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Peter Thiel knows how to spot a potentially lucrative business when he sees one in its nascent stage. The celebrated Silicon Valley venture capitalist co-founded PayPal and was the first outsider to invest in Facebook, with an early infusion of $500,000 (U.S.). That gamble would ultimately deliver a return in excess of $1-billion.

So when his name turns up in connection with a key investment in marijuana, another business that's still figuring out how to climb out of the crib, it's bound to draw plenty of attention.

Not that the cannabis biz needs to spur much more investor interest. Gamblers have been flocking to marijuana-related stocks as if they were Dutch tulips in the 1630s with vastly better growth prospects. The trick is to overcome a few minor obstacles, like the fact the product is illegal in most major markets and has little appeal to lenders, which tend to worry about collateral that can go up in smoke at any time.

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So the decision by Mr. Thiel's Founders Fund to take a minority slice of Privateer Holdings, a Seattle outfit with a bundle of pot assets, including Tilray, a large Nanaimo producer of marijuana for medical uses, is sure to be touted as the latest proof that this is an industry with terrific prospects and staying power.

So far, Canada and nine U.S. states have made it legal to grow and sell marijuana only for medical purposes. So far, 15 companies in Canada have been granted federal licences to sell marijuana. For now, this amounts to a licence to print money for the select members of the oligopoly, given high prices and a projected market base of up to half a million customers over the next decade.

The really big money, though, won't materialize until the drug is legalized for use by the wider population in Canada and especially the U.S. Four states have so far removed most of the legal barriers to its sale for any purpose, but it remains an illicit drug under federal law, on the same level as heroin or ecstasy.

Still, Privateer seems like the right vehicle for patient private equity convinced that all the legal restrictions will eventually fall in the face of public pressure – a risky bet when dealing with an increasingly conservative Congress and vocal opposition from groups opposed to making it readily available to young people.

The current entrants in the pot game may dream of outsized returns once this opposition melts away. But when the stuff becomes legal to cultivate, market and consume across the U.S. and Canada, you can count on Big Tobacco, Big Alcohol and agri-food heavyweights to jump into the game quickly. Prices will plunge to commodity levels and a big chunk of revenues and profits will end up in the hands those with strong national and local distribution networks.

Existing large players with a cupboard full of diverse marijuana assets like Privateer will be well placed to cash in through a sale or merger. Which surely must be the game plan here.

At least the small fry will be better off than the Dutch tulip peddlers. They can always smoke their own product.

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