December 01, 2015
With the cannabis industry booming in states like Colorado, Washington and California, it may be surprising that a new startup has decided to take root in Philadelphia. While marijuana laws are certainly more relaxed in the city thanks to legislation decriminalizing small amounts of weed, Pennsylvania is hardly a bastion of progressive thought when it comes to marijuana legislation. But that could change with the introduction of Greenhouse Ventures’ first Demo Day on Dec. 5.
Billed as a day dedicated to the “cannabis,” the Philly startup will be offering insights into best practices for the marijuana industry – everything from financials, tech and e-commerce to vertical sales designed to help build budding businesses. Companies will also have the opportunity to exhibit their products and services and pitch to investors while learning the ropes on how to build a sustainable business model.
Greenhouse Ventures (GHV) co-founder Tyler Dautrich says that the startup was developed through a strategic partnership with CoFund360, a company that had already developed a proven curriculum program and a 10-week accelerator model.
“Hemp was a major cash crop in PA before prohibition, and PA could easily become a hot spot for the industry again.” -- Tyler Dautrich
“This partnership allowed GHV to take a structured mentorship-based program and tailor it specifically for the cannabis and hemp industries,” he said. “By starting with an existing framework, we were able to quickly build a network of industry experts and a pipeline of interested entrepreneurs who needed help legitimizing their businesses, connecting with industry experts and raising capital.”
But why hunker down in a state where medical and recreational marijuana use is still illegal?
GHV decided to launch in Philly for a few reasons, namely as a way to develop the business on the East Coast. “There truly is a huge opportunity here in the east and in Philadelphia because no one is thinking about the business side of this industry yet,” Dautrich said. “The East Coast is finally starting to come around to the medical benefits of cannabis and allow some patients to have access to it, but there is not much talk about what benefits could come from opening up to the business side of the industry.”
He also notes that because Philadelphia is home to some of the best medical colleges in the country, there is a huge opportunity to become a hub for research in the industry. “The history of industrial hemp in the areas just outside the city is too rich,” he said. “Hemp was a major cash crop in PA before prohibition, and PA could easily become a hot spot for the industry again.”
To help make this happen, GHV is working with a range of industry experts and serial entrepreneurs that act as mentors for companies going through their program, including Lindy Snider from Lindi Skin, Scott Greiper from Viridian Capital, Douglas Leighton from Dutchess Capital, Jazmin Hupp from Women Grow and Jim Fitzpatrick from Kodiak Capital.
In addition to Demo Day, GHV is also strategically aligning itself with other organizations and individuals in the industry that share the same vision in terms of producing and selling hemp and cannabis, and products associated with its use.
But Pennsylvania’s laws about marijuana do inevitably have an impact on just how far GHV will grow. “The current laws obviously do not benefit us at all right now,” Dautrich said. “It also makes it a little more difficult to find quality deal flow from our home state, because there is a lack of experience, knowledge and education which comes from continuing prohibition.”
He does see a bright side, however. By working with startups from the West Coast, GHV is using their knowledge and experience to educate both voters and legislators about the positive impact the marijuana business can have in the region. If the laws would change in favor of marijuana use (both medically and recreationally) it could potentially allow GHV and other startups like it to see more business ventures through in the region.
“If we can have PA or Philly-based entrepreneurs come through the accelerator and become a success,” Dautrich said, “that would be great. Legalization would also allow us to potentially work more with the medical institutions in Philly to expand on the research, as well as show a presence for med-tech, which we believe will be big in Philly when it’s legal.”
Dautrich is confident that medicinal marijuana will be legal in Pennsylvania in the coming year as more advocates make their case and as research points to important treatment benefits. A recent poll suggests that almost 90 percent of Pennsylvanians are actually in favor of the legalization of medical marijuana, ranking PA as a state with one of the highest acceptance rates in the country.
And even though there is not a legal market here, there also seems to be an interest among potential investors, primarily lawyers and financial folks who are laying low, so to speak, waiting to see what happens on the legislation side. Those who are operating in the region are doing so under the radar.
“Even though they are operating in compliance with the regulations and laws of the industry,” Dautrich said, “from a business standpoint, it could still ruin your professional reputation depending on what your current or former job is or was [before] entering into the industry.” He says there is still a stigma associated with cannabis despite it being an estimated multi-billion-dollar industry.
This could bode well for Philadelphia when one considers that in Colorado, every dollar spent towards legal cannabis puts another $2.60 back into the state economy. Colorado has also enjoyed several consecutive months where sales were over $50 million. “That’s a lot of money going back into their economy,” Dautrich explained, “while PA is spending money to fight this plant.”
And while GHV is intent on staying firmly planted in PA, it’s not working with many (if any) companies that intend to make their homes in PA because of the strict state laws against cannabis. “The scene just is not here for them right now,” Dautrich explained. “This is why we stream all our classes during the accelerator. That way these companies can remain in their home state and market, while virtually attending and participating in classes. With that being said, obviously the relationship that they will have with us will work out nicely when PA does become a market of interest for them.”
After all, the industry is still very young, and Dautrich expects to see more start-ups pop up in the next couple of years. Like those in any industry, they need to build out a team, surround themselves with smart professionals and create capital. The major differences come with investment. “The valuations on a lot of these cannabis startups are not accurate,” Dautrich said. “Investors lower the evaluation because of the risk, and entrepreneurs raise the valuation because it’s a new, exciting and fast-growing industry.”
Lindy Snider of Lindi Skin is certainly banking on it. “I’m anticipating this [Demo Day] event will be the first of many,” she said, “and like the rest of the industry, will grow enormously over a short period of time.”