Editor’s Note: Last year, conferences sponsored by the ArcView Group, an investment firm that vets and funds cannabis entrepreneurs, were drawing a few dozen potential investors. This year, they draw hundreds. Paul Solman attended one such conference just outside Boston earlier this spring, where he caught up with investors and took note of the latest product pitches. You can see more of those products in Solman’s Making Sen$e segment below.
On this page though, we wanted to zero in on the interests and motivations of the industry’s players. Some of them just like pot. Some haven’t tried it and don’t plan to. But nearly all of them see it as a growth industry whose rise rivals the tech boom of the 1990s.
— Simone Pathe, Making Sen$e Editor
Paul interviewed Dooma Wendschuh and Jon Cooper, the co-founders of a product called Ebbu, which delivers five specifically branded highs via different delivery mechanisms — if and when marijuana is fully legalized — about their product and their own experiences using.
Dooma Wendschuh: To be honest, we liken ourselves to a beer company. You know, when you go to a bar anywhere in the world, and you order a Stella, it’s going to look like a Stella, taste like a Stella and have that same psychoactive response that you come to expect from a Stella. Our business is to give those same qualities to cannabis. Right now, cannabis is more like wine. There’s a million different varieties. It’s very confusing. You don’t know what you’re getting when you try the product. Through our distilling process, we can create an artisanal product that is guaranteed to be consistent and reliable and give you the same psychoactive response every time.
I’m sure you’ve gone to the store and ordered three Granny Smith apples and they don’t all taste the same. But in another industry, the perfume industry, for example, every bottle of Chanel No. 5 is going to smell the same. Our process is very similar to the way they make perfume. We’re pulling a bunch of ingredients out and then combining them together.
Jon Cooper: You can’t find Chanel No. 5 out in nature. Our products that we’re creating, you don’t find that in this specific strain. We’re taking the best of each of the strains and we’re removing the worst of the best of the strains, in order to create the experiences and the feelings that represent Ebbu.
Paul Solman: But some people might say, “Wait a second. You are de-authenticating life. You’re just turning people into druggies who can order up experience instead of actually having it.”
Dooma Wendschuh: The issue is not de-authentication. The issue is improvement. There’s a lot of value that you can have from champagne that you can’t get from grapes. You can toast a special event that happened in your family; you can have a great night out with your friends. You’ll never get that from grapes. You need a process to go from grapes to something that you can enjoy recreationally and celebrate responsibly with your friends, and cannabis is not any different from alcohol. Of course, you need to use it responsibly, but it’s in many ways healthier and better for you than alcohol, so what we’re doing is giving people an alternative.
Paul Solman: So we’ve talked to some people here who’ve never smoked marijuana – only a few of them — and some people who started when they were 13. You guys?
Dooma Wendschuh: It’s kind of funny to tell you this because my parents actually don’t know, and they’ll probably find out by watching the show, but the first time I used cannabis was on my bar mitzvah. A couple of kids took me up to the roof of the hotel and gave me a joint and they said: Now you’re about to really become a man. And that was my first time. I didn’t use it that frequently since then, but I’ve since become quite a connoisseur.
For some reaction to Ebbu, Paul spoke with investors, beginning with Todd Steinberg.
Paul Solman: What did you think of this pitch?
Todd Steinberg, investor: I think that as this industry moves to replicate the wine industry, there needs to be consistency, and I think the idea of focusing specifically on the effect is what the consumer wants. I think what Mondavi did for the wine industry in the United States, a product like this and a company like this could do.
Ari Hoffnung, investor: I’m especially hopeful that the innovation that they and others like them are bringing to the industry first and foremost will help patients who need medical marijuana to address the conditions they’re suffering from. We’re living in exciting times right now, and this a real sea change. I’m hopeful that other states like my home state of New York will jump on board really soon and allow medical cannabis.
Leslie Bocskor, another investor with ArcView, was interested in more than just medicinal opportunities; developing the industry has greater significance for him.
Leslie Bocskor, investor: I’m here as a member of the ArcView angel investor network. I believe in the movement, I believe in the freedom that it represents, so I’m aligned culturally with my business goals, and that is very rare.
This is a unique moment in history and these days will never return again. This is even more significant than the repeal of prohibition was in 1933. This is the most significant change in a prohibited substance that we have ever seen becoming an accepted business segment.
Jay Czarkowski, another Arcview investor, agreed.
Jay Czarkowski My wife Diane and I…believe this is clearly America’s next great industry. If I had to take a step further, probably the world’s next great industry. We’re here for business opportunities. We’re also here because it’s the right thing to do, to help develop this industry then move it forward. And we’ve been operators in the industry since 2009.
Paul Solman: What does that mean, operators in the industry?
Jay Czarkowski: Grow operations and dispensaries in Colorado. When I first came into the industry, I’ll admit and I’ll be honest, I got into it as a business opportunity. But then I began to see with my own eyes that it was medicine. I saw how it not only truly helped sick people, but I saw it save people’s lives.
Paul Solman: And how many people here are users of marijuana? Pretty much everybody?
Jay Czarkowski: I would say if you look across this room, you’ll see a wide range of people. Everybody’s professional. Most of them have been fairly successful all their lives. I would say most of them, the majority, are certainly users of cannabis. Not necessarily smoking a joint, but there’s a lot of other ways to use cannabis. Edibles, vaporizers…
Paul Solman: Edibles, at least back in my era, was brownies – that’s what you’re talking about?
Jay Czarkowski: You know, it’s not just brownies any more. Everything is professionally packaged — little chocolates, little mints. There are breath sprays. There are tinctures. You can put a couple of drops of tincture or a few dropperfuls of tincture in some decaf tea at night.
Paul Solman: Decaf tea?
Jay Czarkowski: And you’ll sleep like a baby.
Paul Solman: Really? What about soufflés or eggs, no?
Jay Czarkowski: I think that’s getting a little too complicated.
But as Maureen Dowd recounted in the New York Times recently, edible tetrahydrocannibinol can be a daunting mouthful, in more ways than one. Moreover, isn’t it a risky business strategy to put so much money behind a substance that might not be legalized for widespread recreational use any time soon? Paul posed that question to investor Tom Gargiulo.
Tom Gargiulo: I think the possibility of it not being legalized is remote. A lot of people in this room are tired of waiting. But it’s going to happen and there’s going to be enormous growth because when you compare alcohol to cannabis, I think the harm reduction is massive. If people begin to make those switches from the more harmful things like alcohol and cigarettes to things like cannabis, I think it’s going to be good for the overall health of the American population. I want legalization to happen and I want to add to that critical mass that’s going to make this happen.
It should be noted that not all investors or entrepreneurs came to the industry as long-time users. Daniel Yazbeck is an entrepreneur behind a portable pot analyzer called MyDx.
Paul Solman: And you yourself began using marijuana when you were a kid?
Daniel Yazbeck: No, I was a guest at my brother’s…he used to smoke and I didn’t like it because we were in college and I felt it was a stoner type [thing to do.] I was an A student, wanted to do everything right. I started smoking at around 30. After I joined Pfizer Pharmaceuticals, and I joined Panasonic to help them get into the medical industry and create diagnostic devices, I started smoking and I realized cannabis has an interesting effect on my brain, and helps me see things differently and it helps me appreciate life a little bit more. At the same time, it doesn’t distract me from being proactive and getting things done. But I wanted to discover how it works, so I started reading, reading, reading, and then one thing led to another, and we were creating this device. Because I want consistency. I want to be able to feel how I want to feel, when I want to feel it. And I think this will eventually help us get there.
Nat Ames was in graduate school when he and another student started developing a machine that distills plant oils. Paul assumed he got into it for the “high” returns, psychotropically speaking.
Paul Solman: So were you guys marijuana users in college who thought, hey, we can take this technology we’ve learned and apply it to something we care about?
Nat Ames: No, sir. In fact, nobody in our company partakes in marijuana or cannabis use. We actually started the business all for essential oil for decaffeinating and then the cannabis industry found us. The technology doesn’t care whether you use it on any plant — cannabis, lettuce, tomatoes; they all process the same. We just happened to be in the right place at the right time.
Paul Solman: But now that you’re in the cannabis industry and at a cannabis convention, have you tried it?
Nat Ames: No sir. I haven’t. I came from the oil and gas background – very straight laced. Right now it’s illegal. We’re from Ohio, so far as I’m concerned, it’s still illegal. I think it’s great that some people can. I just don’t have any desire at the time, anyway.
Even if entrepreneurs themselves are gung-ho about the industry, surely there remains a stigma attached to developing products for what was, and in much of the U.S. still is, an illegal substance. Paul asked Tom Bollich, one of the founders of game maker Zynga (Farmville, Words with Friends), about the optics of now investing in the marijuana market.
Paul Solman: What do your billionaire, entrepreneur hi-tech friends think about you in the marijuana industry?
Tom Bollich: They think this is the best idea I’ve ever had. No joke. They’re all chomping at the bit, honestly. They love it.
Paul Solman: Why?
Tom Bollich: It’s a $140 billion black market sitting there.
Paul Solman: What do you mean, black market?
Tom Bollich: Well, right now $140 billion of it is black market. Right now, in the legal market, it’s probably like $4 billion. All that is going to move at some point. You’re going to have less people in prison, so local, county and state are going to get more revenue. Hopefully, eventually, the country gets more revenue from it. It’s kind of a win all around. Everyone in Silicon Valley is like, “duh.”
Investor Sam Znaimer agreed, comparing this new high finance sector to the IT industry in the late 20th century.
Sam Znaimer This really does resemble the IT industry and the computer industry in the 1980s. If you had gone to the Comdex trade show in 1982, this is what it felt like. It was a lot of hustling, young entrepreneurs with a vision for the future, and that’s what this industry can become. But, unlike the tech industry, where you’ve got to worry about really expensive developments cycles, long development times and technology risk, this is a marketplace where we know that there is a willing market out there to buy the products, where the risk is primarily regulatory and where you’ve got young entrepreneurs with a lot of hustle and a lot of vision to create the next Microsoft or the next Mondavi.
Of course, what’s booming in the legal market right now has benefited from the black market and from years of illegal use, says investor Shaun Arora. He’s invested in an entrepreneur he met through ArcView who makes scissors for more efficiently trimming the plant. His desire to get in early on the market shows just how it’s taking shape, and how much, depending on whom you talk to, users have changed.
Shaun Arora: It’s nice to get in on the ground stage of the company in an angel kind of environment, helping these budding entrepreneurs grow and sharing some of the lessons that I’ve had in the past. … There’s a lot of people who are doing what we’re doing here today that are now in jail, and now we’ve built an industry on their backs. We’re standing on their shoulders, building something where it’s not illegal to do it anymore.
Paul Solman: Any concerns on your part — you seem like a very motivated guy – that making marijuana legal will make a lot of people who use it demotivated? That’s been my experience with people who have used marijuana, and that demotivation is the last thing Americans need at this stage in our global economic history, right?
Shaun Arora: Well, I’m not hanging out with the same shady element that you seem to be hanging out with. The people that I meet here are incredibly motivated. They’re seeing opportunity; they see problems in the industry that are being neglected by other industries. Yesterday, I met some guy who’s trying to solve problems with bacteria. They are incredibly motivated people in the industry, and too often, this industry gets lumped in with the stoners on the couch, bingeing on the product, and ordering pizza at 2 in the morning. It’s not that type of consumer.