Tilray, which cultivates marijuana crops in Nanaimo, British Columbia, is one of the companies managed by Privateer Holdings, a Seattle company that recently received venture capital funding. Credit Dirk Heydemann/Tilray
One morning in September, I logged on to the website of HelloMD, a medical start-up that promises to connect patients with doctors instantly over the Internet. I filled out my personal details, explained my ailment — I often get heartburn — and entered in my credit card number to cover the $50 consultation fee.
Within 10 minutes, a pediatrician based near Washington who is licensed to practice medicine in my home state of California popped up on my screen. She appeared to be sitting in her home — there were a few teddy bears and ceramic figurines on a cabinet behind her — and she wore a red shirt, not a white coat.
The doctor asked about my medical history, current symptoms and familiarity with certain medicines. The interview lasted about three minutes, after which she announced what everyone who visits HelloMD expects to hear: According to her diagnosis, my heartburn made me a candidate for medical marijuana, which has been legal in California since 1996.
HelloMD is at the forefront of a new trend in Silicon Valley: the cannabis tech start-up. As marijuana laws are being loosened across the country, entrepreneurs and investors are creating new businesses to cash in on what they see as an emerging bonanza. Like start-ups in other industries, these firms are trying to use technology to bring speed and efficiency to what has long been a face-to-face, pen-and-paper market. In the process, they are also trying to alter mainstream perceptions of the marijuana industry, shedding the ganja and Rasta imagery to cultivate a wider audience.
Credit Stuart Goldenberg
“What we see is moms, dads, professionals, old people, everyone wanting access to cannabis,” said Mark Hadfield, the founder of HelloMD. “The old type of experience — go to a crummy doctor’s office, wait in line — was not going to appeal to the market that we were after, which is everyday Americans, a market that, by the way, is much larger than the old market of — I don’t want to call them stoners, but let’s say, ‘recreationally minded young people.’”
People in the marijuana industry have lately taken to saying that legal marijuana is the next Internet, an untrammeled new market opportunity that is just waiting for its own big brands, the Google and Facebook of pot. But many businesses are also finding that, in an environment of only partial legality, not everything in the marijuana business is smooth sailing.
Proponents for legalization expect a handful of states to vote on ballot measures to legalize the recreational use of marijuana in the 2016 election. The biggest prize is California, where a wealthy coalition of advocates,including Sean Parker, the co-founder of Napster and the former president of Facebook, is pushing for recreational legalization.
“California is the biggest domino,” said Justin Hartfield, the founder and chief executive of Weedmaps, a kind of Yelp for marijuana dispensaries, who is also backing the California initiative. “Once California goes legal, very shortly after we’ll have a majority of states where adult use is legal.”
The ArcView Group, a company that connects investors to cannabis businesses, estimates the American legal cannabis industry generated $2.4 billion in sales in 2014, up 74 percent from 2013. Legalization will lead to continued growth of at least double-digit percentage points for the rest of the decade, according to Troy Dayton, the chief executive of the ArcView Group.
“This is already the fastest-growing industry in America, and when these new markets come online, the impact will be huge,” Mr. Dayton said.
And when millions of new customers flood into the marijuana business, tech companies will be lining up to offer them an easy way to find a hit. They’ve already made it pretty simple: After getting my prescription, I didn’t have to do much more to get some drugs.
HelloMD emailed me a letter, a “medical recommendation” that is the technical equivalent of a medical marijuana prescription, statingthat “this patient has been diagnosed with a serious medical condition, and that the medical use of marijuana is appropriate.” Using Weedmaps, I found a service that would deliver marijuana to my house. After uploading a picture of my driver’s license and the HelloMD letter to the dispensary, I was cleared to order from a voluminous online menu.
I chose a Shatter Tank, a $100 pen-shaped electronic cannabis-extract vaporizer (even for drugs, I choose the techie route). About an hour later, a young man who bore the faint smell of a joint rang my doorbell and handed me the package. The entire process was easier than ordering a pizza. I’ve since forgotten about my heartburn (which I really do have — though of course, it’s entirely possible that many HelloMD patients could be stretching the truth about their ailments).
HelloMD is not alone. On Wednesday, Meadow, a one-year-old company that also makes it easy to get a prescription and order online, is announcing the introduction of software that will eventually let many businesses in the medical marijuana supply chain manage their operations digitally.
Brendan Kennedy, one of Privateer’s founders and its chief executive, has worked for years in Silicon Valley finance. After looking into the cannabis business, “we quickly realized that this is no longer, and hasn’t been for years, a countercultural product,” Mr. Kennedy said.
“As the laws change, what we’re trying to build is a seed-to-sale platform,” said David Hua, Meadow’s co-founder and chief executive, who shows that even a marijuana executive can’t resist the pull of Silicon Valley jargon. “We want to connect growers, distributors, dispensaries, patients and doctors, so that anyone in the business can streamline their operations.”
Meadow has received funding from Y Combinator, the technology incubator. “We’ve seen a spike in applications in the past year in companies that are doing stuff in cannabis,” said Justin Kan, a partner at the firm, who noted that Y Combinator recently invested in another cannabis-related company that has yet to be announced.
In April, Founders Fund, the venture capital firm co-founded by the investor Peter Thiel, made a multimillion-dollar investment in Privateer Holdings, a Seattle company that manages several marijuana businesses. Among Privateer’s companies is Leafly, a site that offers news and reviews of various marijuana products, and Tilray, which researches and cultivates marijuana crops at a state-of-the-art grow facility in Canada.
Brendan Kennedy, one of Privateer’s founders and its chief executive, worked for years in Silicon Valley finance, and he began researching the cannabis business after chatting with a potential client.
Privateer’s ultimate goal is to become something like the Anheuser-Busch InBev — or maybe even the Coca-Cola — of pot: The friendly, widely recognizable face of an everyday pastime.
But the reality of breaking into the marijuana business has not been easy. In 2012, Mr. Kennedy spent about half a year trying to raise money for the company. He eventually managed to get about $7 million, but it was largely from wealthy private individuals, not big funds. The company’s second fund-raising round in April netted $75 million, making Privateer one of the best-funded start-ups in the business. But it is a mark of the tender sensibilities of investors toward marijuana that the largest investor in that round has declined to be named.
(Founders Fund did not lead the round but was willing to be named, though Geoff Lewis, the Founders partner who made the investment, declined an interview request.)
“Everything in this industry is harder,” Mr. Kennedy said. “Things that would be check-the-box items for any Silicon Valley technology company, like opening a bank account or hiring a marketing firm or finding a lawyer to represent you, becomes a three- or four-month project in this business.”
And because the federal government considers marijuana illegal, many cannabis companies are not allowed to write off business expenses on their tax returns. “Every other industry only pays taxes on their profits,” said AJ Gentile, the chief executive of the marijuana delivery company SpeedWeed, which serves the Los Angeles area. “I have to pay federal tax on gross revenue.”
SpeedWeed delivers about 200 orders a day and it is growing, but Mr. Gentile isn’t sure about the prospects of his business. “If you factor all these extra costs in, the margins become very small,” he said.
But legalization looms — and with it, Mr. Gentile and other entrepreneurs hope for a wave of new customers and investors, and a widespread cultural acceptance of weed.
Correction: November 13, 2015
The State of the Art column on Thursday, about technology start-ups entering the field of marijuana marketing, quoted incorrectly from comments by Mark Hadfield, the founder of HelloMD, which sets up online doctor’s appointments for people seeking marijuana for medical reasons. He said, in reference to the typical experience of getting access to medical marijuana, that patients would “go to a crummy doctor’s office,” not “go to a crummy dispensary.”