3 Hottest Trends In Cannabis Start-Ups
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It’s not unusual for top fund managers to get 100-plus pitch decks in a month and to speak with dozens of aspiring entrepreneurs. VCs are on the front-lines of the cannabis start-up scene. For this reason, they have a keen eye for quickly spotting trends in the industry.
Here, then, are a few insights from some of the country’s most respected funds.
California is on fire
With the start of recreational sales in California last January, a flood of new cannabis companies has hit the Golden State. No surprise considering that the state is home to 40 million people and an economy that, if a country, would have the 5th highest GDP in the world (even bigger than the UK). California does everything in a BIG way.
This has caught the attention of many VCs, including Matthew Nordgren, Managing Director of Arcadian Fund in Los Angeles. “Based on the size of California and the stage of California’s regulatory environment, we are consistently seeing entrepreneurs launching new businesses across almost every vertical in cannabis," he says. "People here in California can feel the excitement and energy of this new industry and a huge number of them are jumping in head-first."
Brands are making their mark
When states first become legal, its consumers are usually happy to try any product, just to actually purchase cannabis legally. It’s still a novelty.
But as legalization becomes the norm and the industry matures, consumers start to gravitate towards specific brands, choosing their favorites. In this scenario, a strong brand becomes more vital in a consumer’s purchasing decision and a key driver to a product’s success.
What makes a strong brand? Piers Cooper, Managing Partner of Fresh VC, has noticed a focus "on diversity and depth of product offerings. Strong brands have to offer a variety of flavors, dosages, methods of application and continued growth in innovation to keep consumer’s interest in their brand,” he says.
Emily Paxhia, Managing Director of Poseidon Asset Management, agrees saying that, “branded products are exploding in California. But she warns, "If even half of these companies make it past year one, it will be an even more competitive space."
Venture Capital Is Out There
Even though federal regulations have not changed significantly yet, we are seeing states legalizing one by one, attracting new investors to cannabis. This has led to a growing pool of angel investors, family offices and venture capital firms -- while institutional investors are mostly sitting on the sidelines.
As the number of investors increases, entrepreneurs are at an advantage. Explains Nordgren, “Entrepreneurs now have a much larger world of capital to talk with. This can change deal dynamics significantly as more money comes into the space, and entrepreneurs have more options of where to take money from.” This is good news for start-ups, solid models, strong teams, and consistent execution. When you have more investors vying for an investment, you’ll have much more flexibility to impact or control the terms of the deal.
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