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.

MADD has entered California’s heated debate over new regulations of the state’s burgeoning ridesharing industry, arguing that the service cuts down on drunk driving. The national group, which combats drunk driving and underage drinking, specifically takes issue with two bills working their way through the Legislature that would hurt ridesharing services, such as Lyft, SideCar and Uber.

In its letter of opposition to Assembly Bill 2293 and Assembly Bill 612, MADD wrote that the bills “could have dramatic consequences for the future of ridesharing in the state.”

“MADD supports new ridesharing platforms like Uber, Lyft and Sidecar as well as traditional taxi services that are enabling more options to provide safe rides in communities across the country,” J.T. Griffin, MADD’s chief government affairs officer, wrote in an open letter to state lawmakers.

MADD about AB612 and AB2293

Assembly Bill 2293 would force ridesharing services to have more insurance coverage than is currently carried by most taxi companies. That proposed regulation would make ridesharing drivers among the most insured cars on the road. If it passes, it’d even force drivers to carry commercial grade insurance during the period when no rider is in the car and no commercial activity is taking place.

“AB2293 would require a massive increase in insurance even when the rideshare drivers are not participating in the program and are in effect driving as private citizens,” MADD stated in its opposition letter. “Such an increase in insurance costs could stifle a new industry and have the unintended consequence of raising rates which these rideshare services must charge.”

According to a legislative analysis, ridesharing companies would be required to carry $1 million in uninsured motorist coverage and underinsured motorist coverage “from the moment a passenger enters the vehicle of a participating driver until the passenger exits the vehicle.”

AB612: “End of the ride-share industry”

Assembly Bill 612 by Assemblyman Adrin Nazarian, D-Van Nuys, would require ridesharing companies to abide by extensive new regulations, including the requirement of background checks, monitoring driving records and drug and alcohol testing. The companies already rate their drivers and review driving records, which leads many to speculate that the regulations are intended as a punitive effort to snuff out the industry.

Earlier this month, in an interview with the San Jose Mercury News, Sidecar CEO Sunil Paul said that the bill could mean the end of the industry. Paul told the Mercury News that the bill was “a burdensome approach that is backed by the taxicab lobby, really, to try and shut us down. If it passes, it is a disaster — it would literally spell the end of the ride-share industry.”

Uber echoed the sentiment and is urging its customers to fight back.

“Other states, like Colorado, have found legislative solutions that help advance technologies like Uber and protect consumers and drivers,” Uber wrote in its letter urging customers to oppose the bills. “But supporters of AB612 would altogether ignore the vibrant new ridesharing ecosystem and try to make it impossible for companies like Uber to operate.”

National data show drop in DUIs

National data overwhelmingly support MADD’s position that ridesharing lowers the number of drunk drivers on the road.

Blogger and ridesharing fan Nate Good analyzed DUI arrest data in the city of Philadelphia. His analysis showed that, as ridesharing has increased in popularity, there’s been a drop in DUI arrests. And the data show a cultural shift in attitudes: the biggest drop has occurred among people under 30.

“After all ride sharing services were in effect (April 2013 through the end of 2013), the average number of DUIs per month dropped across the board by 11 percent, with those under 30 being mostly responsible for the drop,” Good wrote in his detailed analysis.

In addition to Philadelphia, the Washington Post conducted an analysis of DUI data from San Francisco and reached similar conclusions. In May, Uber produced its own analysis of DUI data from Seattle, which showed a more than 10 percent drop in DUI arrests.

“We estimate that the entrance of Uber in Seattle caused the number of arrests for DUI to decrease by more than 10 percent. These results are robust and statistically significant,” Uber wrote on the company’s website. “While there is plenty of room to explore this topic in future studies, the data confirm the intuitive claim, backed up by countless anecdotes, that potential drunk drivers will choose other options, like rides with Uber, when they are convenient, affordable, and readily available.”

Mothers Against Drunk Driving stresses that, while ridesharing companies are helpful in the fight against drunk driving, tough drunk driving laws and increased enforcement are also needed.

“While the best way to stop drunk driving is to couple strong drunk driving laws with strong DUI enforcement and educating the public on the consequences of breaking these laws, it is also important for those over the age of 21 to have a safe ride should they go out to consume alcoholic beverages,” MADD wrote in its letter.

Assembly Bill 2293, by Assemblywoman Susan Bonilla, D-Concord, would severely limit the ability of startup companies to use social networking technology to link passengers with independent, licensed drivers. The startups, such as Uber, Lyft and Sidecar, don’t actually own the cars, only the linking technology.

Though their approaches vary, the services amount to a high-tech version of ride-sharing, as when a college student puts up a sign on a bulletin board, “Driving from S.F. to L.A., need passenger to share gas costs.”

In these new services, a passenger uses an application — or “app” — on his smart phone or computer to set up a ride with the independent car and driver. The tech company charges a fee.

But the new services directly compete with taxis, who are seeking legislative protectionism. AB2293’s weapon is insurance law.

Currently, so-called “transportation network companies” like Uber insure drivers during the times passengers are inside their vehicles. Drivers rely on their personal auto insurance when they’re not carrying passengers. But AB2293 would require the companies to insure the drivers from the moment they turn on their services’ apps in their cars — regardless of whether there’s anyone else in the car. Theoretically, this would cut down on distracted driving and defray costs.

In practice, the politics and economics surrounding the bill are more complicated. California has joined the growing list of states, currently 11 strong, where Uber’s insurance practices have received unwanted attention.

Tilting the scales

Alone, AB2293 isn’t enough to force the new transportation companies out of business. Its insurance requirements, however, are substantial enough to raise questions about whether Assemblywoman Bonilla is using the power of government to try tipping the scales of the market.

Taxis are required to provide primary, full-time insurance coverage. Transportation network companies aren’t. They, like cab companies, provide over $1 million in commercial liability insurance to their drivers. Unlike cab drivers, however, drivers for Uber and similar companies only get to access that insurance as excess coverage, meant to pick up where drivers’ personal insurance policies leave off.

That’s a problem for the business and government entities that craft California’s insurance law. Insurers and the Department of Insurance agree, as KQED reports, that drivers’ personal insurers won’t actually pay up when liabilities are incurred in the course of drivers’ work with Uber, Lyft or Sidecar. That, in turn, makes those services seem cheaper than they are. They can lower their prices to a point that makes them competitive against cabs, while, the argument goes, hiding the cost and the risk run by hoping drivers’ personal insurance will do most of the work in an accident.

But in many areas and cities, that’s not the main challenge facing the transportation network companies. More important, their business activities as a whole are illegal or exist in a legal gray area. That’s why, ironically, some cab drivers oppose AB2293, which could help legitimize their competition and give some legislators an incentive not to regulate them any further. Owners of taxi and limousine fleets, by contrast, have pushed hard to discredit Uber, Lyft and others.

Parity

Bonilla’s bill is intended to bring some parity to the insurance requirements facing taxis and transportation network companies. But according to the companies, it goes so far that it locks an inequity into the system. A Sidecar spokesperson warned that Bonilla’s requirement of $750,000 worth of coverage when an app is “on,” but a driver lacks a passenger, amounts to “more than 20 times higher than what is required of taxi and livery services.” Since Sidecar’s drivers drive their own personal vehicles, the spokesperson continued, “It’s clear there is less risk when there is not yet a passenger in the car.”

Despite the opposition of some cab drivers, AB2293 reinforces the notion that government reflexively protects the established taxi industry from new, outside competition. Since the rise of Uber, the taxi-hailing public has become increasingly aware of how cabs rely on preferential regulation for their dominance.

In some cities, regulatory benefits have given way to outright corruption. On the heels of a scorching expose in the Boston Globe, columnist Edward Glaeser summed up the problem:

“The purpose of taxi regulation is simply to protect passengers against being fleeced by unscrupulous cabbies, and to keep passengers, bystanders, and the environment safe. Yet the system instead has evolved mainly to enrich the holders of government-issued taxi medallions, even as taxi drivers struggle to earn a living and passengers pay some of the highest rates in the country.”

A complicated equation

AB2293 follows on the heels of another piece of legislation, AB612, which would impose a raft of new requirements on Uber and its competitors. Under AB612, drivers would be forced to accept permitting, fingerprinting, drug tests and background checks. Taxi drivers already often must endure extensive licensing requirements and processing.

At the same time as Uber confronts legislative challenges to its business model, the service has encountered new resistance from some of its own drivers. Last month, a sizable protest gathered drivers outside the company’s Santa Monica offices.

Pushing for greater communication and corporate accountability, the drivers have also struck up a relationship with Teamsters Local 986. According to a union press release, Local 986 will offer “guidance and support in forming an association for app-based commercial drivers, including all drivers who utilize the Uber, Lyft and Sidecar technology platforms.”

The shifting balance of support and opposition to those platforms has created a complicated political and economic equation. The University of California, for instance, touched off a related scandal when its head of travel, Belinda Borden, mistakenly fired off an email announcing that all “peer-to-peer” services, from Uber to Airbnb, were now banned from UC employee use.

In fact, the decision is only under consideration. The cost increases it would trigger, however, were enough to draw fire from ex-officio UC Regent and Lt. Gov. Gavin Newsom, who told UC chief Janet Napolitano in a sharply worded letter that hurting the bottom line and stifling innovation made for a bad combination.

With insurance companies and trial lawyers backing Bonilla’s bill, however, Sacramento will have to stand up to several traditionally powerful special interests in order to keep California’s transportation market free and open.

“Remember when tech startups like Lyft, Sidecar and Uber fought California regulators and won, getting designated as a new class of transportation that was deemed legal?

“Turns out Uber didn’t like that. It filed today a petition for rehearing with the California Public Utilities Commission, saying the transportation regulator shouldn’t have jurisdiction over technology companies.

“What’s going on here is that Uber is trying to play the long game. The previous decision may have been harmless enough, but Uber being Uber, it doesn’t want the CPUC to get the idea that it can tell Uber what to do.

“More specifically, in September the CPUC established a new category called “transportation network companies,” where drivers use their personal vehicles to provide rides for pay.

“That applied to the peer-to-peer businesses of Lyft, Sidecar and Tickengo, and to Uber’s own competitor in that space, UberX. It was a highly important decision that helps legitimize the larger idea of a sharing economy, where non-professionals share their resources and time for a fee. And it was hailed as such by the peer-to-peer companies. 'We made history today!' tweeted Sidecar CEO Sunil Paul. …

“What Uber is clearly concerned about is the CPUC extending its regulatory interest deeper into the Uber business — for instance, saying Uber needs to register as a 'transportation charter party,' or TCP, which covers the commercial license for black cars and limos. That hasn’t happened yet, but it’s possible that it’s on the table.

Here's hoping Uber gets its way. As the Reason folks have pointed out for decades — here's a recent iteration — licensing and regulation have long been used not for safety reasons but to protect entrenched business interests from competition.

If Uber and similar firms wipe out taxis, so be it. Survival of the fittest, and no more ripoff $33 fares for four-mile drives to and from the airport.