The breakneck speed at which new industries can now emerge makes it an exhilarating time to be an entrepreneur. It also makes it a pretty difficult time to be one of the people charged with regulating these industries, with billion dollar businesses seemingly cropping up overnight and few rules for them to follow...
Whether it’s Tesla’s legal battle against the franchise system, Airbnb’s constant trips to court or Uber’s well-publicised lawsuits – doing business in a new industry is rarely straightforward. But one sector which comes with arguably more hurdles than electric vehicles and the sharing economy combined is America’s cannabis industry.
An industry in its infancy
Despite being a practice still in its infancy, and one that remains illegal at federal level, selling cannabis and cannabis related products is already very big business, with almost a billion dollars’ worth of sales taken in Colorado alone last year.
We began our look inside the industry by speaking with some of its leading figures, many of which had given up jobs in more traditional sectors and taken some convincing that the move would be a wise one. With meagre funding options, potential lawsuits and tarnished reputations all ranking high on the list of concerns for entrepreneurs looking to make the switch.
"It took me a while to overcome the fears surrounding what it would mean to my reputation, as well as if I would be legally compromised at all," admitted Roy Bingham, founder of cannabis data analytics firm BDS Analytics.
Why I joined the green rush
Bingham’s thought process seems to be an entirely logical one, after all, you don't imagine meeting someone who is entering the industry as they feel it offers them a significantly more stable and open environment in which to run a company. Which is why my encounter with Mike Klodnicki, founder of Quantified Vapor, was such a fascinating one.
"We’re actually coming from the nicotine industry. It’s paradoxically more difficult to raise money for a start-up that has something to do with nicotine, smoking something which is legal even at federal level, compared to getting funding for a cannabis industry business," explained Klodnicki.
"There’s a bit of a green rush going on. When a new market like this opens up and has the potential for such growth across the whole country, I think investors take note of that. Especially compared to a longstanding industry, like tobacco, where there are existing big players. Talking to different start-up accelerators and investors, you learn there’s a lot more stigma now attached to nicotine smoking compared to cannabis use – that really surprised me."
For all the reasons to want to move into the industry, Klodnicki seems to have ownership of the one that makes the most sense.
The death of one industry and the birth of another
Klodnicki’s product, a vaporizer with scientifically-backed accuracy to record consumption levels, was not only struggling to attract investors while positioned as a nicotine business, it was also running the risk of being taken off the market.
"There’s a lot of regulatory pressure in the nicotine industry right now. There are new regulations from the FDA looming on the horizon, which are at bureaucratic steps five out of six – which means they’re pretty well ready to be introduced. They will make it near-impossible for a new company to enter the nicotine industry, in terms of vaporizers at least.
"It will also make it difficult for existing companies to go through what’s required to stay on the market. While there are of course regulatory issues to deal with in the cannabis industry, it’s not nearly the same sort of thing going on at federal level. Things are moving in a different direction."
It's fair to say I was a little taken aback by the relish in which Klodnicki was viewing the regulations he faced, so sought to confirm his view point. "Let’s get this straight. You’re entering the industry as there’s less regulation and it’s easier to get funding?"
"Well, yeah. I guess you could say that."
Quantified Vapor are part of the current cohort at CanopyBoulder, the world’s first and (currently) only accelerator for cannabis industry start-ups. As is Wurk, a payroll and human resources platform designed to provide infrastructure for businesses struggling to get to grips with the industry’s constantly changing backdrop. And unlike Klodnicki, Wurk CEO Keegan Peterson had a more cautious take on the regulations facing those in the industry.
"These entrepreneurs are in a difficult spot, there’s so much more compliance they have to abide by compared to traditional retailers. A lot of them won’t have a business background they can call on either, although as the industry has proven itself out that’s starting to change," explains Peterson.
Money trucks and lives at risk
Despite the advances being made there are still some very basic problems with infrastructure that need to be overcome, with many banks - who themselves are federally regulated - hesitant to take on accounts from cannabis businesses due to the perceived risks and additional paperwork.
"A year or two ago businesses paying their employees in cash was pretty commonplace, now that issue is starting to go away as some banking channels are opening up. The country began to realise how dangerous it was, for example I heard a story about a HR manager driving around with half a million dollars in cash every time they needed to make payroll. That person’s life was at stake, then once you pay the employees they leave the building and the same can be said about them. There were countless examples of that sort of thing.
"As a result the whole industry of moving money around in trucks - as well as product - is booming in Colorado, there are probably 10 different companies doing it now. That’s what’s so interesting about this industry; there are so many new types of businesses that have never existed before coming up."
While Wurk may have a better understanding than many of its clients when it comes to staying compliant, it still faces some industry specific problems it has to overcome.
"We’ve had to do a lot of due diligence into potential clients, asking which ones are legitimate businesses and which ones are trying to just get away with something. That’s common in many industries, although the stakes are a lot higher in this one," admits Keegan.
That, you sense, is why so many entrepreneurs are happily taking the plunge. The greater the risk, the greater the reward. And while a constantly evolving legal and regulatory framework is still putting off big businesses from other industries joining the green rush, there’s an almost unprecedented opportunity for fledgling entrepreneurs to establish themselves in one of America's fastest growing markets.