The Biggest Surprise of the $8.5 Billion Cannabis Boom? Dozens of the Startups Striking It Rich Are Actually Really …

Marijuana has had a shady past, but it’s on the cusp of having a very conventional future. In 2017, U.S. consumers spent $8.5 billion on legal cannabis, a number projected to grow to $23.4 billion by 2022. With that growth has emerged an entire ecosystem of startups that support the less sexy side of cannabis. Not the luxury dispensaries or rose-hued vape-pen companies, but the infrastructure that keeps them going–from software systems to package-design firms. As legalization continues to spread–it’s now permitted in 31 states, Washington, D.C., Guam, and Puerto Rico–so will the B2B industry solving cannabis’s thorny challenges.

The Instagram Effect

Advertising regulations vary from state to state, but most national publications won’t accept ads–and neither will Facebook. Instagram, however, generally does not flag cannabis content, so it has become a critical marketing tool.

Former cannabis journalist Ricardo Baca has Grasslands, a well-respected cannabis PR firm in Denver. New York City-based North 6th Agency represents a handful of cannabis companies including BDS Analytics and venture fund Canopy, both in Boulder, while San Diego-based CMW Media focuses on pharmaceutical cannabis.

How High Will You Get?

In states where cannabis is legal, every bit has to be tested and labeled for levels of THC (tetrahydrocannabinol, the substance that produces a high) and CBD (cannabidiol, which does not produce a high), along with, in many cases, pesticide residues, contaminants, and fungus. If a farm’s crop doesn’t make the grade, it’s not allowed to sell it.

A handful of regulatory-driven testing labs have launched, including Cascadia Labs in Oregon, Pure Analytics in California, and Evio Labs, the largest publicly traded testing company, with nine sites.

The Future Is Female

Since female plants produce much higher levels of THC and CBD than males, growers always cull the males. Traditionally, cannabis growers “grow out” crops, which takes six to eight weeks, to determine the sex.

Portland, Oregon-based Phylos Bioscience, which is mapping the genome of cannabis online at the Galaxy, sells a DNA “sex test,” which allows growers to quickly and accurately identify sex. “It saves a lot of money spent on feeding, watering, and lighting the males,” says Phylos co-founder Mowgli Holmes, who has collected samples from 80 countries, making Phylos’s database of cannabis genetics the largest in the world.

Avoiding a Heist

Because cannabis is still illegal federally, most banks cannot accept money from plant-touching businesses. Dispensaries are generally limited to cash-only transactions, also making them a target for theft.

Credit unions–like Safe Harbor in Colorado–tend to be state-chartered, which can give them a better regulatory shot to serve cannabis businesses. Two Denver-based firms, Iron Protection Group, founded by former Marines who served in Afghanistan, and Blue Line Protection Group, founded by former police officers, are the go-to cannabis security firms.

Keeping Kids Out

Each state where cannabis is legal has its own childproof-packaging requirements.

The result is that packaging companies like Kush Bottles, Sun Grown Packaging (both in California), and Pollen Design (New York City) are booming. Kush is the largest, having made nearly $20 million in the first half of 2018–already more than its entire revenue from 2017. The company sells child-resistant glass jars, vape pens, and prerolled tubes, and a reusable child-resistant “exit bag” that dispensaries can brand.

Tracking Every Penny

Product is flying off the shelves at dispensaries, but owners need to track inventory and determine how much tax each dispensary owes the state.

More than three dozen POS software companies have emerged, including MJ Freeway (Denver), BioTrackTHC (Fort Lauderdale), Flowhub (Denver), and Green Bits (San Jose), which help manage inventory, process cash, and assist with record-keeping and compliance.

Letting the Sun Shine In

Growing outdoors is difficult, because there are so many uncontrollable variables, including pests, temperature, humidity, and sun. As a result, outdoor-grown weed is usually less consistent in levels of THC and other, medicinally important cannabinoids.

Many growers choose to grow indoors or in a greenhouse–or a combination of the two–both of which require LED lighting. Austin-based Fluence Bioengineering leads the pack of cannabis-specific LED lighting companies, along with Emeryville, California-based Lumigrow, Austin’s Illumitex, and Sweden’s Heliospectra, which makes “tunable” lights that fade in and out like the sunset and sunrise.

Filling the Job Boom

With the marijuana industry still emerging from the shadows of illegality, demand for labor across all skill sets is high. Some work is seasonal, so farms want to be able to recruit staff weekly, without having to hire and fire them.

Vangst, founded in Denver in 2015, is one of the fastest-growing cannabis-focused recruiting firms. It persuades job candidates from industries like fashion to make the leap, and offers an on-demand temp workforce in four states. Portland, Oregon’s GreenForce connects farms with people in cultivation and flower trimming.

Weed Grows Up

If cannabis were legal at the federal level, revenue from a 15 percent sales tax from 2017 to 2025 would amount to $46 billion.Source: New Frontier Data If cannabis were legal in all 50 states, this would support in excess of 654,000 jobs; this number would increase to 1 million by 2025.Source: 2018 report by New Frontier Data Active licenses for cannabis cultivation in the U.S.: 7,182.Source: Cannabiz Media In 2017, U.S. consumers spent $8.5 billion on legal cannabis (medical and recreational).Source: 2018 report produced by Arcview Market Research in partnership with BDS Analytics. (And this was before California legalized recreational cannabis.)

From the November 2018 issue of Inc. Magazine

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