Cannabis Law Prof Blog

Editor: Franklin G. Snyder
Texas A&M University
School of Law

Saturday, October 20, 2018

Canopy Growth CEO predicts legal banking for cannabis companies by Christmas

Weed-bank

Weed businesses may soon be able to bank legally in the United States, according to the prediction of the CEO of Canopy Growth, Bruce Linton.

This would mean cannabis business owners would no longer have to rely on cash-only business models or cryptocurrencies like Bitcoin, and would be able to get loans far more conveniently. 

The prediction apparently came from a conference for cannabis businesses, according to the Forbes article by contributor Sara Brittany Somerset.

Somerset explained in the article that Linton's prediction was due to a sequence of events indicating that established structures may support legal cannabis banking. 

Linton expressed confidence that since his cannabis company infiltrated the New York Stock Exchange –although they were not allowed to ring or even touch the opening bell– that banking will naturally follow suit.

Linton elucidates that being listed on the exchange validates the company's adherence to anti-money laundering rules, which in turn meant that about a month ago, Bank of America could lend Constellation Brands Inc. -the company behind Corona beer -about CAD five million to give to him. Canopy Growth's game-changing deal with the producers of Corona has more than doubled the pot producer's stock price. Linton, however, attributes Canopy's sky-high valuation to the global medical marijuana market. 

Either way, Linton is confident that this sequence of events provides enough "momentum and weight to cause the banking conundrum to be resolved soon."

The CEO also used the conference to talk about a "port-a-potty theory" involving the impacts of locally sourced resources, according to Somerset's article. 

Linton admits he is "nuts about" his port-a-potty theory, and views it as the cornerstone of local economic stimulation. He insists it creates a snowball effect. "We have almost two thousand employees and they all know what the rules are about renting port-a-potties locally," he insists.

His theory is if he wants to hire Ph.D.s in a local town, he has to purchase port-a-potties for his construction sites locally, so that the port-a-potty vendor will take his new-found extra income and go out for dinner more often, which will, in turn, create better restaurants, then the local car dealerships will improve. Next, the houses will transition, so that when his Ph.D. hires begin to work there, they won't say, “God, what an awful town."

The article's writer seemed unimpressed with other aspects of Linton's speech, such as a "white-washed, non-diversified video commercial for Canopy Growth" and the reaction to his "gentrification ideals" being "stunned, stony silence from the audience and incredulous side-eye from the few Jamaicans in attendance." 

As for Linton's prediction of legal banking by Christmas, only time will tell whether it proves accurate. 

-- Alex Bennett

October 20, 2018 in Banking, Business, Finance, News, Stocks | Permalink | Comments (1)

Weed Is Legal in Canada, But Is There Enough of It?

The move to legalize cannabis in Canada comes into effect on October 17th, but it is estimated that suppliers will not have enough weed to meet demand.

While a recent survey conducted by Statistics Canada shows that the number of Canadian cannabis users is not expected to rise significantly, Statistics Canada's National Cannabis Survey, 3rd quarter 2018, reveals that some 4.6 million Canadians or 15% of the population has used cannabis just in the past 3 months. 

Montana-marijuana-CannabisNow-620x400

According to MetroUK: Researchers from the University of Waterloo and the C.D. Howe Institute say suppliers will only be able to fulfill between 30-60% of demand. According to them, the legal cannabis supply is expected to be around 210 tonnes while total demand in the country will be about 610 tonnes.

One of the main reasons for the lack of cannabis is that the Canadian government seems to be dragging its feet in granting licenses to suppliers. This could cause quite a loss, as MetroUK reports: "[This] means the government will be losing out on an estimated $774,000,000 (£454,000,000) in tax revenues."

 

--Taylor Allan

 

 

 

October 20, 2018 in Business, Finance, International Regulation, News, Taxation | Permalink | Comments (0)

The Canadian Marijuana Experiment

On October 17 Canada became the second country to legalize marijuana allowing Canadians to grow, possess, and consume marijuana recreationally. Canada expects the legalization of recreational marijuana to boost their economy, but the laws surrounding marijuana are left up to each province's experimentation. Inquirer.net reports: Canada experiment

... legalization is expected to boost the Canadian economy, generating $816 million to $1.1 billion in the fourth quarter without taking into account the black market, which is expected to account for a quarter of all joints smoked in Canada, according to Statistics Canada.

A $400 million tax revenue windfall is forecast as a result, with the provinces, municipalities and federal government all getting a slice.

In total, Statistics Canada says 5.4 million Canadians will buy cannabis in legal dispensaries in 2018, about 15 percent of the population. 4.9 million already smoke.

Inquirer.net states that by legalizing marijuana, the Canadian federal government overturns the marijuana ban that had been in place since 1923. The federal government left the task of creating laws to regulate legal marijuana up to the individual provinces. Hence, the world gets to sit back and watch to see which province's experimental regulations work the best. The article further reports:

Several [provinces] have already said they will not fully implement the law.

For example, even though federal law will permit each household to grow up to four cannabis plants, central Manitoba and Quebec in the east say they will ban it and go all the way to the Supreme Court over the matter.

Like with alcohol and tobacco, the question of legal age also falls to the provinces. Nineteen seems to be the standard, but it is 18 in Alberta, while Quebec, whose new government will enter office the day after legalization, wants to raise the age to 21.

With regards to sales, some provinces such as Quebec will implement a public monopoly while others, including Ontario and Nova Scotia, have decided to trust the market to the private sector.

As for law enforcement, federal police will be ordered to abstain for 28 days before working, as will police in Toronto.

Officers in Montreal, however, are simply asked to not show up to work high.

Another issue for the provinces to mull over is open consumption, with Montreal deciding to impose the same rules as those for tobacco, while people in other provinces will have to light up at home.

Legalizing marijuana clearly leads to many new problems, but with each province able to conduct their own experiment concerning the laws surrounding legalization, perhaps these experiments will lead to a structure the rest of the world can implement when moving towards a greener future.

--Wyatt Hinson

October 20, 2018 in Commercial Law, Decriminalization, Federal Regulation, Finance, Law Enforcement, Legislation, Local Regulation, News, Recreational Marijuana | Permalink | Comments (0)

Sunday, October 14, 2018

Investment firm Merida invests $50 million in cannabis related companies

Cannabis-Investing

A Manhattan based investment firm, Merida, has invested $50 million in 17 companies related to cannabis in less than two years. According to a Forbes article by contributor Julie Weed, the firm's owner Mitch Baruchowitz says his company invests in the "boring" parts of the cannabis industry. 

That includes any technology or equipment related to cannabis that gets widely used like laboratory testing services, compliance and data collection software, production equipment, and packaging. “There is a lot of traction in lab testing,” Baruchowitz said for example, “because it’s part of the supply chain, so everyone needs it and you can’t get around it.”

Weed writes that Baruchowitz's methods for choosing companies to invest in include analysis of company management and potential for growth. 

The first question is always: how big can sales get? “We look for products that have large potential markets,” Baruchowitz said. “We don’t want a small brand or niche product that might not grow at the rate the market grows.” The national market is expanding “so we want something that will grow along with overall industry increases.”

The article also mentions that family wealth offices are starting to invest in cannabis as a higher growth, higher risk investment. 

The stock prices of some of the companies have risen after Baruchowitz's investment, such as KushCo Holdings and GrowGeneration

Stock prices of the publicly traded KushCo Holdings and GrowGeneration are both up from their launch. KushCo launch January 2016 at $2 per share and has recently been trading at over $5 per hare. GrowGeneration launched in November 2016 and ended its first day of trading at $2.30. It recently traded at $5.30. Most of the investment and return information is not shared because the company is privately held.

This article seems to demonstrate that the growth of the cannabis industry is not limited to just distributors and dispensaries.

Companies in charge of packaging, research, and compliance validation are also part of this, and may continue to grow along with the rest of the market.

-- Alex Bennett

October 14, 2018 in Business, Finance, Research, Stocks | Permalink | Comments (0)

Florida Department of Health Just Approved the State's First Online Medical Cannabis Shopping Portal

I Aaan an era where nearly everything can be purchased online,  Liberty Health Sciences Inc. and Alternate Heath Corp. paired up to created FlorPass--Florida's first approved e-commerce for medical cannabis. According to a recent article by Yahoo! Finance, FlorPass is transforming how patients shop for their cannabis products. 

"As the only medical cannabis e-commerce system approved by the Florida Department of Health, we have established an innovative model with the ability to capture the statewide market for digital cannabis transactions," says Dr. Michael Murphy, Chairman and CEO of Alternate Health. 

Currently, the FlorPass online portal is available to certified patients in St. Petersburg and Tampa. But there are plans to expand to additional locations before the end of this month.

"This is not only a functional way to do transactions, FlorPass will help us grow our business by building better relationships with our patients and enhance overall patient satisfaction. We will continue to invest in state-of-the-art technology to support the development of our products and remain committed to providing guidance and continued care throughout the entire patient experience," said George Scorsis , CEO of Liberty Health Sciences.

In 2017, the FlorPass Electronic Medical Records platform launched in clinics and doctor's offices throughout Florida. FlorPass received strong support from the American Medical Marijuana Physicians Association (AMMPA) which allowed Alternate Health to rapidly onboard new physicians, clinics and patients. FlorPass currently has over 7,500 patients registered in their system.

The strong support from large players in the medical cannabis industry coupled with the convenience factor of having products available to patients online could mean a shift in the way we see other companies approach sales. 

--Gabrielle Rennie

October 14, 2018 in Business, Finance, Local Regulation, News | Permalink | Comments (0)

Friday, October 12, 2018

Budding Industries: How Cryptocurrency Might Solve The Cash-Only Cannabis Problem

Marijuana-Blockchain-1-890x480Where traditional efforts to comply with financial and logistical regulations have failed, blockchain industrialists believe that cryptocurrency could solve the "cash-only" cannabis problem by reducing the amount of capital moving through the system in the form of cash and increasing the efficiency, security, and predictability of payments.

Although some form of cannabis is legal in thirty of the fifty states, it remains classified as a Schedule I narcotic under the Controlled Substances Act (CSA) and is illegal on a federal level; therefore, it is impossible for cannabis businesses to get bank accounts from federally chartered banks. As a result, policy, as it currently stands, forces cannabis companies to operate on an all-cash basis. Despite $10 billion worth of sales transactions occurring within the cannabis industry last year, anyone involved in the business operation is susceptible to federal prosecution and left with limited financial service options.

For context, in mid-June, the Senate Appropriations Committee moved to block an amendment that would have allowed cannabis businesses to store their profits in financial institutions. Forbes reporter, Tom Angell provided insight of the Senate bill:

In a 21 - 10 vote, the Senate Appropriations Committee tabled an amendment on Thursday that would have shielded financial institutions that open accounts for cannabis businesses that are complying with state laws from being punished by federal regulatory authorities.

Moreover, just a week earlier the House Appropriations Committee voted to reject a similar proposal, also reported by Angell:

A powerful congressional committee voted on Wednesday to reject a measure to protect banks that open accounts for marijuana businesses from being punished by federal financial regulators. Supporters then scrambled to craft a more limited measure focused on medical cannabis businesses, but it was ultimately withdrawn before a vote could take place.

 

The broader measure would have prevented the U.S. Department of Treasury from taking any action to "penalize a financial institution solely because the institution provides financial services to an entity that is a manufacturer, producer, or a person that participates in any business or organized activity that involves handling marijuana or marijuana products" in accordance with state or local law.

The restrictive regulatory system leaves cannabis businesses open to organized crime like money laundering, theft, and cheating on payroll and taxes; however, there is speculation that cryptocurrency can ease these pains. Nick Meyers of The Phoenix New Times describes the premise of cryptocurrency in his article, Weed Money: Cryptocurrency May Be Key to Unlocking Bank Vaults for Cannabis Industry:

The basic idea of cryptocurrency is that it’s decentralized money, acting as both a currency and a transaction system.

. . .

Unlike official currencies such as the dollar, euro, or yen, no government authority tracks how much cryptocurrency is in circulation or who’s using it. Instead, these all-digital currencies use a process called blockchain.

 

The easiest way to think of a blockchain is as an electronic ledger that gets updated with each transaction. 

 

Every time someone makes a cryptocurrency transaction, that data, along with all previous transactions in the chain, gets stored in a new block.

 

The kicker is that blockchains are secure by design. Because transaction information gets stored in every new block, it’s difficult to tamper with or alter that data without compromising its authenticity.

In addition to solving the "cash-only" problem, the emerging blockchain industry can provide support regarding helping cannabis companies "meet regulatory requirements by offering immutable records showing the source of each plant in a harvest, where it is processed, how it is shipped and where it is distributed," as reported by John McMahon of News BTC

Moe Asnani, owner of Downtown Dispensary and D2 in Tucson, also stated that "anti-money-laundering laws are some of the biggest hurdles to legitimate cannabusiness banking, and having the verifiable ledger stored in high-security blockchains would demonstrate the market's legitimacy."

Asnani and McMahon's sentiment is shared amongst other cannabis and blockchain experts who say that blockchain platforms create transparency in the cannabis supply chain, and various cryptocurrencies, like HempCoin and ParagonCoin, are taking proactive approaches to solve the cash dilemma. 

Both cannabis and cryptocurrency are budding industries, and their similar challenges create the opportunity for joint growth; as cryptocurrency provides transparency to the cannabis business and marijuana operators can supply a stable customer base for the use of cryptocurrencies, perhaps this partnership will be the future of finance in the cannabis industry.

(For those unfamiliar with blockchain, Forbes and BlockGeeks are accessible resources.)

-- Gianna Redeemer

October 12, 2018 in Banking, Business, Commercial Law, Federal Regulation, Finance, News | Permalink | Comments (0)

Saturday, September 29, 2018

SEC Charges a Texas-based Investment Fund with Fraud, Warning About Marijuana-Related Investments

ShipchandlerRetail investors have officially been warned about marijuana-related securities offerings according to a press release recently issued by the Securities and Exchange Commission (the "SEC"). A Texas-based investment fund and its founder allegedly exploited investor interest in the marijuana industry by lying about high returns, and has been charged with "defrauding investors with false promises of massive returns in cannabis-related businesses."

Even though the investment fund was based in Texas, the fraudulent activity was widespread. In the complaint, the SEC alleges that, from August 2017 through at least March 2018, the investment fund and its founder "orchestrated an unregistered securities offering fraud that victimized more than 60 investors across 26 states." The founder promised massive returns, but actually misappropriated more than $3.3 million of investor funds for designer clothes, luxury cars, and payments to earlier investors to prolong the fraud scheme.

The press release quoted Shamoil T. Shipchandler, Director of the SEC's Fort Worth Regional Office, stating that "Investors must remain vigilant and not let the fear of missing out dupe them into making bad investment decisions." In an effort to warn potential scam victims, the SEC's Office of Investor Education and Advocacy (OIEA) and Retail Strategy Task Force (RSTF) issued an alert for investors earlier this month which stated that "[S]cam artists often exploit 'hot' industries to trick investors, including by making false promises of high returns with low risks. The OIEA and RSTF are warning investors about these kinds of investment schemes involving marijuana-related companies." The SEC's alert further provides:

"OIEA regularly receives complaints about marijuana-related investments, and the SEC continues to bring enforcement actions in this area. If you are thinking about investing in a marijuana-related company, you should beware of the risks of investment fraud and market manipulation. Fraudsters may try to use media coverage about the legalization of marijuana to promote an investment scam."

Although the victims may have believed in promises of high returns on their investments, in reality, the fund "had no track record and its sole investment of $400,000 was in a cannabis company that had yet to harvest a crop," according to the SEC press release. The complaint alleged that the investment fund and founder misrepresented that the fund "had a management team with a ten-year track record of profitably investing more than $100 million in cannabis-related businesses; (2) provided outsized returns to more than 200 investors; and (3) investors could expect a 24% annual return." 

Those who are interested in investing in a cannabis-related business should heed the SEC's advice to "ask questions and understand the risks involved. Carefully research the investment and read any recent reports that the company has filed with the SEC." Company reports can be found by searching the SEC's Electronic Data Gathering, Analysis, and Retrieval System (also known as EDGAR).

--Kindal Wetuski

September 29, 2018 in Business, Federal Regulation, Finance, Law Enforcement, News | Permalink | Comments (0)

Thursday, September 27, 2018

Will Canada's New Cannabis Laws Create a New Border Problem?

With Canada legalizing adult-use marijuana, effective October 17, 2018, it is expected that Canadian citizens will partake in this new industry, either through consumption or investment means. While the substance may be legal in Canada, and a few U.S. states that border Canada, crossing the border could become difficult. 

CC

In an interview with The Star Vancouver, Len Sanders, a Washington based immigration attorney, explained how the federally controlled U.S.-Canada border has begun to classify those in the marijuana industry as "drug traffickers." He went on to say that this enforcement applies to people involved with the actual plant, such as growers, users, and dispensary owners, to people who have either directly invested or their investment will be used in the cannabis industry. He mentions how the CEO and two employees of Keirton Inc. (a large agriculture equipment manufacturer)  were stopped at the border and moved to a secondary location only to be told that they were banned for life from entering the United States. Keirton Inc. was not the only group to face this punishment. In an interview with the Financial Post, Sam Zneimar was banned for life simply for investing in U.S. based marijuana companies. 

 In this current administration, U.S. citizens have seen a big push for more enforcement at our Southern border and a new wave of keeping America "safe". But will the same hold true on the other side of the country? In both interviews the offending party expressed sympathy for the poor border patrol agent that was made to enforce this law. These articles both mention a civil interaction between a "drug trafficker" and a border patrol agent and an unfortunate outcome. The U.S. has yet to tweet about the "drug traffickers" that are attempting to get into the U.S. through Northern points of Entry. 

 --Loren D. Elkins

 

With the legalization efforts coming out of Mexico, it should be interesting to see how those investors will be greeted at the border.                         

September 27, 2018 in Business, Drug Policy, Federal Regulation, Finance, International Regulation, Law Enforcement, Politics | Permalink | Comments (0)

Saturday, September 22, 2018

Massachusetts Cannabis Cash Finds a Home at Federal Credit Union

It's no secret that recreational marijuana is a cash cow, but until recently, retailers have had no piggy bank in which to deposit all their earnings. However, thanks to the efforts of Gardner Federal Credit Union, marijuana dispensaries in Massachusetts may have found a home for their earnings. The Boston Business Journal has the story:

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The bank said Friday afternoon that it would begin banking for the industry, working with Safe Harbor Services, a
wholly-owned affiliate of Partner Colorado Credit Union that is the leader in compliance-based cannabis banking services.

 

“As a credit union committed to helping people and serving the underserved, we found in Safe Harbor a partner who offered a viable and proven compliant-based cannabis banking option and a way to keep our communities safe. Our board of directors recognizes the need to provide banking services for the safety of our citizens in reducing the ‘cash on the streets’ and I applaud them for their vision and commitment to providing public safety," said GFA Federal Credit Union’s CEO, Tina Sbrega.

Banking has long been a thorn in the side of recreational marijuana retailers. Because marijuana is still illegal at the federal level, if a bank were to accept funds derived from marijuana sales, that would constitute money laundering. The resulting friction between state legalization and federal drug policy has created an business ecosystem where cash is king. Colorado marijuana entrepreneur Babak Behzadzadeh told The New York Times: "If we had bank accounts, it'd be much easier."

Safe Harbor Services began helping local banks and credit unions in Colorado accept marijuana money in 2014, serving a vital–and very profitable–role in the cannabis industry. The company has expanded its reach outside of Colorado, now offering its services to credit unions like Gardner Credit Union in Massachusetts. The company is able to help its customers deposit their cannabis profits "legally" by ensuring that none of the money is derived from activities specifically prohibited by the Cole memorandum, and that the banks who accepted cannabis cash were careful about what they did with it–specifically ensuring that it did not migrate outside of states in which marijuana was legal. However, with the recent rescission of the Cole memorandum by Attorney General Jeff Sessions, it is not clear that Safe Harbor will be able to continue offering their services to financial institutions. 

Polls show that the majority of Americans favor legalization of marijuana, and 30 states have legalized the drug in some form. With this increasing momentum in favor of legalization, states have expressed an interest in allowing banks to accept money derived from marijuana sales in order to quell threats of violence and robbery to marijuana businesses, who generally carry large amounts of cash on hand. Whether the current administration will crack down on organizations like Safe Harbor and their partners like Gardner Credit Union in Massachusetts remains to be seen, but something will have to be done with all of the cash currently being generated by the marijuana industry.

 -John Robinson

September 22, 2018 in Banking, Business, Commercial Law, Decriminalization, Drug Policy, Federal Regulation, Finance, Law Enforcement, Local Regulation, Medical Marijuana, News, Recreational Marijuana, State Regulation | Permalink | Comments (0)

Wednesday, October 18, 2017

Does the Legalization of Marijuana Actually Increase Property Values?

Despite worries that an increase in dispensaries would decrease the value of the homes nearby, there seems
 to be an opposite effect.
Reporting on a recently released study by researchers at University of Wisconsin Madison and California State University Sacramento, Colorado Springs Independent revealed that the prices of homes in Denver increased in 2014 after Colorado’s Amendment 64 was passed, which legalized recreational marijuana: Home Prices

In particular, the report found that single-family residences within .1 mile[s] of [recreational dispensaries that were newly converted from medical dispensaries] increased in value by over 8 percent more relative to comparable properties farther away (between .1 and .25 mile away) over that year. That’s an average of almost $27,000 in added value, whereas homes more than .1 mile away from a [dispensary] weren’t impacted.

Although great news for Denver, and possibly an incentive for legalization in other states that are debating on whether to legalize the drug, researchers also caution that that the increase in property values could also be due to other factors such as “a surge in housing demand spurred by marijuana-related employment growth, lower crime rates, and additional amenities locat[ed] in close proximity to retail conversions.” Nonetheless, all of these changes were related, at least in part, to Colorado’s legalization of recreational marijuana.

These findings are in stark opposition to concerns voiced by opponents of legalizing marijuana, who have constantly cited increasing crime rates and decreasing property values as an anticipated result of legalization. And while the study was fairly small, another study in 2016 by researchers at the University of Mississippi found similar, positive results. The study found that in municipalities that passed ordinances to allow for the sale of marijuana in response to Colorado’s legalization of recreational marijuana in 2012, those municipalities experienced a 6% increase in housing values on average. Both studies even went as far as to consider retail dispensaries as amenities that could be included in the estimation of property values.

With the increase in the number of states legalizing both medical and recreational marijuana, we will soon be able to determine whether the effect of increasing property values is a trend among these states or only a stroke of luck for Colorado.

--Taylor Wood

October 18, 2017 in Finance, Medical Marijuana, Recreational Marijuana, Research | Permalink | Comments (0)

Saturday, September 16, 2017

Hawaii Dispensaries to Go Cashless

CanPay

Although Hawaii has struggled to legalize marijuana for adult use, it is ahead of the game when it comes to paying for medical marijuana. According to KATU, this week Hawaii announced that its dispensaries would start using the mobile debit app, CanPay, as a payment method for purchasing marijuana. 

In an effort to prevent robberies and other crimes targeting dispensaries, state leaders announced Tuesday that a cashless payment system will be implemented in October.

"This cash-free solution makes sense," said Hawaii Gov. David Ige. "It makes dispensaries' finances transparent."

The implementation of this method of payment will address a persistent concern coming from those opposed to marijuana legalization: safety. 

A cashless system would reduce, if not eliminate, the desirability of robbing marijuana dispensaries. The app is one method of payment, which can help to reduce the amount of cash on site at any given time. It should be noted, however, that although opponents of legalizing marijuana claim the presence of dispensaries increases crime, several other studies, like those reported in Civilized, The Cannifornian, and NY Daily News, have actually found the opposite.

While Hawaii has not gone completely cashless, it is unclear whether they will do so in the future. However, it may be preferable to use both payment methods in conjunction with one another. A mixed payment system could serve the needs of those who prefer to use cash due to information safety and privacy concerns, while also reducing the overall amount of cash kept in the retail shop throughout the day.

Furthermore, the CanPay payment app ensures that only legally compliant transactions are made using the app. According to CanPay, because it uses a Closed-Banking Feedback Loop, "only cannabis retailers working with financial institutions operating compliance programs built around the Cole Memo and FinCEN Guidance will be allowed to participate in the CanPay network." This compliance guarantee feature gives retailers a sense of financial security when deciding whether to accept the app as a payment method at their stores. 

CanPay is also currently available in Oregon, Washington, California, Colorado, Florida, and Maine.

 

--Taylor Wood

September 16, 2017 in Banking, Business, Finance | Permalink | Comments (0)

Saturday, September 9, 2017

Silicon Valley's Cash Crop

Marijuana Test Tube

Many industries have seen rapid changes in response to evolving marijuana laws. Next in line seems to be the technology sector. According to an article on the STAT medical site, venture firms and wealthy private investors in Silicon Valley are pumping money into the development of marijuana products--and not just for medicine.

VC firm Benchmark Capital recently invested $8 million in Hound Labs, a startup here in Oakland that’s developing a device for drivers — and law enforcement — to test whether they’re too buzzed to take the wheel.

 

And that’s just the start. Wealthy investors are pouring tens of millions into the cannabis industry in a bid to capitalize on the gold rush that’s expected when California legalizes recreational marijuana on Jan. 1. They’re backing development of new medicinal products, such as cannabis-infused skin patches; new methods for vaporizing and inhaling; and “budtender” apps like PotBot, which promises to scour 750 strains of cannabis and use lab research, including DNA analysis of each strain, to help customers find the perfect match.

Investors, in anticipation of a large increase in marijuana consumption due to the legalization of recreational marijuana on January 1st, have been rolling the dice and investing in products that incorporate the federally prohibited drug. But, as with all things, on the other end of the potentially lucrative rewards are great risks: civil and criminal liability under the Controlled Substances Act.

However, this risk is precisely what has given some of these investors the ability to step in. Because many public companies are prohibited from investing in marijuana, either contractually or by other federal law, private investors, though numerous, largely have first pick of which startups to invest in. Only time will tell if the decision to invest in the drug was a wise one.

-- Taylor Wood

September 9, 2017 in Business, Finance, Research | Permalink | Comments (0)

Sunday, March 1, 2015

Treasure Trove of Data Released by CO Department of Revenue

The Colorado Department of Revenue issued its first annual report on the performance of the regulated marijuana industry this past Friday — encompassing both the medical marijuana and adult retail markets.  Colorado was the first state in the US, and the first government in the world, to implement a regulatory system including both consumers and those who provide to them.

This report and those that follow will no doubt be the subject of a considerable amount of analysis (and spin) by both sides in the debate, particularly as more states consider similar laws.  

March 1, 2015 in Business, Drug Policy, Finance, Medical Marijuana, Recreational Marijuana, State Regulation | Permalink | Comments (0)

Wednesday, December 17, 2014

Silicon Valley VC Makes Big Bet on Marijuana

Big-time venture capital money may be headed to the fledgling marijuana industry.  Business Insider is reporting that Peter Thiel's $2 billion Founders Fund is set to take a stake in the $75 million offering by Seattle-based Privateer Holdings, parent of Leafly and the proposed Marley Natural brand marijuana:

    Thiel's Founders Fund is likely participating in a large round of financing in a cannabis startup, Privateer. The company is raising a $75 million Series B round at a $425 million pre-money valuation, according to documents obtained by Business Insider. If Founders Fund participates in the round however, it may invest at a lower valuation. The round hasn't closed yet, so those numbers are subject to change. 

    Privateer was founded in 2011 and is positioning itself to be the leader in the weed supply chain, which the company says in its current state is fragmented, poorly managed, and largely run underground, despite "proven demand."

    Privateer quietly bought up another startup in the space, Leafly, which is like Yelp for weed products. In 2013, Privateer launched Lafitte Ventures, which focuses on medical marijuana, and Tilray, which mails medical weed to users and generated nearly $200,000 in revenue last year. Privateer is also exploring a testing facility (Arbormain) in Washington state. The founders may launch their own weed-focused investment fund, too, so Privateer can pour money into external cannabis companies.

    Medical marijuana is available in at least 22 states as well as Washington, D.C. Privateer estimates the US weed market could be a $20 billion to $50 billion opportunity. Privateer hopes to be the leader across everything from growing and processing various strains of marijuana to supplying and shipping it. It also plans to get into the accessory business, selling devices like pipes and vaporizers to users.

    Privateer is already generating meaningful revenue, although the company is not profitable. In 2014 it expects to generate nearly $11 million in net revenue, up from $1.2 million in 2013. Most of that revenue (60% to 70%) is generated by Lafitte Ventures, and the rest is from Leafly. Privateer expects to reach profitability and generate $111 million in 2015 and $440 million in 2016. 

It's a natural fit, I think.  Unike alcohol and tobacco companies, with their heavy emphasis on production and marketing, Privateer looks to be following a Silicon Valley model.  It's founded and run by Yale MBAs with significant experience in the high-tech and financial sectors.

Thiel is something of a legend in the VC world.  He was the first outside investor in Facebook, and ranked number four on Forbes's 2014 "Midas List" of the world's top tech investors.

December 17, 2014 in Business, Finance | Permalink | Comments (0)