Cannabis tech accelerator opens in Southern California

Chief Executive Eric Gomez, left, and Managing Director Jack Scatizzi are principals at Canopy San Diego.

By Jennifer Van Grove

July 21, 2016 1:25 PM PT

As Californians consider legalizing recreational marijuana use, a few entrepreneurs are already casting their vote in favor of the state’s cannabis industry.

The group, called Canopy San Diego, is accepting applications for its pot-themed technology accelerator, a first for Southern California. The concept is to find and fund early-stage companies with ideas that can assist the state’s dispensaries and growers. That could include topics as diverse as water conservation tools, more optimal packaging, payroll software and analytics.

Canopy San Diego said it is launching now because it believes the state’s legal marijuana market is already large enough to support new businesses. With sales projected to reach $2.7 billion this year, California is the largest medical marijuana market in the nation. And, if residents vote in favor of recreational use in November, the state’s cannabis industry is expected to swell exponentially.

“California is about the size of the rest of the legal markets combined,” said John Kagia, executive vice president of data analytics at New Frontier, which researches the industry. The next-largest legal markets are Colorado, Washington, Oregon and Arizona, which each saw $215 million to $1 billion in sales last year.

Legalization, Kagia said, “represents a significant opportunity to dramatically advance the technological sophistication of an industry that, because of illegality, has not been able to capitalize on the same type of innovation that has advanced most other sectors.”

There is one important caveat to the accelerator. Canopy San Diego is bypassing the risks associated with funding anyone dealing directly with plants, which means it won’t accept start-ups that actually cultivate or sell weed. That means consumer-centric, on-demand pot apps need not apply.

“The problem with delivery is that it could very easily be legislated into a niche market or legislated into no market at all,” said Eric Gomez, founder and chief executive of Canopy San Diego. “We have zero control over that. So the risk is too high for us to want to add that to our portfolio.”

The accelerator is being modeled after a similar venture in Colorado, where the sale of recreational marijuana was legalized in 2014. Canopy San Diego expects to accept 10 young companies into its inaugural program this September and repeat the cycle three times over the next two years. Program executives are in the process of raising $3.4 million, currently from local angel investors, to finance a total of 40 portfolio companies.

“The program is designed with the objective of taking entrepreneurs with great business ideas and turning those ideas into structured and polished business models that can then be presented to investors and other strategic partners,” Gomez said.

Each 16-week cohort is designed as a crash course for would-be cannabis entrepreneurs who are just getting started. Participants are supplied with $20,000 to $30,000 in seed money, office space and access to dozens of industry mentors. In exchange, Canopy takes an equity stake of 6% to 9.5% in the businesses. At the end of the boot camp, the three best businesses, as determined by the program leaders, are to receive an additional $50,000 in financing.

“We are really looking for the right team,” said Jack Scatizzi, the accelerator’s managing director. “We’re investing in founders, smart founders that are passionate about the cannabis space.”

Canopy San Diego’s muse, Canopy Boulder, got its start about two years ago and graduated 19 start-ups in its first year of existence, including Solana Beach e-commerce company Tradiv. The San Diego chapter will keep close ties with the Boulder program so graduates will also have access to Boulder’s partner, the Arcview Group, a 500-plus-person investor network focused on the cannabis industry.

Tradiv co-founder Geoff Doran said he’s glad his company swapped a 9.5% stake for the chance to participate in the Boulder program: “Not a day goes by when I think it was the wrong decision.”

He and Tradiv founder Aeron Sullivan took a $20,000 seed investment to jump-start an online platform where growers list products and dispensaries buy goods. Live for less than a year in Colorado, Tradiv counts roughly 35% of the state’s licensed cannabis businesses as registered users, Doran said.

This week, the start-up is preparing to launch in its home state of California. It has raised $4 million in financing and grown its workforce from two people to nearly 30.

Canopy San Diego applicants shouldn’t expect to replicate Tradiv’s quick accession. Realistically, three or four companies from each tranche won’t see the light of day. But that’s not because they’re venturing into an socially unacceptable industry, Gomez said.

“As far as the stigma aspect, that is probably the one thing that is changing the fastest,” he said. “That doesn’t concern me whatsoever.”

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