Over the past few years, Leafly CEO Brendan Kennedy has told potential investors that marijuana legalization is both inevitable and much closer than people realize. He refers to a “Berlin Wall” of marijuana prohibition that’s waiting to be taken down.

With Washington (I-502) and Colorado (Amendment 64) becoming the first two states to legalize marijuana yesterday, that deconstruction has officially begun.

“The Berlin Wall of cannabis prohibition began to crumble last night,” Kennedy said Wednesday. “The time for Leafly and Privateer Holdings is now.”

We wrote about Leafly last week, profiling the innovative Seattle-based startup that is essentially a hybrid of Yelp and Consumer Reports for medical marijuana patients. But after Tuesday’s historic vote, we wanted to reconnect with the company.

Here’s what Kennedy had to say.

Leafly management team: Michael Blue, Brendan Kennedy and Christian Groh.

GeekWire: First off, what’s your reaction to yesterday’s ballot results with marijuana implications? 

Kennedy: Yesterday’s ballot results went exactly as we expected. While developing our investment thesis, we meticulously analyzed everything about this industry on a daily basis for the past three years. We were in Colorado a few weeks ago and knew that Amendment 64 would pass there. We knew that I- 502 in Washington would be approved. We also believed the voters of Massachusetts’ would approve Question 3. The only surprise for us was Issue 5 in Arkansas being within 25,000 votes (49% For and 49% Against). Arkansas could have been won with a small amount of additional capital donated to the campaign.

Over the last two years, we have received many looks of disbelief when we have told people that we are past the tipping point and cannabis prohibition was going to start to end in November 2012. We have learned that being out ahead of the curve is much harder than we thought, but having the results turn out just as we predicted feels pretty darn good.

GW: How does the legalization of marijuana affect Leafly’s future?  

Kennedy: Legalization of marijuana will make many of Leafly’s operations easier. Even though Leafly does not prescribe, grow, ship, sell or distribute any medical cannabis, we have faced many difficulties over the last two years.

Easy, simple tasks for any other startup or PE firm — such as picking a bank, lawyer, accountant, auditor, PR firm, and marketing firm — were herculean efforts for us because of the complexities related to being in the medical cannabis industry.

Leafly sorts medical marijuana strains based on medical use and effects to the body.

Big tobacco, alcohol, and pharma ache to get into the cannabis market, but public company regulations and public relations effectively bar their participation. Venture capital firms and private equity firms would love to invest in this space, but they can’t. As a private company solely targeting this industry, we do not face their constraints.

Last night will also help us close our current investment round. The individuals and family offices that have made investments with us have been great. Interest over the last week has spiked significantly.

GW: Did you think something like this would happen (legalization) when you first started 
thinking about Leafly?

Kennedy: Since we first began researching the medical cannabis industry we have believed that cannabis re-legalization is inevitable. When we first started thinking about Privateer Holdings and Leafly we were very mindful of three oft-repeated rules about investing: (1) Don’t invest in art. (2) Don’t invest in restaurants. (3) Don’t invest in anything where success requires political change. We devised Leafly’s strategy so that we could succeed with the continual expansion of legal medical cannabis beyond the current 18 states and D.C. The medical cannabis industry was $1.7 billion in 2011 and is projected to expand to $8.9 billion by 2016. More and more states (like Massachusetts) are going to enact medical cannabis laws. Patients in these states will need sites like Leafly and the other companies that we are building.

Users can review different strains on Leafly.

The fact that the voters in Washington and Colorado voted to terminate the failed 75 year experiment of cannabis prohibition sends a message to the Federal government. We believe that other states will follow. On December 6th, cannabis will be legal under Washington state law. Cannabis is Washington state’s #2 crop (after apples) at $1.2 billion. Leafly is a Washington state corporation because we predicted that these events would occur. We built Leafly to focus on the medical cannabis market, but yesterday’s results will open up additional opportunities for us in Washington and Colorado.

GW: How do these new laws affect the industry as a whole?

Kennedy: We believe the new laws will result in more interest in the medical cannabis industry. Medical cannabis is an industry that has been fragmented, immature, and unprofessionally managed. The current market suffers from poor public perception, a lack of standardization, and no institutional investors.

Leafly is available both for iOS and Android devices.

Despite these issues, even before the legalization measures in WA and CO passed, the market has been expanding rapidly and is conservatively estimated at $18-40 billion. The market is in desperate need of professionalism, solid infrastructure, and consolidation, which is what we have sought to do with Privateer Holdings and Leafly. We will continue to build out Leafly, make additional acquisitions, and build new companies.

Although we predicted legalization would come, I feel like there is a lot more pressure on us in the business community. We have a moral responsibility to the activists, lawyers, sponsors and campaigners who fought for I-502 and A-64. It is our turn now. Business is the best form of political activism. The next two years are critical because for this experiment in re-legalization to succeed, we need to ensure that this industry is a responsible and professional business community.

The new laws legalizing marijuana will also create jobs. Over the last week as people realized that the ballot measures were going to pass, we have seen a steady increase in new paid account signups, overall traffic, and investor interest in Leafly. We have been predicting the approval of these ballot measures for the last two years, but the last 12 hours has been hectic and we feel slightly shorthanded. This morning, our engineers added a few additional servers to effectively manage the additional web traffic, but we are going to need to hire some additional employees. I-502 is about to create its first jobs in Washington state right here at Leafly.

Previously on GeekWire: Leafly: Like Yelp and Consumer Reports … for medical marijuana

Comments

  • joewallin

    Let’s hope the new Obama administration allows these laws to proceed. http://reason.com/blog/2012/11/07/dea-responds-to-legal-weed-in-colorado-a

    • http://twitter.com/toddhooper Todd Hooper

      The DEA is ‘concerned with people who are using it as a pretext to become large-scale drug dealers’?

      That doesn’t really cover the case where it’s the State of Washington doing the dealing! 2013 is going to be very interesting.

      • joewallin

        I hope that the federal government let’s us be free!

  • http://www.facebook.com/profile.php?id=94500172 Kyle Kesterson

    I’m assuming that the 9 redundant mentions of “we knew it was going to pass” is just them being excited to tell everyone “I told you so”, and not just short-term memory loss…

  • masso

    MMJ will be consolidated to big Pharma due to dosage clarity and insurance coverage requirements.

    • nero

      MMJ business will join the big pharma.

      It will be driven by patients pushing for insurance coverage needing big pharma involvement.

      Huge alcohol and tobacco, coffee companies are poised to get into Recreational MJ business.

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