“At no time in this office should you ever be intoxicated on any substance.”
That’s not typically part of the opening spiel when welcoming a roomful of budding entrepreneurs to your business boot camp, but then Micah Tapman is not running your typical startup session.
“I know the parties can be a little lively,” Tapman, a partner in the new-business accelerator Canopy Boulder, continued. “But you’re a founder in funding mode.”
Some of the founders in the room were dressed the part in business casual, while others went for the ultra-casual look: ripped jeans and printed T-shirts.
Boot camps where aspiring moguls can hone their business plans, work with mentors, and eventually pitch investors have become a regular phase of startup development. Canopy Boulder, which welcomed its inaugural class of 10 companies in late March, is unique in that all of the nascent companies operate within the legal cannabis industry. It’s one of the latest signs that leaders in this still controversial trade aspire to mainstream legitimacy and the immense wealth that they believe will accompany it.
Housed above a bagel shop in a commercial stretch of this college town, Canopy provides companies with a 13-week course and $20,000 in seed capital in exchange for a 9.5% stake in each venture. It models itself on the accelerator Techstars, a program that has worked with hundreds of companies–more than 90% of which are active or have been acquired.
While voters in four states and Washington, D.C., have chosen to allow recreational marijuana (and 23 states plus D.C. offer medical pot), it remains federally illegal. And even as momentum is firmly on the legalizing side of the ledger, a freak tragedy that implicates the drug or a new presidential administration could derail the industry. But businesses in Colorado are operating under the assumption that national legalization is just a matter of time. Last year, Colorado dispensaries sold almost $700 million worth of medical and recreational marijuana. If the drug is legalized nationwide, Canopy CEO Patrick Rea believes cannabis will be a $37 billion domestic market. (By comparison, coffee is a $30 billion domestic market.)
No one knows when or if cannabis will be made legal federally, but Rea highlighted two upcoming milestones to rally the Canopy crowd in the meantime: California is expected to vote on legalization on election day 2016 or earlier, potentially opening sales to adults in an economy larger than Russia’s. (California already allows medical marijuana.) Secondly, Rea said, when cannabis businesses obtain full access to banking services, startups will see their valuations rise, “because right now no one can finance acquisitions and investments.”
Rea’s background includes investment banking and time in the nutritional and wellness space, which he compares to cannabis. The latter two are underregulated, which he says creates opportunities for businesses with the right mix of boldness and prudence. (Cannabis is regulated in Colorado but not federally, since it is illegal.)
He came up with the idea for Canopy while attending a demo day for the Unreasonable Institute, another Boulder accelerator. Rea wrote the first draft of the business plan on his phone. He met Tapman, and they bonded in “classic Boulder style,” over bike rides and craft beers.
At this moment, the cannabis industry can be split into two broad categories: companies that “touch the plant,” and so-called “ancillary businesses” that do not directly grow, process, test, or retail it. Canopy is only open to the latter, which are less risky and, Rea said, easier to expand.
Legal marijuana was the fastest growing industry in the country last year, but since most large companies won’t associate themselves with the plant, there’s an unusually diverse set of opportunities to develop products and services. According to a common thesis, the most successful small companies will be ripe for acquisition once major companies join the green rush.
The companies attending Canopy reflect the scope of available opportunities, and many of the entrepreneurs have pedigrees that defy the stoner stereotype. One founder left a career in the Marines to start Tradiv, which seeks to be a wholesale, online marketplace for marijuana. He didn’t want to be named here; participating in this industry can still complicate people’s lives. (Canopy partner Tapman is also a former Marine.) Roy Bingham, who has a Harvard MBA and used to work for the blue-chip consultancy McKinsey, leads Business Decision and Data Service, which aims to acquire and sell cannabis market research.
Yoni Ofir, an Israeli-American with a long beard, is developing CannaGrow, an Internet of things grow box for cultivating plants at home, which can be controlled with a smartphone app. (Update: Ofir recently changed the company’s name to Leaf.) He previously cofounded Alcohoot, which developed a breathalyzer that plugs into a smartphone.
Canopy says it received more than 115 applications for this first class. It’s looking to raise $5 million to fund an expansion into San Francisco next year. The companies it selected for Boulder reflect widespread industry hopes that it can expand beyond the core demographic of young male potheads. “One of our guiding themes from an investment point of view is, we see the strongest potential for market expansion [in] what I would call the everyday consumer.” Rea says. “Folks who are parents, folks who are grandparents. We want 35-year-old professional women to be a target demographic for some of our companies.”
Healthy Headie Lifestyle, another Canopy company, hosts in-home vaporizer sales–think Tupperware parties or one-on-one consultations–for customers who aren’t comfortable going to head shops. Cofounder Holly Alberti-Evans says the company is particularly interested in selling to seniors who no longer need to worry about drug tests at work and want alternatives to the prescription drugs they’ve been taking. These customers often “have to call one of their kids to find their medicine.” Healthy Headie, which has hosted a few dozen events in Massachusetts, provides a safe space for questions like, Will using a vaporizer get the dog high?
Damien Williams, who has worked in finance, came to Canopy to nurture Shivanysa, a brand for women that aspires to be the Lululemon of cannabis. Currently, depictions of women in the industry tend to run more towards the underdressed, heavily tattooed women who appear on sites like The Ganja Girls. Williams, a rare person of color in an industry dominated by white males, said he expects the company’s Herbalista kit to include smoking accessories alongside a candle and guidebook “to maybe take it to a deeper level.” It might suggest ways to incorporate cannabis with meditation or yoga.
At Canopy, entrepreneurs are expected to be in the office from 10 a.m. to 2 p.m. at least on workdays, but the tenor of those days changes as the course progresses. April is packed with networking and bonding activities like ski days, hikes, and happy hours, while May will be more of a grind as companies develop their business plans and perfect their pitches.
Two weeks into the program, Sam Campbell, cofounder of Stashlogix, which has created sturdy locking containers for holding weed and paraphernalia, said Canopy had already helped him rethink his business. One mentor “dropped a bomb on me” when he suggested thinking about Dell and Apple. “Dell’s tagline is, We sell cheap computers, and Apple’s is, We sell beautiful products,” Campbell says. “Don’t put the what first, put the why first.”
Stashlogix had been putting the what–its containers–first, and now Campbell says he’s thinking about creating a brand around “Security, peace of mind, safety, and social responsibility.”
Canopy, which has raised $1.2 million from investors, plans to begin its next class in the fall. A tip to prospective applicants: You probably don’t want to approach Canopy with an idea for a new smoking device or vaporizer. “A lot of really interesting bongs and pipes and things like that came across our desks,” Rea recalls. But the market is so saturated that “you really have to have some truly unique evolution of that product to be competitive.”
On Canopy’s opening day, each company gave its pitch to the group and sat for a talk by Nick Hofmeister, a serial entrepreneur who mentors TechStars companies. Other mentors include lawyers, investors, and prominent cannabis entrepreneurs, as well as figures from Boulder’s vibrant startup scene.
“Cannabis is a terribly interesting space, and I don’t come at it as a user,” Hofmeister tells Fast Company. “But I find it a fascinating industry, because it’s one of the only cases where there is a market that’s $50 billion but the legal market is only $2.7 [billion]. So you know the market demand is out there, and you know there’s going to be a massive expansion of regulatory support for it. What does it look like to create an industry not from scratch, but from legal scratch?”
Before the opening-night party started, Steve DeAngelo, one of the most prominent cannabis activists and entrepreneurs in the country, spoke to the group. DeAngelo, who wears his long hair in two braids, topped with a trademark fedora, envisions a day when cannabis has a place in every medicine cabinet as a remedy for minor ailments like insomnia, and becomes a standard treatment in nursing homes.
When this happens, he predicts that domestic sales will rocket past $150 billion. “I’m not after the alcoholic beverage market, I’m after the health-care market,” he says.
During his talk, DeAngelo balances a healthy respect for profit with a sense of social responsibility. He says that the cannabis industry needs to become “a new kind of industry” that treads lightly on the environment and pays workers a living wage.
And then, getting into the sweet spot of his ideas, he hits on a thought that future Canopy applicants would do well to consider: “If, 20 years from now, we turn around and look over our shoulders, and all we’ve done is make big piles of money, we will have blown it.”