Want weed? Welcome to Seattle.
Tuesday is opening day for Washington’s first recreational marijuana shops. Yep, that’s right — anyone 21 years and older can purchase a product that has been illegal across America for decades.
Having passed I-502 in November 2012, Washington will become the second state after Colorado to regulate and oversee licensed growers and marijuana shop owners. It’s a unique time and some have compared it to a gold rush — a reasonable analogy given how much demand is expected.
So what does this mean for techies and startups?
With the amount of money involved in the nascent industry — Colorado could see more than $40 million in marijuana-related tax revenue this year — there appears to be ample opportunity for entrepreneurs with new business ideas.
“There are huge, huge possibilities,” said Mike Looney, co-founder of Denver-based marijuana co-working space Green Labs. “We’re just beginning to see the ecosystem develop.”
Looney, who also founded an NYC-based Alt-Space, opened Green Labs on June 1 and is already hosting startups ranging from a CRM company to a lawyer that works with clients in the industry.
But Looney noted that since marijuana is still illegal under federal law, there is lots of ambiguity and gray area for entrepreneurs hoping to start a bud-related business. For example, larger national banks are hesitant to take on customers involved in the marijuana industry.
However, as Leafly co-founder Cy Scott explained, entrepreneurs will likely have more options as the industry matures.
“Although it may be tough now, I’m certain that more local financial institutions will recognize the opportunity and support the industry soon,” he said.
Scott, whose Leafly app helps marijuana users learn about and review different strains, organized the first-ever Cannabis Tech Meetup in Seattle last week. The event brought together several entrepreneurs, in addition to recruiters, lawyers and consultants who were looking to help out those in the industry.
There were a number of Seattle-based founders already working on their own startups. For example, Paul Gambill’s The Happy Crate uses a Birchbox membership model and sends people boxes every two months with activities to do, things to eat and books to read while high. Then there was LiveLabels, a company started by Microsoft vet Tom Lindeman that shows people exactly what they’ll feel depending on what strain they are using.
Red Russak, who helped Scott organize the meetup, said that there are also other services taking the models of established companies like Yelp, Uber and Modbox, and tailoring them towards cannabis. But while there is huge opportunity, he said, there are still cultural and societal hurdles to overcome.
“There’s a lot of room for innovation, but the cannabis folk are very cautious,” he said. “There is still this black market view of the industry and it’s up to the entrepreneurs to make a positive name for themselves and the industry overall.”
Though there are a lot of unanswered questions, that’s actually a good thing for entrepreneurs, Scott said.
“The market is wide open with no one really knowing where it will go, making it the perfect climate for entrepreneurs particular in tech to come innovate, improve and optimize around the industry,” he said. “The tech community in the Seattle-area is particularly strong as well, which is why I think the marriage of cannabis and technology will thrive in Washington even more so than Colorado.”
And while entrepreneurs become more involved in the marijuana industry, investors are beginning to show more interest, too. That’s according to Brendan Kennedy, co-founder of a Seattle-based private equity holding company called Privateer Holdings that has acquired four marijuana-related companies in the past four years, including Leafly.
While Privateer has raised $22 million and is set to reel in an additional $50 million, it wasn’t always easy attracting investor attention. The reason was simple: Investors were wary of putting money behind a company that was involved in the marijuana industry.
It took Privateer 18 months to raise its first $7 million, funding that Kennedy — a former COO at Silicon Valley Bank — said was the most difficult he’s ever raised.
But investor perception has changed drastically since then.
“The startup space in the cannabis industry is exploding both in size and sophistication,” he said.
Kennedy, who co-founded Privateer with Christian Groh and Michael Blue, also noted how entrepreneurs in the pot business are also stepping up their game.
“Both Christian and I come from an investment banking background in Silicon Valley where startup competition is fierce and we were used to seeing very advanced pitches,” he said. “The cannabis industry hasn’t quite made it to that level yet, but there’s been a huge improvement since we first came into the cannabis space and I expect that trend to continue.”
That’s a similar sentiment shared by Troy Dayton, CEO of an angel investor network called The Arcview Group that is made up of nearly 300 high net-worth individuals who have invested more than $11 million in 14 different marijuana-related companies in the past 18 months.
Dayton said that these angels not only see the marijuana industry as a lucrative place to invest, but want to be a part of history.
“The investors notice that this could be the next great American industry and are looking to make money,” he said. “But they are also looking at this as an impact investment. Many want to see the day when not a single adult is punished for marijuana and they see investing in this industry as a way to make that happen.”