Pubdate: Wed, 18 Nov 2015
Source: Wall Street Journal (US)
Copyright: 2015 Dow Jones & Company, Inc.
Contact:  http://www.wsj.com/
Details: http://www.mapinc.org/media/487
Author: Elizabeth Dwoskin

SILICON VALLEY'S UNLIKELY NEW FRONTIER?

Startups provide legal marijuana farmers and retailers with data-driven tools

Keith McCarty surveyed the sharing economy before he conceived his 
mobile-app startup last year. Uber and Lyft covered rides. GrubHub, 
Munchery, and other apps handled food, and Postmates delivered 
everything else. So Mr. McCarty looked for something just as 
consumable, deliverable, and profitable but not already taken.

He settled on pot.

Technology in the trade generally stops at Microsoft Excel for 
planning and record-keeping. Now it is joining the data revolution.

Mr. McCarty's app, Eaze, connects users of medical marijuana with 
cannabis dispensaries throughout California. Behind the scenes, 
back-end software analyzes buying habits and sends customers an alert 
when it predicts they will run low.

Eaze is one of several tech ventures targeting the roughly 2.5 
million legal marijuana users in the U.S. and their suppliers in the 
26 states where pot is legal. Established companies are hesitant to 
associate themselves with the business, but startups are rushing in. 
Several tech companies are providing marijuana farmers, retailers, 
and customers the kind of data-driven tools that are typical to more 
conventional industries.

Part of the allure is the scope of growth for legal cannabis. This 
year, the size of the market for legal cannabis in the U.S. is 
expected to expand by nearly 86%, on top of a 74% jump to $2.7 
billion in 2014, according to marijuana investment and research firm 
The ArcView Group.

Startups have stepped in to meet the growing needs of the industry. 
While Eaze connects dispensaries with customers, Evergreen Systems 
Inc. and Flowhub LLC help growers optimize factors like planting 
schedule, soil nutrients, and lightbulb replacement. PotBiotics Inc. 
matches medical research with queries from doctors and patients. 
Leafly Holdings Inc., an aspiring Yelp for hemp, harvests customer 
reviews of dispensaries and perceptions of the efficacy of particular 
strains for ailments from bipolar disorder to multiple sclerosis as 
well as desired items such as "Lift your Spirits"  and "Stay Productive."

"In the cannabis industry, there is a lot of people that lose track 
of a lot of things,"  said Nic Hernandez, head grower at La Conte's 
Clone Bar & Dispensary, a legal marijuana outlet in Denver. An app 
from Flowhub helps him keep his operation straight.

Such ventures are springing up from the increasingly permissive 
attitudes. Entrepreneurs say they are emboldened by the federal 
government's disinclination to prosecute businesses in states where 
medical marijuana is legal; legalization of recreational use in 
Washington, Colorado, and Oregon; and a groundswell of public enthusiasm.

Big-data technology offers pot growers, dealers, and customers the 
kind of bird's-eye business perspective that mainstream industries 
have come to depend on. During the first week of legal recreational 
pot use in Oregon, for example, Leafly found that clicks from 
Oregonians over 65 years old rose 835% compared with the previous 
year when pot use was strictly medical. The seniors preferred Blue 
Dream (a cross between Blueberry Indica and Sativa Haze), which is 
described as a treatment for insomnia and eye pain.

"You couldn't collect this information [previously] because all the 
transactions and purchases were conducted in the shadows via an 
illicit market,"  said Brendan Kennedy, a former executive at Silicon 
Valley Bank who is CEO of Privateer Holdings, a private-equity firm 
that owns three pot businesses.

Yet catering to customers is a risky business, especially when pitted 
against government regulations. Despite the wave of legalization 
across many states, the federal government still regards marijuana as 
a controlled substance on par with heroin or LSD. President Obama has 
deferred to the states on regulation, but the next administration may 
not be so tolerant. Moreover, companies that keep their headquarters 
in one state and their data in another risk running of afoul of laws 
that prohibit illegal commerce across state lines.

Investors first ventured into the marijuana industry in 2013 when 
public support for legalization first exceeded 50%, according to the 
Pew Research Center. Peter Thiel's Founders Fund early this year 
became the first high-profile VC firm to fund legal cannabis, with a 
$75 million investment in Privateer. High Times Growth Fund and 
Canopy Boulder also invest in cannabis-focused ventures. AngelList, a 
website where startups can solicit seed funding, lists 300 
marijuana-related startups, double the number from last year.

Whether these companies can defend their turf remains a question. 
Several pot startups replicate functions of business apps that are 
entrenched in other industries. The tech giants that supply the 
existing apps such as International Business Machines Corp., 
Salesforce.com Inc., and Oracle Corp. could step in to cater to the 
rising number of marijuana-related businesses.

So far, though, major business software companies won't touch the 
stuff. An IBM spokeswoman said she wasn't aware of any IBM customers 
in the cannabis industry. A Salesforce spokesman said he was "not 
able to confirm"  whether cannabis companies were already using its 
platform. SAP declined to comment.

"Those larger, stodgier companies aren't always the most 
innovative,"  said McCarty. He should know; he was an early employee 
of Yammer, which was acquired by Microsoft Corp. for $1.2 billion in 
2012. "With startups, we can get in earlier, be agile, and define the 
industry before the incumbents step in,"  Mr. McCarty said.
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MAP posted-by: Jay Bergstrom