California Marijuana Start-Ups, Shut Out From Banks, Turn to Private Backing

Two years ago, Ben Larson and Carter Laren co-founded Gateway, an accelerator in Oakland that has helped expand 19 cannabis-related start-ups specializing in a wide variety of business activities, including payment solutions, cannabis products aimed at seniors, agricultural technology and hemp-based plastics.

When the pair started, medical marijuana had been legal for two decades, but Gateway found many companies’ business practices were still “not far departed from those of the black market,” Mr. Larson said. With legal adult use in sight, the industry is making a rapid transition to more sophisticated, transparent and mainstream business practices, he said.

Gateway now offers $50,000 in exchange for 5 percent of a company’s ownership, and brings the management team of start-ups into its offices for about six months to work with experts, mentors and potential investors. Applicants present their business plans and answer questions on legal issues, trends and the competitive landscape. Mr. Larson sometimes assigns homework, asking founders to conduct customer interviews and do market research.

Entrepreneurs bring a wide variety of ideas because the industry is just forming. For example, new apps, sensors and machinery help control growing conditions, save energy and reduce labor costs in greenhouses.

Even “the boring areas” of the marijuana industry offer terrific opportunities, said Mr. Larson, because growers are currently spread too thin. The same company might be cloning plants, harvesting crops, selling to dispensaries and making deliveries. “There may be eight different steps in their value chain that could be specialized” and contracted out, he said.

Increasing brand recognition for products and retailers is another major opportunity for start-ups. “There’s no Starbucks or Nordstrom’s yet — names that mean things to people,” Mr. Larson said.

One of Gateway’s graduates is Carrie Tice, the founder of Octavia Wellness. She quit her job at a technology company in 2015 when her mother became ill, and now sells cannabis as tinctures, salves and in other forms to seniors looking for alternatives to opioids for pain relief and better sleep. Most of her products have little to no THC, the psychoactive component of cannabis.

FULL ARTICLE: New York Times
by Julie Weed

New York TimesBen Larson