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Patrick Rea: Well, you often don't get an opportunity to be part of the birth of an industry in your career. And you know, it was in my backyard, so we had to leap at it and we did. My partner Mark and I went all in. And that was not a decision that was made lightly—we spent over a year doing our own research on the industry and trying to understand the dynamics and players before we really sat down and did something.What are some of your favorite startups that Canopy has worked with?
We like Compliant Cannabis, they're a seed-to-sale inventory management software company. They're a young bunch of guys, coming from Fortune 500. They were in our fall class. Another company that we really like is Ganja Boxes, it's a subscription box of accessories like Dollar Shave Club.So Canopy is just focused on weed-related products?
We don't just work with new players in the cannabis industry, but also the hemp industry as well. In the hemp industry, there's no really good data on how big the market is, how fast it's growing, and there's not really any conferences or trade shows around that space. So, we found a seed investor in the hemp industry who was struggling with that, he couldn't tell what was going on so he couldn't make smart investment decisions.So we said, let's start a media company that is all about hemp business intelligence and has a conference and trade show. So that's Common Home Media, and they have Hemp Business Journal, Hemp Business Summit, and Hemp Business Expo. And that's really hot right now. There's already hemp in the door of your Mercedes Benz, it adds rigidity and sound dampening. Growth within the hemp industry is already happening, but no one really knew how big it was or how fast it was growing, who the major players were, or what were the strategic issues. Sean Murphy of Common Home Media is tackling that issue.
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We build a network of over a hundred mentors and advisors from inside and outside the industry. These are growers, dispensary owners, bud tenders, consultants, as well as lawyers, accountants, designers, and branding experts. The idea is to have resources for the companies for whatever they need—so you can get them in touch with the right people who will help them work through their problems.We also say, look, these are the documents that need to be viewed as investment-ready. We work with entrepreneurs to get that due diligence packet prepared and the business plan super pressure tested with the market; we help them get traction in the market where we can. Then we produce a demo day, connect them with investors, and do our best to help them raise money.You've worked with entrepreneurs and startups in many different industries. Do you find that cannabis-industry startups have a different attitude or energy?
Yeah, this is a social movement that we're a part of. A lot of the entrepreneurs have goals beyond just being successful from a business standpoint. They believe in one or many or all of the advocacy tenets, whether it's racial discrimination or profiling, judicial reform, access to medicine for patients… or they've had their own personal experiences with the plant that gives them the right in their mind to be part of this.
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Oh yeah, there certainly could be. And that's something that we have to deal with. I don't think it makes sense from our standpoint to put two competitive teams together in a class when there are so many opportunities that lack strong competition in the cannabis industry. So we take a portfolio approach—we try to put the class of ten companies together in ways that we'll see synergy between the teams.What's been the success rate of companies from the accelerator thus far?
I don't have the exact numbers right now, but what I can say is that in aggregate, the companies that have come through our accelerator have a total valuation of around 40 million dollars—and our oldest investments are six months old. So we've seen an enormous amount of investor interest in these companies.
What are some of the biggest challenges that cannabis-related entrepreneurs face?I was talking to an investor yesterday who said he was burnt out and tired of meeting with "stoners in suits." And that's what we try to avoid. — Patrick Rea, founder of Canopy
Well, if you're going to join the cannabis industry you need to understand the industry. And the industry is not simple. It is complicated—there are different regulations and laws, state-by-state. You have essentially 23 states where there is some form of legalization. And you have to understand how the industry is developing and what the expectations are for the future. You need to become a bit of a regulatory expert, and that's a lot to handle as an entrepreneur.
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We're looking at a couple milestones in the industry where we expect to see more acquisition activity. One is the changing of banking regulations for cannabis-related businesses. When that happens, banks will be able to loan to cannabis-related businesses—when that happens, investments and acquisitions will be able to be financed, which will increase valuations across the board.The second milestone that we're looking at is legalization of marijuana for adult use in California. Remember that's the largest state in the nation, 38 million people, I think the eighth largest economy in the world. That legalization bill which will be on the ballot in 2016, backed by Sean Parker of Napster and Facebook fame, is going to pass and that will be another milestone.And then you have federal legalization. The timeline for that is yet to be determined but I will say that the legalization movement is moving faster than most everyone expected. Right now, 58% of Americans are in favor of legalization. It's following the same trajectory as gay marriage.
It's certainly an issue in the industry. I was talking to an investor yesterday who said he was burnt out and tired of meeting with "stoners in suits." And that's what we try to avoid. We're really looking for intelligent, driven, diligent entrepreneurs with low egos who are open to suggestion and help and advice, who are going to be successful no matter what.We spend a lot of time trying to vet entrepreneurs to make sure they're not "stoners in suits." People like that just don't raise money. That being said, we don't have any bias towards people who consume cannabis. Cannabis has a horrible stigma around it. There are a lot of very famous, very successful people who have consumed cannabis and they're hyper-intelligent and you would get behind them in a second. We don't hold that against anyone… that would be wrong.Follow Zach on Twitter