Pubdate: Thu, 21 Jul 2016
Source: San Diego Union Tribune (CA)
Copyright: 2016 Union-Tribune Publishing Co.
Contact:  http://www.utsandiego.com/
Details: http://www.mapinc.org/media/386
Note: Seldom prints LTEs from outside it's circulation area.
Author: Jennifer Van Grove

CANOPY AIMS TO CAPITALIZE ON POT INDUSTRY GROWTH

While Californians consider legalizing recreational pot use, a few 
San Diego entrepreneurs are already casting their vote in favor of 
the state's cannabis industry.

The group, called Canopy San Diego, is accepting applications for its 
pot-themed technology accelerator, a first for Southern California. 
The concept is to find and fund early-stage companies with ideas that 
can assist the state's dispensaries and growers. That could range 
from water conservation tools to more optimal packaging; payroll 
software to analytics.

Canopy San Diego said it is launching now because it believes the 
state's legal marijuana market is already sufficiently large enough 
to support new businesses. With sales projected to reach $2.7 billion 
this year, California is the largest medical marijuana market in the 
nation. And, if residents vote in favor of recreational use in 
November, the state's cannabis industry is expected to swell exponentially.

"California is about the size of the rest of the legal markets 
combined," said John Kagia, executive vice president of data 
analytics at New Frontier, which researches the industry. The next 
largest legal markets are Colorado, Washington, Oregon and Arizona, 
which generated between $215 million and $1 billion in sales last year.

"The opportunity presented by legalization in California cannot be 
overstated. ... (As technologists) transition to the cannabis 
industry, that represents a significant opportunity to dramatically 
advance the technological sophistication of an industry that, because 
of illegality, has not been able to capitalize on the same type of 
innovation that has advanced most other sectors."

There is one important caveat to the accelerator. Canopy San Diego is 
bypassing the risks associated with funding anyone dealing directly 
with plants, which means it won't accept startups that actually 
cultivate or sell weed. That means consumer-centric, on-demand pot 
apps need not apply.

"The problem with delivery is that it could very easily be legislated 
into a niche market or legislated into no market at all," said Eric 
Gomez, founder and CEO of Canopy San Diego. "We have zero control 
over that. So, the risk is too high for us to want to add that to our 
portfolio."

The new accelerator is being modeled after a similar venture in 
Boulder, Colo., a state where recreational use was legalized in late 
2013. Canopy San Diego expects to accept 10 young companies into its 
inaugural program this September, and repeat the cycle three times 
over the next two years. Program executives are in the process of 
raising $3.4 million, currently from local angel investors, to 
finance a total of 40 portfolio companies.

"The program is designed with the objective of taking entrepreneurs 
with great business ideas and turning those ideas into structured and 
polished business models that can then be presented to investors and 
other strategic partners," Gomez said.

Each 16-week cohort is designed as a crash-course for would-be 
cannabis entrepreneurs who are just getting started. Participants are 
supplied with between $20,000 and $30,000 in seed money, office space 
and access to dozens of industry mentors. In exchange, Canopy takes 
between a 6 percent and 9.5 percent equity stake in the potentially 
budding businesses. At the end of the boot camp, the three best 
businesses, as determined by the program leaders, will receive an 
additional $50,000 in financing.

"We are really looking for the right team," said Jack Scatizzi, the 
accelerator's managing director. "We're investing in founders; smart 
founders that are passionate about the cannabis space."

Canopy San Diego's muse, Canopy Boulder got its start around two 
years ago and graduated 19 startups in its first year of existence, 
including Solana Beach e-commerce company Tradiv. The San Diego 
chapter will keep close ties with the Boulder program so graduates 
here will also have access to Boulder's partner, The Arcview Group, a 
500-plus-person investor network focused on the cannabis industry.

"Not a day goes by when I think it was the wrong decision to (give up 
a 9.5 percent equity stake)," said Greg Doran, co-founder of Tradiv.

The Canopy Boulder alumnus and his co-founder Aeron Sullivan took a 
$20,000 seed investment to jump start an online platform where 
growers list products and dispensaries buy goods. Live for less than 
a year in Colorado, Tradiv counts roughly 35 percent of the state's 
licensed cannabis businesses as registered users, Doran said.

This week, the startup is prepping to launch in its home state of 
California, and has, thus far, raised $4 million in financing. Plus, 
it's grown its headcount from two people to nearly 30 who are spread 
across its Denver and Solana Beach offices.

"Our business is a hard play. We're creating something kind of new 
here," Doran said. "It was really beneficial for us to take advantage 
of Canopy Boulder. It's been an important part of our history."

San Diego applicants shouldn't expect to replicate Tradiv's quick 
accession. Realistically, three or four companies from each Canopy 
tranche won't ever see the light of day. But that won't be because 
they're venturing into an socially unacceptable industry, Gomez said.

"As far as the stigma aspect, that is probably the one thing that is 
changing the fastest," he said. "That doesn't concern me whatsoever. 
The social change is happening so quickly."
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MAP posted-by: Jay Bergstrom