Episode 15: Legal Cannabis with Brett Cummings
This episode is packed full of detailed information on the cannabis industry. We discussed the various opportunities and challenges. Regulation and where tech comes in. Truly Insightful information from Brett.
The Left Coast Ventures story (1:16)
--Started as subsidiary of Privateer Holdings.
--Acquired Leafly; Yelp of dispensaries.
--Land’s Eye; production and distribution of cannabis products
--Focused on California and looking to take the business model across other geographies and markets.
Cannabis products vs just smoking (3:55)
--What happened to just smoking a joint?
--Recreational side of cannabis is strong. But the health/wellness uses are strong as well.
--More form factors open up more markets of people who would enjoy affects.
--Comes down to convenience and comfort level for customers.
Logistics of cannabis consumption and commerce (5:43)
--Interstate commerce and cannabis? What are the logistical problems?
--How does technology help solve some of these problems?
--33 states have regulations that allow for some form of legal cannabis.
--Only bigger companies tend to be MSOs (multi-state operators)...i.e. selling in multiple states because interstate cannabis commerce is 100% illegal at this point (Feb-2019)
--Need a handful of licences for growing, selling, distributing, etc.
What happens if all states legalize? How about the Feds? (9:22)
Federal Attorney Generals who were opposed most recently are gone (the Sessions')
--Federal legalization would still be necessary for distribution across states
Craft beer regulation as an analogy (12:14)
Will percentages of TCH be regulated in a similar way to alcohol percentages.
--Regulatory knowledge and expertise is key for any cannabis business; now and always going forward.
--Portfolio companies' products go through a large amount of extensive safety testing.
--Important because you don't want to harvest cannabis grown with lots of pesticides and then light it on fire!
--Testing of all kinds; TCH and CBD percentages etc. There are many testing labs. Sadly, they frequently give widely varying results.
--Market buys on price and potency. Knowing, via tests, how premium your product truly is is super important.
Cannabis startup ideas and opportunities (17:52)
--Standardized lab testing
--Logistics; shipping across boarders.
--Chemical process development and patenting etc.
--Distribution of any kind since almost all products are self-distributed
State of tech in cannabis industry (18:38)
Tech in the product space is hard; it's very early.
Many different pieces of the business; most people probably shouldn't need net-new software tools to manage the components of the business.
--But the state of cannabis software is actually really bad. Not very well developed at all.
--IBM is pretty up to date on the market players and supply chain.
--Metrc→ blockchain tracking system used by state of California for cannabis seed-to-sale.
--But there's still a huge opportunity for a valuable cannabis software integration
--The market-legitimacy barrier definitely needs to come down though. And one of the big challenges there is still total legalization.
--Many issues with the business are still very manual and difficult.
Cannabis supply chain (23:55)
--Blockchain solutions could be helpful.
--Package together the various pieces needed for an end-to-end cannabis software solution. We can probably tackle this in a way that doesn't reinvent the wheel.
--The market for software on the regulatory (government/public) side is *huge*
--Lack of analytics is insane. Really frustrating. Manually entering orders; no menu standardization for retailers; and much more.
VC appetite for investing in cannabis startups (26:30)
Eaze is a great success story example.
--Overall, lots of money and value is going outside of the U.S. to Canada and elsewhere.
--On the flip side, cannabis is heavily regulated in many other countries and that makes the growth/scale arguments globally difficult.
--Regulatory movement, again, will have the largest impact on where the market goes and where the value is captured.
--But we're honestly still in the warm-up period of this product market segment
Payments, credit cards, and conservative industries (28:42)
The big players are highly sensitive to cannabis transactions.
--Most cannabis businesses operate unbanked - which is super risky and dangerous.
--There are some credit unions and other institutions that can help in some geographic regions.
--Businesses are cash only almost across the board.
--This also means cannabis startups can't get access to lines of credit and many other complicating business factors.
Predictions for 2019 (33:42)
--Over 100 cannabinoids within the cannabis plant.
--Tons more work being done on the product side of cannabis by isolating and boosting certain minor cannabinoids.
--A lot more brands are going to market. Distribution and licensing is going to get more organized especially on the platform level.
--Big pharma. At this point, they're big lobbyists against cannabis. Will probably change.
--Either big pharma or big beverage producers are going to jump into the cannabis market in a big way.
Brett Cummings, CEO (Left Coast Ventures)
Most recently served as Partner & CFO of venture capital firm 8VC
Raised and managed over $3.0 billion in 7 years
Previous experience as CFO & COO of growth equity fund Formation 8 Partners
Also held roles at CMEA Capital and PricewaterhouseCoopers
Earned a BS in Finance and Accounting from Indiana University’s Kelley School of Business