in Pot.