8/16/2019 The US potential of pot: from legalising to monetising | Financial Times

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ShannonBond APRIL21,2015

Inthe19thcentury,Americanprospectorsheadedwesttomaketheirfortunesmininggold.Today,fromCaliforniaandColoradotoNewYorkandMassachusetts,USstatesareseeinga“greenrush”asentrepreneursandinvestorsstaketheirclaimsinthelegalmarijuanamarket.

Legalsalesofcannabisformedicalpurposesand“recreational”consumptionintheUSgrewabout75percentin2014to$2.7bn,accordingtoArcView,aninvestornetwork.Medicalmarijuanaislegalin23statesandtheDistrictofColumbia.Colorado,Washington,Oregon,AlaskaandtheDistrictofColumbiapermitsomerecreationalusebyadults.

Whilemarijuanaremainsillegalunderfederallaw,ArcViewpredictssaleswillreach$10.8bnby2019asmorestatesendprohibition.“It’samassiveopportunity,”saysBrendanKennedy,chiefexecutiveandco-founderofPrivateerHoldings,aSeattle-basedprivateequityfundfocusedoncannabis.“It’sthefirsttimeanyoneinourlifetimeisseeinga$40bn-50bnindustrytransitionfromillicittolegal.”

Likethegoldrush,thepotboomisluringpeoplehopingtogetrichquick.Manyventuresfizzleout,butsomeentrepreneurssaytheyareworkingtobuildbusinesseswithglobalambitionsandwinningthebackingofventurecapitalistsandSiliconValleybillionaires.PeterThiel’sFoundersFund,whichinvestedinFacebookandSpotify,waspartofPrivateer’slatest$75mfundinground.Itmarkedthepotindustry’slargestprivatecapitalraisingtodate.

Innovation

TheUSpotentialofpot:fromlegalisingtomonetising

Aslegalsalesofcannabisforconsumptiongrow,entrepreneurstestthemarket’spotential

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“Thisisthetimetotrytobuildbusinesses,”saysLeslieBocskor,aninvestmentbankerinLasVegaswhoisspearheadingeffortstodevelopwhatadvocatessayisthenextbigconsumersector.Hisfirm,ElectrumPartners,israising$25mforitsowncannabisinvestmentfund:“Weshouldhaveanexemplaryindustrythat’srunbyprofessionalsaswetransitionfromtheblackmarkettothewhitemarket.”

TerraTech:WallStreettoweed

In2010,amidfalloutfromthefinancialcrisis,DerekPetersonleftMorganStanleytostartGrowOpTechnology,acompanysellinghydroponicequipmenttomarijuanagrowersinCalifornia.ThecompanybecameTerraTechandhetookitpublicin2012.Sharestradeoverthecounterratherthanonanexchange,andthecompanyhasexpandedintomedicalmarijuanacultivationanddispensaries.Itposted$7.1minrevenueanda$21.9mnetlossin2014.

Latelastyear,TerraTechbecamethefirstcompanytowinapprovalfromtheUSSecuritiesandExchangeCommissiontousethemoneyitraisesonthestockmarkettocultivateandsellmarijuana.ItissettingupdispensariesinNevadaandapplyingforlicencestooperateinNewYork’snewmedicalmarket,followingthestate’slegalisationofsomemedicalcannabislastyear.MrPetersoniseyeingFlorida,wherethelegislatureisconsideringamedicallegalisationbill.

“It’salandgrabrightnowtogetpermitstooperatemedicalmarijuanafacilitiesaroundthecountry,”hesays.“Ifwehavepenetrationinthebiggestmarkets,whenfederalprohibitiongoesaway,we’llbewellpositionedforgeographicdispersionaroundthecountry.”

DerekPeterson

LikePrivateer,whichpartneredwithBobMarley’sestateonalineofproductsbearingthereggaesinger’sname,TerraTechwantstobuildbrandstowincustomerloyalty.ItrecentlylaunchedIVXX,alineofcannabisproductsincludingjoints,oilsandplants.

Butevenasmorestatespermitthesaleofitsproductsandpublicsupportformarijuanalegalisationswells,TerraTechanditspeersfacebighurdles.BanksremainwaryofhandlingmoneyfromcompaniesinvolvedwithadrugthatfederallawstillclassifiesasacontrolledsubstancealongsideheroinandLSD.“Welostour[bank]account,”MrPetersonsays.“Wepayoursalestaxincash.That’saconcern.Itinvitesmoneylaundering,theft,acriminalelement.”

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HighThere:cannabisconnections

Cannabisalreadyhasarichsubculture.ToddMitchemthinkscannabisneedsasocialnetwork.Twomonthsago,theentrepreneurfromDenverlaunchedHighThere,asmartphoneapptoconnectmarijuanausers.Ithasbeendubbed“Tinderforpotsmokers”,afterthedatingapp,butMrMitchemsayshisaimistomakeiteasierforcannabisuserstofindlike-mindedfriendsaswellaspotentialromanticconnections.“It’salsoforpeoplelikemymom,whoisatwo-timecancersurvivor,whousedmarijuanamedicinally,andwhodidn’thaveanyonetotalktoaboutit,”hesays.

TheappwasinitiallyonlyavailabletoconsumersinUSstateswheremarijuanaconsumptionislegal.ButHighThererecentlywonapprovalfromAppleandGoogle’sAndroidappstorestogoglobal.

HighThereisasmartphoneappthataimstoconnectmarijuanausers

MrMitchemhasfundedthecompanywithabout$300,000ofhisownmoneyandasmallinvestmentfromafriend,butisinthemiddleofraisingafirstfundingroundfromoutsideinvestors.Heisnostrangerto“cannabusiness”,havingworkedatOpenVape,whichmakesmarijuanavaporisers.

InColorado,hewasinvolvedwiththeindustry’seffortstoworkoutregulationswhenpotbecamelegallastyear.Thatexperienceprovedusefulwhenlobbyingthetechcompaniestogethisappbroadlyapproved.

“Theacceptanceofcannabisisevolvingquickly,”hesays.“Theideathatpeoplecannowseekoutothercannabisusersisbecomingmoremainstream.Buttheindustryisgoingtohavetogetreallysharpaboutconsumersafety,productquality,interactionwithlawenforcement.Theyhavetostartbehavinglikegrown-upcompanies.”

PotBotics:researchandrobotics

FatherandsonBorisandDavidGoldsteinsawthebeneficialeffectsofmedicalmarijuanawiththeirowneyes.In2011,DavidGoldstein’sgrandmotherbegantreatmentforcancer,butthepainmedicationdiminishedherqualityoflife.Thenshetriedpainreliefusingcannabidiol,oneofthe

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maincomponentsincannabis.Hesays:“Shecouldgetupinthemorningratherthanbeingbedridden.”

MrGoldstein,acollegegraduateworkinginmarketing,andhisfather,anexpertinartificialintelligenceandrobotics,wantedtoknowwhythecannabistreatmentworked.

“Wewanttoquantifysomeoftheclaimsbeingmadeinthemedicalmarket,”hesays.

In2013theyfoundedPotBotics,basedinPaloAltoinCaliforniaandNewYork.Theyhaveraisedabout$2mfromfriendsandfamily.Thecompany,whichhasnotyetgeneratedrevenue,willlaunchitsfirstproductthisyear:PotBot,avirtual“budtender”—theindustry’stermforworkersatdispensarieswhosellcannabisandeducatecustomers.

MedicalpatientscanusethePotBotappontheirsmartphones,computersorin-storekioskstoanswerquestionsaboutailmentsandsymptoms.PotBotwillrecommendtherightkindofcannabinoid,whatstrainsofmarijuanahavetheappropriatelevelsandhowbesttoconsumeit,whetherbyvaporising,eatingorusingaskincreamoroil.

“Ourgoalistoaddtransparencytotheindustry,”DavidGoldsteinsays.“Wehopetobepioneers.Asstatesseethehardscientificresearch,theirargumentsagainstitbeingamedicinewillbedrawnintoquestion.”

PotBoticsisalsoworkingonBrainBot,awirelesselectroencephalographyhelmetthatdoctorswouldusetoseehowpatients’brainsareaffectedbyusingmarijuana.Athirdareaofinterestisagriculture.PotBoticsplanstodeveloptechnologytoreadplantDNAthatgrowerscanusetoimprovetheiryields.

“Ourinvestorshavealong-termvision.Wearetryingtocreateacompanythatispositionedasatechnologicalinnovatorforthemedicalcannabiscommunity,”saysDavidGoldstein.

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