|
 Now, he begins his day in a small Toronto office, building a
cannabis brand that sells fancy smoking accessories such as
vaporizers and bongs that cost up to $335 CAD ($261.72 USD).
Gertner is among a growing group of entrepreneurs and investors who
are trading in high-paid corporate jobs in the technology and
finance sectors to launch start-ups focused on the fast-growing
marijuana industry.
Two decades after the first legalization of medical marijuana by a
U.S. state, pot-based businesses are professionalizing their
operations by luring top talent from other industries and billions
of dollars in investments from Wall Street firms. A new commodity
index even offers data on the going rates for greenhouse and
field-grown weed.
Gertner still gets surprised reactions to his career change, as when
his mother asked: "Can't you just get another job at Google?"
And yet he's raised $10 million in capital in ten months as the
chief executive of Toyko Smoke, despite the continuing taboos and
legal risks in the industry.
The legal cannabis market, currently worth about $8 billion, is
predicted to triple in size to $22.6 billion in total annual sales
by 2021, according to cannabis industry tracker, Arcview Market
Research. That could make it bigger than the America's most
profitable sports organization, the National Football League, which
saw about $13 billion in revenue last year and aims to reach $25
billion by 2027.
So far in 2017, there have been at least 27 investments by venture
capital funds in cannabis companies, compared with just 10 deals in
2016 and 9 deals in 2015, according to venture capital data provider
CB Insights.
The influx of capital helps finance the paychecks of 150,000 workers
in the legal U.S. pot industry, representing job growth of 20
percent from a year ago, according to an estimate from the cannabis
website Leafly, a marketing firm for dispensaries and other cannabis
firms.
Eric Eslao, founder of Defonce Chocolatier - which makes artisanal
cannabis-infused chocolates costing $20 a bar - was a senior
production manager at Apple just over a year ago. He feared the
stigma of joining the weed industry, but it didn't stop him.
"The opportunity was too good not to make the jump," he said.
LEGAL RISKS, CHALLENGES
Thirty states have legalized marijuana for recreational or medical
use, but possession and sale is still banned at the federal level.
(For a map detailing marijuana laws in U.S. states, see:
http://tmsnrt.rs/2AFalvZ)
The administration of President Donald Trump has sent mixed signals
on its enforcement policy. Attorney General Jeff Sessions has vowed
to crack down on the pot trade in states with legalization laws, but
Trump has extended a ban on using federal funds to interfere with
the industry through the end of this year.
Americans increasingly support marijuana legalization, according to
the Reuters/Ipsos opinion poll. The number of adults who believe it
"should be legal" to possess small amounts of marijuana rose to 54
percent in a poll conducted between Oct. 27 and Nov. 10, up from 41
percent in a similar poll in 2012.
Still, the specter of federal enforcement makes it difficult for
cannabis-related firms to get banking services. Many continue to
deal in cash or pay hefty fees for accounts.
The banks that work with cannabis-related firms are mostly community
institutions in states where the industry is legalized, and their
service is limited to accepting cash deposits.
Cannabis investment is still dominated by wealthy individuals, but
that is changing as the industry grows, attracting venture
capitalist and equity investors who until recently were reluctant to
finance cannabis firms.
They are drawn by a wide-open landscape of opportunity, said Eric
Hippeau, managing partner at Lerer Hippeau Ventures, a New
York-based venture capital firm well-known for its investments in
high-profile media startups such as Twitter Inc and Buzzfeed.
"It's an industry that is starting from scratch with no
infrastructure," Hippeau said. "There are many promising
cannabis-related software startups that are able to easily raise
money."
[to top of second column] |
Some of these startups provide seed-to-sale cannabis tracking system
software and inventory management. Hippeau Ventures earlier this
year joined a $3 million funding round for LeafLink, a
business-to-business platform that provides a market for dispensary
owners to buy inventory.
Other prominent venture firms that have warmed to cannabis include
Founders Fund, started by PayPal co-founder Peter Thiel, which has
invested in Privateer Holdings, a cannabis private equity firm.
Prominent Silicon Valley venture capitalists 500 Startups, DCM
Ventures, along with New York-based Great Oaks Venture Capital, have
all backed Eaze, a medical marijuana delivery app that allows
patients to order cannabis on demand.
"The stigma is slowly going away, and you are seeing some real
talent, in terms of technology entrepreneurs and quality engineers,"
said Kyle Lui, a principal at DCM Ventures.
Investors who have taken the initial plunge into the quasi-legal
marketplace seem eager to take on more exposure, said Jim Patterson,
CEO of Eaze, a three-year old company has raised $51.5 million in
five rounds from more than a dozen investors.
Such firms believe its "a good time to double down," Patterson said.
RISK MANAGEMENT
Some investors have steered toward technology and support services,
which carry less legal risk than cultivating or selling the weed
itself.
These include dating apps for cannabis users such as High There and
My420Mate, as well as WeGrow, an educational app that teaches people
how to grow cannabis. HelloMD is an online platform connecting
doctors and cannabis patients.
Among the signs the market is maturing is the development of
information services that collect data on trading of cannabis and
publish guideline prices. Similar services are common across
commodity markets - from oil and gas to corn and cotton - and are
used by industry participants as price benchmarks.
New Leaf Data Services LLC, a Stamford, Connecticut-based start-up,
published its first assessment of U.S. cannabis prices about two
years ago. Newleaf compiles information gathered from cultivators
and dispensaries, transaction data from market participants and data
from vendors and associations.
Investors can also follow the value of marijuana firms through stock
market indexes such as the Horizons Marijuana Life Sciences Index
ETF, which tracks the performance of a selection of publicly listed
cannabis companies in North America.
The value of the index is up about 70 percent over the last three
months, thanks to star performers such as Canopy Growth Corp, a
producer and retailer of medical cannabis products - up 112 percent
for the year - and Aphria Inc, a cannabis producer, up 132 percent
this year. "The cannabis business is really about risk arbitrage.
There are chances of a higher return because the risk is high,"
Patterson said. "Investors get that."
The long-term risk may be lower, however, as a growing number of
Americans express support for marijuana legalization and the
industry creates jobs and tax revenues.
U.S. residents also seem increasingly aware of the futility in
preventing illegal marijuana use, said Ian Laird, a lawyer and
co-founder of New Leaf.
"The evolution or rollback of prohibition is inevitable," he said.
"It's not like it stopped anyone from getting it."
(Additional reporting by Chris Kahn and Saqib Iqbal Ahmed; Editing
by Simon Webb and Brian Thevenot)
[© 2017 Thomson Reuters. All rights
reserved.] Copyright 2017 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
