Pubdate: Thu, 20 Jul 2017
Source: Globe and Mail (Canada)
Copyright: 2017 The Globe and Mail Company
Author: Mark Rendell
Page: B6


Toronto-based HERB plans to pivot from online publication to marijuana
marketplace amid 'the biggest shakeup' since prohibition

With recreational marijuana legal in eight U.S. states and
legalization only a year away in Canada, a Toronto-based startup has
its sights set on dominating the global cannabis media market and
becoming the central marketplace for buying weed online. However, the
lack of legal clarity around marijuana advertising and online sales
means the company's business model isn't a sure thing.

HERB, an online publication focused on cannabis culture, has expanded
rapidly over the past two years. Since being acquired and rebranded in
2015 by Toronto entrepreneur Matt Gray, the website has grown from
100,000 unique monthly visitors to more than five million. HERB's
videos - which range from industry news to segments on how to roll the
perfect joint - are viewed around 250 million times a month, according
to the company, and its social media following rivals established
online media outlets such as HuffPost and Vice.

At only 27 years old, Mr. Gray, co-founder and former chief executive
of coding academy Bitmaker, has already seen success in the startup
world, having sold Bitmaker to U.S. education company General
Assembly. Since completing a round of fundraising in March, HERB has
doubled its staff to 15 full-time employees and around 15 contract

The rapid expansion has attracted investment from such people as
Harley Finkelstein, chief operating officer of Shopify, and Eric
Hippeau, former CEO of The Huffington Post and co-founder of media
company NowThis News.

"The legal cannabis market is expanding really rapidly. I've seen some
numbers that say it will be as high as a $20-billion market within a
stretch of two years. So in that respect, a market like that deserves
a big media company," said Mr. Hippeau, whose venture-capital fund -
Lerer Hippeau Ventures - is one of HERB's main investors, and who acts
as an adviser to Mr. Gray.

"This is a market where all the brands are brand new… so all of these
brands have to establish themselves, they have to communicate their
message, so advertising is going to be the best and most efficient way
to do so," Mr. Hippeau added.

HERB currently makes most of its revenue off native advertising -
product placement in videos and branded content paid for by companies
in, or related to, the cannabis industry. In September, the company is
relaunching the website and entering the next phase of an ambitious
business plan that aims to transform the media company into an online
marketplace for marijuana.

To start, HERB plans to sell paid listings to companies in the
industry. "Once you have this database of all this cannabis
information, you have all these dispensaries listed, and deliveries,
and products and strains, it's simply a matter of putting 'Buy Now'
buttons on all of this stuff," Mr. Gray said.

Within three years, he envisions generating most of HERB's revenue
through online sales, taking a percentage cut of transactions between
buyers and listed dispensaries, and organizing the logistics around

"The largest cannabis company in the world won't touch the plant, and
won't grow cannabis. It's going to be a technology company that
facilitates the logistics and delivery of cannabis," Mr. Gray said.

The model will likely differ from one jurisdiction to another, he
admitted. And there are still many legal unknowns, as the regulatory
landscape in both the United States and Canada undergoes a seismic

In the United States, HERB's largest market, "marijuana remains a
Schedule 1 controlled substance under federal law," explained Garrett
Graff, an associate attorney with Colorado-based Hoban Law Group,
which focuses on the cannabis industry. "An online presence can very
quickly lead to a determination that someone is operating across many
states and thus has implications with respect to federal law."

Online advertising, even in the eight states that have legalized
marijuana use for adults, remains complicated and relatively
restrictive. In Colorado, for example, marijuana advertisers can't
promote their products across state lines and they have to show that
at least 70 per cent of their audience is over the age of 21. Online
sales remain illegal in all states.

"You could reserve an order online, subject to going into the store,
picking it up and having to satisfy all the identification scrutiny
that is required," Mr. Graff said.

The situation in Canada is similarly restrictive, and it's likely to
remain so even after legalization, expected in 2018, said Alan Young,
a professor at Osgoode Hall Law School and expert on marijuana regulation.

"Regardless of what the provinces do … they're going to have to comply
with the Cannabis Act, which is only really going to allow
distributors and producers to give informational brochures, without a
high degree of promotion or testimonial."

Things may change over time, however. "The model to look at is how we
legalized gambling in the late eighties and had huge restrictions on
advertising," Mr. Young said. "Now, there's advertising everywhere.
Every day I see a Casino Rama advertisement on television."

Whether or not Mr. Gray's online marketplace model is able to operate
as planned, investors such as Mr. Hippeau and Mr. Finkelstein see
promise in the size and engagement of HERB's online community.

"I'm less concerned with how eventually they figure what their final
revenue model is going to be, and I'm far more interested in the fact
that you have a very strong team with an incredible leader, going
through probably the biggest shakeup in any industry since prohibition
90 years ago," Mr. Finkelstein said.

"It reminded me of the story when Rolling Stone Magazine came onto the
scene," Mr. Finkelstein added. "Prior to Rolling Stone, you had a
bunch of these very small, scrappy publications that talked about the
music industry. It was only when Rolling Stone came about that they
sort of professionalized the publishing of content around the music
industry, and I very much believe what Rolling Stone did for the music
industry, is what HERB is doing for the cannabis industry."
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MAP posted-by: Matt