Garyn Angel had five minutes to make his pitch to five wealthy investors on why they should fund his marijuana startup.
“We have 133,000 Facebook followers,” said Angel, president and CEO of Seattle-based Magical Butter, which sells cookware to make marijuana-infused butter, oils, sauces or lotions. “We’re looking for $2 million to $3 million.”
A few questions later, and ding! — the businessman was out of time. He moved to a new table, with new funders, and started again.
Dozens of other entrepreneurs were “speed dating” too Thursday at the InterContinental Hotel, producing a low roar as they tried to speak over one another — and find the right table — to pitch their companies to investors. Later that day, 11 pre-selected startup owners were scheduled to pitch their cannabis business dreams to high-net-worth investors in a “Shark Tank”-style event.
As the medical marijuana industry grows nationally — Illinois’ applications for growing and retail centers are due Monday — startup hopefuls are figuring out how they will finance a business that is legal locally, but illegal from a federal perspective. With few banks willing to work with them and investors still skeptical about investing in companies that directly sell or grow marijuana, entrepreneurs interested in the cannabis industry have some big hurdles to jump.
But a niche group of investors say the cannabis industry has huge potential. They say the risks of litigation and failure are dwindling as more and more states legalize the plant.
David Friedman, a Chicago investor who’s setting up a hedge fund to invest in the industry, said he’s comfortable with 20 percent of his portfolio consisting of businesses that work directly with the plant. He wants 80 percent of the portfolio to be ancillary businesses, enterprises such as those that make containers or help track the plants, because those types of enterprises are less risky.
Even so, Friedman said, “we’re not going to put any money into anything that touches the plant until after the (Illinois business) licenses are awarded. Some of the investments are going to be a result of people’s inability to get the capital, promising they’ll have it and it doesn’t come through. … Once licenses are awarded, if you’re sitting on capital, you can go in and take advantage.”
Hundreds of companies competed for a coveted spot to pitch investors. For the 11 who were chosen in a competitive process, the odds are in their favor: Some 175 investors were planning to attend. All members of ArcView Investor Network, the event’s host, have committed to investing $50,000 in cannabis businesses in the next 12 to 18 months, ArcView Investor Network CEO Troy Dayton said. ArcView has helped 24 startups raise $13 million in funding in the past year and a half, he said, with companies receiving anywhere from $50,000 to $2.2 million.
Leslie Bocskor, an investor at the event, is setting up a hedge fund that plans to invest “very actively.” He’s looking for a stellar team with previous successes in entrepreneurship, more than the idea itself.
“I personally like to look for the on-ball, something that’s going to be a very big win, not a small business doing a couple million (in revenue) a year,” Bocskor said. “I’m looking for the ambitious visionary.”
And he’s looking for a big return.
“I think that anybody who’s being honest if you’re investing in the cannabis industry, you’re looking for very sizable returns,” Bocskor said, who’s looking for a return of 5 times to 10 times his initial investment in the first three to five years. He plans to always keep his stake at less than 5 percent, he said. “But every opportunity’s going to be different.”
Dayton said he started the company because he realized that business was “the most powerful platform for political change.”
“A profitable legal cannabis industry — that would be the way to someday have a day where not a single adult is punished for this plant,” Dayton said. “I set out to do whatever I needed to do to build a profitable and politically engaged industry.”
Every week ArcView holds online webinars for companies to pitch their ideas. Based on these, a selection committee of venture capital firms, tech entrepreneurs turned angel investors and other big investors, whittle it to fewer than a dozen of the best who get to pitch their ideas at the conferences.
“If you want to be a player in this industry, now is the time to pick a horse,” Dayton said to the crowd of 300 or so at the conference. “The deals are only going to more expensive.”
Jeb Berman, founder of Nutrient Guru, was one of the lucky startup owners chosen to pitch his business, which sells a plant enhancer made from edible mushrooms and that he said can increase the marijuana yield by 30 percent.
“You don’t have to be a gold miner,” Berman said, referring to his plan to stick to the sidelines of the marijuana business. “You can sell the picks and shovels.”
Lauren Fraser, who helps run Auntie Dolores (“dolores” means “pain” in Spanish, so this is a play on words to mean “anti-pain”), a cannabis edibles company, pitched at the last event in Denver. Her company was voted best pitch and has already raised half of the financing she was hoping for and should close on the remaining half soon, she said.
She and her team presented in front of a crowd of about 300 at that event about the company’s “Medical Jane” foods: Products like savory pretzels, caramel corn, chili lime peanuts, glazed nuts, and, of course — brownies. The company uses coconut oil and sugar, she said, and infuses the marijuana into the butter. Each piece’s dose is carefully measured and labeled; the smallest amount of the psychoactive component of marijuana her edibles have hovers around 50 milligrams, she said.
Auntie Dolores hopes to license its brand and recipes out to others in states that have legalized medical marijuana as part of the company’s plan to grow significantly in the next few years, including in Illinois, she said. With the success of the company’s first round of financing coming to a close, she said, she’s looking for more opportunities with investors at Thursday’s conference.
Morgan Paxhia, previously in wealth management, said at the event Thursday that he saw the industry turning a corner years ago and is on the lookout for investment opportunities. He launched a hedge fund in January that invests in the cannabis and hemp industries.
“The risks and opportunity dynamics were changing,” Paxhia said. “It just seemed like this is one of those once-in-a-lifetime opportunities, a brand-new market.”
