A VC best known for organic-food investments just made its first foray into CBD. A top partner at BIGR Ventures told us why.

• BIGR Ventures, a Colorado-based fund that focuses on the food industry, made its first foray into the hemp and CBD space.
• The firm led a $3 million Series A investment round into RE Botanicals, a CBD tincture, oil, and oral capsule startup.
• BIGR partner Carole Buyers explained why the firm decided to invest in a Thursday interview with Business Insider.
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A VC best known for placing bets on organic-food companies is making its first foray into the CBD space.

BIGR Ventures, a Boulder, Colorado-based fund, led a $3 million Series A round in RE Botanicals, an organic hemp-derived CBD company. The round closed on Thursday.

"We've been researching the CBD industry for over a year," Carole Buyers, one of BIGR's partners, told Business Insider in an interview. "It was the passage of the Farm Bill in 2018 that really gave us the green light to go ahead and invest."

RE Botanicals was founded by John Roulac, a veteran of the organic foods space who previously started Nutiva in 1999. The Colorado CBD company merged with South Carolina-based Palmetto Harmony in August.

Cannabidiol, or CBD, is a compound in cannabis that doesn't get you high. Sellers claim the compound has a variety of benefits, including anxiety relief and help with sleep and pain. But so far, there's little solid evidence to back up those claims. Still, Wall Street analysts say CBD could be a $16 billion market by 2025.

Coffee, hummus, and now CBD

Buyers, along with her partners Bill Weiland and Duane Primozich, focus on investing in organic food companies. Their portfolio includes High Brew Coffee, Colorado hummus brand Hope Foods, and grain-free baked goods company Suzy's, among others.

Read more: Here's what CBD does to your brain and body

Buyers says lots of the people who shop for organic food products would likely be interested in organic CBD supplements. There are also similarities in how the businesses are structured, with the emphasis on organic supply chains.

Still, it took a lot of research to pick out the right company to back in the competitive CBD startup market. She said they wanted to back an organic-certified company with a clean supply chain.

"We wanted no product from China," says Buyers. "We wanted no extractions from hexane, butane or propane. And last we wanted the product to be organic or non-GMO."

BIGR invested in RE Botanical's seed round in April, and doubled down on the investment with the Series A.

To Buyers, part of the challenge with investing in CBD was being early in a space that few mainstream venture funds have invested in.

Read more: Square has started working with a select group of CBD startups while other payments rivals shy away from the trendy substance

'Being early and going out on a limb'

"We pride ourselves with being early and going out on a limb," says Buyers. In her view, CBD as an ingredient in food will be somewhat "faddish," so the best way to invest in the space is investing directly in the supplement itself.

"We believe that CBD will ultimately be regulated like a supplement," says Buyers. RE Botanicals, for its part, sells USDA-certified organic CBD in the form of tinctures and oral capsules.

The CBD industry - like any frontier space - has come under fire over mislabeled products and playing fast-and-loose with constantly shifting regulations.

Business Insider reported on the mislabeling of popular CBD products in California in April. Only 15% of popular products tested by a California lab actually contained the amount of CBD claimed on the label, and some of them contained dangerous pesticides and other chemicals.

Products from RE Botanicals weren't among those tested.

On top of that, Buyers said she and her partners had to show the investors in her fund - her limited partners (LPs) - that they were comfortable with the regulatory environment around CBD.

"We provided an overview of the industry to our LPs before we landed on RE Botanicals," says Buyers. "We did our research, we educated them to give them a heads up we knew that there were certain things that needed to happen on the regulatory side to derisk the investment."

BIGR Ventures isn't the first mainstream fund to invest in CBD. In February, Greycroft led a $3.3 million seed round into Prima, a CBD company founded by The Honest Company CEO Christopher Gavigan.