Silicon Valley eyes pot play

With marijuana legalization on the table for California this coming election season, investment in the nascent pot industry has become increasingly attractive. But in Silicon Valley, where venture capitalists have prided themselves on risky but canny bets, marijuana has only begun to develop a buzz.

As CalWatchdog.com previously reported, some in the marijuana business have been instrumental in pushing for a ballot initiative that would legalize recreational use. The company behind WeedMaps.com, for instance, recently contributed $1 million to one such effort. Now, similar startups seeking funding of their own have turned to the Valley’s VCs — and some startup incubators have opened up to the possibility.

Growing a market

Through new apps providing platforms that match supply with demand, customers and dispensary owners have quickly benefited “from the Silicon Valley-style normalization of the marijuana market,” Pacific Standard noted. “While companies like Leafly provide Yelp-style reviews of cannabis strains and dispensaries,” however, “fewer entrepreneurs are willing to deal closely with the product itself.”

One concern has been “scale,” the potential of a company to reach exponentially more users. Through one representative startup, GreenRush, users can “browse the dispensaries on the website, select the appropriate strain, and set a delivery time,” Pacific Standard observed. “An iOS app is, of course, in development, so you can buy straight from your couch without even having to touch a keyboard.” But in confirming that each purchaser has a medical marijuana card, GreenRush has accepted significant constraints on its customer base.

But David Hua, CEO of the ridesharing service Sidecar, told the Silicon Valley Business Journal that “the rapidly growing medical marijuana market promises to support a significant logistics business” even in the absence of uniform state and federal legality for the drug. “Drivers making cannabis deliveries via Sidecar must be medical marijuana card holders themselves, and they can only deliver to members of a particular cannabis cooperative of which they also are a member,” the Business Journal noted.

The perils of illegality

Another issue has revolved around pot’s patchy-at-best legal status. “A lot of venture capitalists smoke,” said one to the San Francisco Chronicle. “This is about legality. They don’t want to deal with (cannabis) until it’s fully legal. It’s not worth the risk.” The catch has been that VCs looking at marijuana risk have considered it differently from a user worried about getting caught breaking the law.

For starters, few Silicon Valley heavyweights have established reputations as prudish about drug use. In a dark irony, proximity to marijuana has not been closely associated with Silicon Valley’s drug problems, which have veered toward harder territory. “Drug abuse in the tech industry is growing against the backdrop of a national surge in heroin and prescription pain-pill abuse,” reported the San Jose Mercury News last year. “Treatment specialists say the over-prescribing of painkillers, like the opioid hydrocodone, has spawned a new crop of addicts — working professionals with college degrees, a description that fits many of the thousands of workers in corporate Silicon Valley.”

For investors, the key problem with legal prohibitions on marijuana has been their limitation of its market to cash — a problem other startups in tension with the law characteristically lack.

“While venture capitalists invest millions in Uber and Airbnb, which often operate in violation of local laws, they won’t invest in pot,” the Chronicle added. “Breaking a city’s ordinance means fines. Flaunting the federal government’s marijuana prohibition can get you a knock on the door from unsmiling men in dark suits. But valley investors are starting to grow less reluctant.”

Even a little interest could go a long way. Momentum has been steadily building in favor of marijuana use, in technology and culture, as well as in politics and law enforcement. In Silicon Valley, one small turn toward greater acceptance of recreational pot would probably have a gear-like effect on pot’s status in other areas, advancing the cause of legalization apace.