It is a widely-known fact that the legalization of both medical and recreational marijuana is not only advantageous to patients and regular users, but also to entrepreneurs and investors who see a lucrative business opportunity in the cannabis industry.
According to ArcView Group, a California-based company providing venture capital funding for marijuana startups, the cannabis industry grew 74 percent in 2014 to $2.7 billion. By 2019, it is expected to hit the $11 billion mark, thus opening up a lot of opportunities for startups to enter the market.
But while every startup is scrambling to enter the burgeoning industry, the question remains: Is there real substance behind all the hype? For MedMen’s Adam Bierman, the startups are simply too raw at this point.
“I am optimisitic about the entire marijuana industry, but I am pessimistic about all of the noise around it these days,” he said in an interview with International Business Times. “There’s a lack of institutional dollars conjoined with a lack of institutional talent and wherewithal. I don’t have a very strong belief level in the startups at this point.”
Enter CanopyBoulder—a first-of-its-kind business accelerator focused on startups in the marijuana industry. Co-founded by Patrick Rea, Mark Nottoli, and Micah Tapman, CanopyBoulder aims to fuse great marijuana business ideas with much-needed financial support from willing investors. It offers bootcamps for owners of marijuana-related ventures, as well as $20,000 in seed capital in exchange for a 9.5 percent stake in each company.
Cannabis Startups on the Rise
ArcView partnered with CanopyBoulder in order to search for the best marijuana-related business ideas and whip them into shape. “I believe we are looking at an industry that will reach $150 billion a year just in America,” said Steve DeAngelo, co-founder of The ArcView Group. “But there was an unfilled niche and an unfilled need in the market: companies that were investor-ready. We have seen within ArcView that there are a lot of people with really creative ideas, good teams, and good plans, but they are really not prepared to take their early stage ideas to investors.”
CanopyBoulder’s inaugural class attracted participants from all over the world. There’s Holly Alberti-Evans from Colorado, who co-founded Healthy Headie Lifestyle—an in-home direct sales company for cannabis products. She and the rest of her team demonstrate vaporizers to the “canna-curious” in the privacy of their homes.
“We’ve found there is a huge demographic of individuals who are not being taken care of,” Alberti-Evans said on the ArcView investor pitch forum. “They are ‘canna-curious.’ They are looking for that education. They are looking for that information, and they want it in a safe, comfortable environment. And why not do that right in their home?” She eventually won the prize for best company pitch and reached her $500,000 funding goal.
Another participant is Jonathan Ofir from Israel, who conceptualized Leaf—a fully automated hydroponic marijuana growing system controlled via a smartphone app. Because of CanopyBoulder, he now has a full-size working prototype.
There is also Roy Bingham, a British serial entrepreneur but who had no experience in the cannabis industry. Through the CanopyBoulder bootcamp, he was able to develop BDS Analytics, a cannabis-based data analytics company.
Challenges in the Cannabis Startup Scene
Despite the potential of all these startups, none of these companies are involved in the actual production and distribution of marijuana, no thanks to out-of-state restrictions in companies that ‘touch the plant.’ As such, CanopyBoulder is open only to ancillary businesses that are rapidly crowding the marijuana space.
“You can only have so many marijuana jars. You can only have so many marijuana lawyers,” said Jill Lamoureux, a cannabis business consultant from Colorado. “There are so many ancillary businesses trying to get in, it is becoming more competitive than developing actual marijuana products.”
Another challenge is when the big brands start pouring in. “Even if you have a great idea and are able to find enough talent to staff your company, the traditional industry players are not in cannabis yet. What happens when Yelp decides to get into cannabis? If somebody is already the Yelp of cannabis, maybe they get bought out, or maybe they don’t,” mused Bierman.
That is why the time to start a cannabis business is now. “We want to change the world. This is the only time we will have the ability to do that,” said Alberti-Evans.
Unfortunately, a lot of investors are not yet ready to dive into the marijuana industry. “Right now, the regulatory issues are too much,” said Sara Baris, managing director of the crowdfunding investment platform SeedInvest. “It’s just the overarching risk of the federal government changing its mind. We already have so much uncertainty in the equity investment space.”
Despite the presence of marijuana investment funds like Poseidon Asset Management, Dutchess Capital, and Privateer Holdings, these are still miniscule compared to traditional investment sources that have shied away from the cannabis industry so far.
“I think still overwhelmingly the industry is being funded by friends and family,” said Taylor West, deputy director of the National Cannabis Industry Association. “Between banking, the difficulty of building a multistate operation, and the legal gray area on the federal level, there are hurdles to luring investors who don’t have a personal stake.”
The stigma is another consideration as well. “Even with these ancillary businesses, if you are an investor, you are still being tied to something tied to cannabis,” said Dave Harris of the Rockies Venture Club. “I think there is still reluctance to that fact. They are still exposed to this industry that outside of Colorado and Washington state is still considered taboo.”
The rocky beginnings of the marijuana industry are typical of almost any industry that is still in its early years. But in a brand new market like marijuana, one doesn’t need to come up with bold innovations to make a mark. Even the most basic of things can help develop the space, hence opening up a lot of opportunities for big and small players alike. And that will be the allure of the marijuana entrepreneurial space for at least the next couple of years.
What are your thoughts on startups entering the cannabis industry? Voice your opinions in the comments section below – your opinion matters to the nation.