The Privateer partners are always hunting for a good investment, but it was apparent that they wouldn’t be taking a stake in topicals any time soon. Though state law allows the manufacture and sale of cannabis topicals, Kennedy and Blue worried about whether you could make the stuff without violating federal drug laws. This put topicals off-limits as an investment, at least for now. If there’s one rule that Privateer lives by, it’s “don’t touch the leaf.”

Kennedy and Blue’s venture into the cannabis space began three years ago. At the time, Kennedy was directing the operations of SVB Analytics, which specializes in entrepreneurial fields like high tech, genomics, medical devices and green energy. He spent part of his time in San Francisco and Santa Clara, Calif., for work and part in Seattle, where his wife has a high-profile career with the Pacific Northwest Ballet.

One day a call came in to the SVB office from an entrepreneur who sold inventory software to medical-marijuana dispensaries. He wanted to know how to attract venture capital. Christian Groh, who was head of sales at SVB Analytics, took the call and told Kennedy about it. They were intrigued and amused. Pot software? They knew their own firm wouldn’t touch it. “Nobody wants to be known as the first banker or venture capitalist to make an investment in the cannabis industry,” Kennedy later told me. “The risk to the firm’s reputation is too great.”

Later that week, as he drove on I-280 through Silicon Valley’s green hills, Kennedy happened to tune in a radio show on marijuana legalization. He hadn’t touched pot since he was 19, he says, but the notion proposed by one guest seemed to make sense: Marijuana should be regulated like whiskey or wine. Kennedy thought about the software developer. Maybe there was a way to get into the business without being directly involved with pot. The growing and selling of marijuana, as it becomes increasingly legal, will require many ancillary products. “When everyone is looking for gold,” the saying goes, “it’s a good time to be in the pick-and-shovel business.”

When Kennedy pulled off the highway, he called Blue, his old Yale School of Management classmate. “You know how we’ve always talked about starting something together?” he said. “I think I’ve found it. We need to start a venture-capital firm in the cannabis space.”

At the time, Blue, who is from Arkansas, was happily ensconced at a sleepy financial firm in Little Rock, where he and his wife had settled to raise their children near her parents. If you were casting a comedy, Blue would be the bow-tied square who thinks things are getting out of hand when somebody orders a second pitcher of beer. To him, Kennedy’s idea was outrageous. It was insane. And it was interesting.

That night, lying in bed, Blue turned to his wife, Christina. “I’m going to tell you something about a conversation I just had with Brendan,” he said. “No one knows about it yet. But here’s what he’s thinking.” Neither Kennedy nor Blue could shake the notion. Working during their off-hours in Santa Clara and Little Rock, they dug into the existing marijuana research. They read the 1970 Controlled Substances Act, National Institute on Drug Abuse reports, medical studies from all over the world. They made reconnaissance visits to dozens of marijuana dispensaries. They decided that the only way they’d be comfortable even seriously thinking about the idea was if they could determine that marijuana was truly helpful for medical patients.