Due to federal illegality, getting a loan for your pot company is near impossible – banks don't want to touch cannabis with a ten-foot-pole and can even be charged with aiding and abetting a federal crime if they get involved in the cannabis industry. This is why many are turning to the ancillary sectors.
Have you ever considered starting your own cannabis business? Well, if you have, you'll probably know that banks won't be helping you.
As cannabis remains a federally illegal Schedule 1 drug in the U.S., banks are reticent when dealing with businesses that handle the plant. And if a bank actually does wish to work with you, they'll be adding stringent requirements, red tape, and costs every step of the way.
For this reason, many cannabis companies are struggling, with Leafly suggesting that up to 99% could fail due to this new form of redlining by the banks.
The inability to work with banks is forcing cannabis companies to carry and pay their employees in cash, often held in vaults with security. When it comes to taxes, you can only imagine what a headache this causes.
Needless to say, while cannabis is legal in certain states, the federal illegality of the plant means it's not easy, or cheap to get involved in a plant-touching business.
As a result, entrepreneurs are looking for ways to break into the cannabis industry, without ever actually touching the plant – leading many to enter the ancillary space.
Ancillary businesses, or 'pick and shovel' companies as they're also known, may include security, transport, packaging, lighting and technology.
Having an ancillary company in the cannabis industry is certainly more straight forward than being a plant-touching company, and avoids the legislative legwork that comes with it.
However, the trend of ancillary cannabis businesses is a relatively recent phenomenon, and we're still exploring new ground.
For this reason, many are not only seeking funding for their ancillary company but also guidance and advice, à la Dragons Den or Shark Tank… except for pot.
Did somebody say Shark Tank for pot? Well, you're in luck.
Founded in 2014, CanopyBoulder is a Boulder-based venture capital company that invests in seed-stage ancillary cannabis businesses, offering 16-week mentorship programs to help guide start-ups in the right direction.
And it's not only entrepreneurs that stand to gain, as investors can get a slice of the action and look at which startups they would like to invest in, knowing that CanopyBoulder will help guide the nascent companies into maturity.
We spoke with Celia Daly, the marketing manager and head of investor relations at CanopyBoulder to find out exactly what they were about.
Boulder has been a tech and entrepreneurship hub for a long time. Combined with the fact that Colorado has been the most stable and successful at legalizing adult-use cannabis, Boulder was the obvious choice.Celia Daly, Marketing Manager/Head of Investor Relations at CanopyBoulder
CanopyBoulder is the brainchild of Patrick Rea, an investor who had attended a cannabis accelerator demo and found himself fascinated at the hype surrounding the drug.
Since its inception, CanopyBoulder has been involved in starting over 100 companies, and 120 investments – most notably including BDS Analytics, Front Range Biosciences, Wurk, Leaf, Potguide, and Sana Packaging.
CanopyBoulder guides seed-stage ancillary cannabis companies in order to ensure they're scalable and profitable, says Daly, commenting on the extensive support their clients receive.
"Our program is heavily mentorship-based, so our teams have access to experts in all the different areas they may need."
"That could be both on the cannabis side, like operators, potential customers and partners, and as well on the business side which includes legal, accounting and fundraising," Daly said.
These mentors are available to meet one-on-one with teams and present on a topic during the program, offering our teams access to the expertise they need. Celia Daly, Marketing Manager/Head of Investor Relations at CanopyBoulder
During the program, CanopyBoulder's team meets with each company for roughly an hour per week in order to dive deeper into each business and offer hands-on expertise.
"As well, we have an extensive network of investors, including through our partnership with The Arcview Group, who follow along with us and so we're able to make introductions and expose our teams to other investors as they continue to fundraise – this continues long after they've left the program," she said.
Daly went on to mention that ancillary businesses are just as crucial as plant-touching industries themselves, and as the legal cannabis market grows, so will ancillary companies – think vaporizers or transport services.
"Just like every other industry, it's critical to have services and products that surround the industry."
"These can be things as simple as payroll processing and HR services, to agricultural technologies to optimize growing, to consumer technology, like vaporizers, to data plays, where a business is collecting and analyzing market and company data," Daly stated.
Daly then pointed out the relative lack of competition in the embryonic cannabis space, which may be a driving force for entrepreneurs.
"What is interesting about cannabis is that the federal prohibition and general stigma have kept large companies that offer many of theses services from entering the space. Companies like ADP (HR operations), Neilsen (data) and Carrier (HVAC), for example, have been hesitant to join the space. This makes ancillary businesses not only more needed but able to operate with less competition than in other industries. "
And with the enormous growth already being shown in the cannabis space, it's pretty clear there's a lot to be gained in the ancillary sector, with many unexplored avenues and possibilities.
Pick and Choose – Pick or Shovel?
While cannabis is becoming increasingly legalized on a recreational level, the industry as it stands is far from perfect.
This is why more and more people are turning to ancillary companies, so that they can get involved without having to jump through the hazy hoops of legislation.
CanopyBoulder has capitalized well on this trend, and will only continue to be necessary as raw flower sales continue to grow, and the ancillary market follows behind.
And when it comes to the future of the company, Daly is very optimistic.
"What we know for certain is that stigma is lifting, capital is flowing into the industry, and legalization is closer than we all think it is."
"I suspect the coming years will see a lift of prohibition and a shift to regulating at state level, similar to the way alcohol industry developed post-prohibition," Daly said.
CanopyBoulder is currently accepting applications through October 25 for their 11th accelerator class beginning January 13th. Startups working in ancillary verticals and hemp/CBD are welcome to apply at canopyboulder.com/apply.
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