The Entrepreneurial Potential of Cannabis

Opinion

Recreational marijuana is now legal here in Massachusetts and it seems that everywhere you look, people are excited to create business ventures around it. But, like any other business endeavor, research, planning, and discipline are essential – maybe even more so given the legal and regulatory issues involved with cannabis.

As of now, marijuana is fully legal in 10 US states plus Washington, DC, and 33 states have a legal medical cannabis program (this map shows marijuana legality by state). From a business perspective, it’s tricky as some states allow medical marijuana, some allow only medical CBD oil, and in others it is still fully illegal.

Opportunities from Every Angle

Due to increasing legalization, cannabis is a burgeoning industry and new business opportunities exist throughout the supply chain. Businesses can focus on the recreational or medicinal side of the business – or both. At the same time, there are dozens of ancillary services that are needed to support the cannabis industry.

Opportunities can be categorized as “plant-touching vs. ancillary businesses,” as noted by Business News Daily. As the name suggests, plant-touching businesses handle the cannabis plant itself, either cultivating, distributing, processing, or selling it. These types of businesses face the strictest regulations and may need to navigate complicated licensing processes before they can get started. Ancillary businesses provide all the supporting functions for a cannabis business. These include data platforms, ag-tech companies, legal representation, compliance technology, point-of-sale systems, payment processors, digital marketers, ecommerce platforms, public relations, software, accountants, and more. Because ancillary marijuana businesses aren’t burdened with all the red tape and high taxes, they tend to have higher profits.

For entrepreneurs that are looking at business opportunities on a national level, CBD products may be the way to go for now. Many big name retailers from CVS to Sephora to Neiman Marcus to Walgreens have either entered, or expressed an interest in entering, the CBD market. This interest in CBD has been propelled by changes in the Farm Bill which was signed in late 2018 and removes hemp (with 0.3 percent THC or below) from the Controlled Substances Act.

Three Profiles of Cannabis Entrepreneurs

From helping growers, to distribution, to working with individual consumers, entrepreneurs are exploring the cannabis market and how they can maximize their opportunities. Here are three short profiles of entrepreneurs in this market space:

Predictive Agriculture for Producers to Grow Smarter

Julian Ortiz, co-founder of AdaViv, explains how predictive agriculture can help cannabis growers to develop a competitive advantage: “AdaViv helps producers grow smarter – from disease prevention to rapid experimentation, improving yields, and quality optimization.” Founded by an interdisciplinary team of MIT researchers and alumni, AdaViv emerged from MIT’s delta v accelerator.

The company uses sensors and AI, plus computer vision to uncover hidden plant biometrics, then translates this data into actionable insights for growers. The founders initially focused on cannabis due to the high value in the crop, the level of quality control needed for the medical market, and the level of differentiation they believe they can offer to growers. AdaViv has recently closed a $1 million funding round and has lined up initial customers.

Ecommerce Marketplace for More Efficient Distribution

Another cannabis company started by MIT students is iheartjane.com – a complete online marketplace where consumers can discover and order cannabis online. Founder Socrates Rosenfeld is a West Point grad and an Iraq veteran. Suffering from PTSD after his return from the Iraq war, he realized the benefits of cannabis for symptoms such as sleeplessness and anxiety. After receiving his MBA from MIT, he founded the company with his brother using a business model similar to that of the Grubhub food delivery service. The company’s website states, “We believe in the cannabis industry’s ability to bring well-being, health, and love into this world, and it is our mission to bring confidence to the online cannabis shopping experience.”

Healing Alternatives for Consumers

Joanne Burke-Sherman, owner of JBS Holistic Nutrition, works one-on-one with clients for health coaching and healing alternatives. CBD products are only one aspect of her business, but she saw a lot of interest in CBD from her clients because everyone was curious. “I have seen a lot of people supported in pain and anxiety,” said Burke-Sherman. “One client with addiction issues felt it truly helped and ‘saved his life.’ Others feel their joint pain is reduced and their anxiety is reduced.”

As legalization efforts progress in the US, the cannabis startup environment will become more crowded. We anticipate that large, well-established companies will use their resources and economies of scale to squeeze out many of the entrepreneurs. That’s why we applaud the entrepreneurs who are getting into the market early and differentiating themselves with unique value propositions.

 

Terminology … What’s What?

For the uninitiated, here’s a quick glossary of terms:

· Cannabis, also known as marijuana, is a psychoactive drug from the Cannabis plant used for medical or recreational purposes.

· THC (tetrahydrocannabinol) is the principal psychoactive constituent of cannabis, the part that produces the high.

· CBD (cannabidiol) provides therapeutic benefits without the high.

· Medical Cannabis (or medical marijuana) can refer to the use of cannabis and its cannabinoids to treat disease or improve symptoms; however, there is no single agreed-upon definition.

· Hemp is a strain of the Cannabis sativa plant species grown specifically for the industrial uses of its derived products.

Trish Cotter is a Senior Lecturer at MIT Sloan School of Management and Executive Director of the Martin Trust Center for MIT Entrepreneurship. Follow @TriciaCotter

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