Future-proof: The cannabis industry is sowing the seeds of innovation and growing

With the widespread legalization of cannabis, Tiby Erdely, founding partner of KEY Investment Partners, Kevin Bush, CFO of Sweet Leaf Madison Capital, Zack Ein, CEO of Grassdoor, Matt Stein, co-founder and CRO of Katalys, and Yulia Kalk, COO of Gordian Compliance Solutions, joined the Future Proof panel. The cannabis industry: how to invest for the future.

A growing number (pun intended) of investors are interested in finding the best investment opportunities in the budding cannabis industry.

“This is a totally capital-constrained industry,” Erdely noted, playing a pun on it being a “base-based” industry. He sees the political acceleration of legalization as inevitable each time a new state legalizes it.

Ein’s company, Grassdoor, created the backend infrastructure that does for cannabis what food delivery services like Fresh Direct or Hello Fresh do. “There’s about $40 profit per delivery.”

Stein noted that big companies like Google and Amazon aren’t yet comfortable with cannabis, creating an opportunity for his company to drive traffic directly from CBD brand websites. “Traditional platforms do not allow this kind of relationship. We facilitate them regularly.

Sweetleaf Madison, meanwhile, provides financial support for the growing industry. “The challenge of lending to the industry is that every state is its own country,” Bush said, “what works in Ohio may not work in Michigan.”

A hard-to-pull weed

Compliance also creates challenges, and Kalk agreed with Bush’s diagnosis of funding difficulties in the cannabis industry. “The biggest issue that keeps people from investing is not understanding how to operate from a compliance perspective in this industry.” Despite differing regulations and policies between states, Kalk noted that most compliance failures stem from violations of regular operational practices, “the penalty is not imposed because it is the industry of the cannabis, but because you broke another rule”. She compared cannabis to crypto in terms of the heightened scrutiny it receives from regulators.

Ein said that unlike Lyft or Uber, which use 1099s for freelancers, his company had to make its drivers and delivery people full-time employees.

Bush said, “Cannabis is like the Wild West. You have all kinds of characters. He considers it more important to exercise due diligence. “The whole industry is fascinating because you have this illegality at the federal level,” he said.

Katalyst has unique roadblocks, given the national illegality. They can’t make ad buys on platforms like Facebook, so they had to innovate strategically to increase brand traffic. All of the companies represented on the panel had to be nimble in their approach to the industry. Erdely pointed out that many companies in the sector have been forced to innovate in order to survive.

Regarding the future of compliance in the industry, Kalk said, “I don’t expect there to be anything new focused just on the cannabis industry in financial regulations. “

For a glimpse of comparable performance, cannabis seems to follow along with alcohol. During the COVID lockdown, cannabis use has increased. “Not only do I expect cannabis to do well in a recession, but I expect states to work faster in a recession to legalize cannabis,” Erdely noted.

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