Dive Brief:

Evolv Ventures, the venture arm of Kraft Heinz, co-led a $23 million funding round for cannabis retail software company Flowhub. Other leading investors were venture firms e.ventures and Poseidon, with participation by 9Yards Capital, former NBA Commissioner David Stern and Iqram Magdon-Ismail, co-founder and former CEO of Venmo.

Flowhub uses its digital platform to assist cannabis dispensaries to follow compliance, point of sale, inventory tracking and business intelligence data. Kyle Sherman, Flowhub's founder and CEO, said in a release his company is on the "front lines of this movement" by helping brands build thriving cannabis businesses.

Kraft Heinz launched Evolv in October 2018 with $100 million to invest in emerging tech companies transforming the food industry. According to FoodBev , this is the VC arm's third investment but its first move into the cannabis sector.

Dive Insight:

Kraft Heinz has faced a series of challenges lately, so creative initiatives that could bolster its innovation credentials and get the legacy CPG company back on top are especially interesting to its VC arm.

So far this year, Evolv has also put money behind GrubMarket, a San Francisco farm-to-table delivery service, and led a $3.5 million funding round for New Culture, a San Francisco startup using fermentation to make dairy proteins for animal-free dairy cheese. The company seems to be targeting trendy categories with its investments, and cannabis is next.

CBD is one of the hottest sectors in the food and beverage industry right now, but U.S. retail regulations are still developing and legal complexities remain cloudy. Many Big Food firms are waiting for more regulation before jumping into this category, so it could make sense for Kraft Heinz to edge into the space with an investment in cannabis tech rather than infused products. If the U.S. Food and Drug Administration issues regulation to allow the substance in food, the company could be in a better spot to develop edibles, beverages and other CBD products for distribution in the U.S.

Nielsen has predicted the market for all legalized cannabis, including CBD, to quintuple from $8 billion in 2018 to $41 billion by 2025. To support that growth, Flowhub said in the release that dispensaries are expanding around the country to provide medicinal and recreational cannabis. The company noted these outlets need a strategic partner such as Flowhub to assist them with scaling their operations to meet demand and keep up with changing state regulations. During the past year, Flowhub said its revenue jumped 200% and its customer base across 11 markets doubled. A company with that much growth could be appealing to Kraft Heinz, given its recent struggles.

Kraft Heinz has experienced sliding sales and stock prices and reported a 54.6% decline in operating income for the first six months of this year, compared to the same period in 2018. In February, the company shocked the market when it revealed a $12.6 billion net loss, cut its dividend by more than one-third and reported a U.S. Securities and Exchange Commission investigation into its procurement accounting and control policies.

When Kraft's venture firm was announced, then-CEO Bernardo Hees said technological innovations in the food industry were creating new opportunities to strengthen the company's business model. But in June, Hees stepped down, and Anheuser-Busch InBev marketing veteran Miguel Patricio took the helm July 1. Patricio's reputation as a brand-builder who wants the company to lead rather than follow could help reinvigorate the company's iconic products, and he might be able to use Evolv and other tools to reposition Kraft Heinz with a more on-trend portfolio.

Currently, the cannabis food and beverage category is filled with startups willing to take the risk and build their brands. But as smaller CBD edibles businesses potentially fade away due to increased competition and consolidation, it's possible big CPG firms such as Kraft Heinz will be ready to pick up where they left off and take advantage of this trendy category — and the investment in Flowhub could give the company the insider knowledge it needs to succeed.