Pubdate: Fri, 22 Jul 2016
Source: Los Angeles Times (CA)
Copyright: 2016 Los Angeles Times
Contact:  http://www.latimes.com/
Details: http://www.mapinc.org/media/248
Author: Jennifer Van Grove

CANNABIS TECHNOLOGY ACCELERATOR OPENS IN CALIFORNIA

As Californians consider whether to legalize recreational marijuana 
use, a few 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 include 
topics as diverse as water conservation tools, more optimal 
packaging, payroll software and analytics.

Canopy San Diego said it is launching now because it believes that 
the state's legal marijuana market is already 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 each saw $215 million to $1 billion in sales last year.

Legalization, Kagia said, "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 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 chief executive 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 accelerator is being modeled after a similar venture in Colorado, 
where the sale of recreational marijuana was legalized in 2014. 
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. Participants are supplied with $20,000 to 
$30,000 in seed money, office space and access to dozens of industry 
mentors. In exchange, Canopy takes an equity stake of 6% to 9.5% in 
the businesses. At the end of the boot camp, the three best 
businesses, as determined by the program leaders, are to 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 about two 
years ago and graduated 19 start-ups in its first year, including 
Solana Beach e-commerce company Tradiv. The San Diego chapter will 
keep close ties with the Boulder program so graduates will also have 
access to Boulder's partner, the Arcview Group, a 500-plus-person 
investor network focused on the cannabis industry.

Tradiv co-founder Geoff Doran said he's glad his company swapped a 
9.5% stake for the chance to participate in the Boulder program: "Not 
a day goes by when I think it was the wrong decision."

He and Tradiv 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% of the state's licensed cannabis businesses as 
registered users, Doran said.

The start-up is preparing to launch in California.
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MAP posted-by: Jay Bergstrom