In May 2010, I worked in one of the divisions of Silicon Valley Bank (SVB) and there I spent all day talking with the smartest people – the leaders and founders of breakthrough companies who were ready to make the impossible possible. Thanks to them, my team had a unique opportunity to see the products, organizations and brands of the future. One day, a colleague and longtime friend Christian Gro and I met with a California-based startup who called himself “a medical cannabis technology company.” We were not impressed by the team, nor the strategy, nor the startup business model, but more importantly, we did not understand how to develop a project in such an industry: we never thought of cannabis as a real legal business.
A few days later I heard on the radio the news of the so-called legislative proposal No. 19, a referendum on which was held in California in November of that year. It suggested that the use of marijuana for personal purposes and its commercial production would be legalized. I was intrigued and called business friend Michael Blue. By that time, the medical use of cannabis was legalized already in 15 states and 15 countries, but use for personal, recreational purposes was nowhere else. Christian and Michael and I thought about the potential of this industry and began to collect information.
A couple of months later, California voters rejected Proposition 19. It might seem that our efforts were in vain, but our stone fell from the soul: we were worried that we learned about the new market too late. It was difficult to give an accurate estimate, but we calculated that the industry of legal medical and illegal recreational marijuana could be estimated at approximately $ 40-50 billion in the United States and $ 150-200 billion globally. The industry seemed extremely fragmented to us, the companies operating in it were immature, with no established brands and common quality standards, with significant restrictions on access to capital and a lack of professional management. This gave us a chance to establish our company in advance, even before legalization, and to lead the newborn industry.
In December 2010, I quit the bank and sat down with Christian and Michael for drawing up a business plan for the future enterprise. At first, we thought of creating a venture company and investing in cannabis startups. It was not easy. All the companies in this area seemed dubious to us, we did not dare to entrust them with capital, and as a result switched to a direct investment fund model that allows us to fully own and manage companies, growing industry leaders out of them.
VALLEY AND MOUNTAINS
I was born in San Francisco and was the sixth of seven children in a family. Parents did not live well. I turned out to be rugged and at 16 I began to engage in construction. Then he received a diploma in architecture at Berkeley and a master’s degree in civil engineering from the University of Washington. At the university, I became interested in programming and founded a company to write custom software. Then he launched a startup on Internet usability. By 2002, I left both projects with good, but not terrific results. It turns out that by the age of 30 I managed to be the head of two companies – few were eager to hire a person with similar experience. Therefore, I decided to enter a business school and systematize the accumulated practical experience. After graduating from an MBA course at Yale, in 2005 I got a job at SVB, where I grew up to the production director of a newly created analytical unit.
We were hired by two colleagues to solve a specific problem: under the new law, startups with venture capital investments had to calculate the market value of options issued to employees. Since there was no market for these options, the task was not an easy one. To resolve it, we developed a model that forms a startup directly inside the bank. Our team has grown from 3 to 125 people, the number of customers – from zero to three thousand. One of them was Tesla (then it was still a handful of enthusiasts huddling in a warehouse in California’s San Carlos). I happened to sit in the first car Ilona Mask, and in the second – even ride. I held this position for a long time: every day many talented entrepreneurs came to us, and I learned a lot from them.
Before we began to study the marijuana industry, I knew almost nothing about it. I always went in for sports (now – triathlon) and never smoked anything. I tried weed a couple of times, but I didn’t like it. At the same time, my attitude to anti-drug legislation is strongly libertarian: I am convinced that cannabis should be allowed and that fighting drugs, imprisoning millions of Americans, is morally unacceptable.
My experience in construction has taught me to find a common language with anyone. This came in handy when working on a new project. We traveled through the hills of northern California and southern Oregon, through the fields of Colorado and Washington, and through farms in British Columbia. We visited wherever people grew marijuana – legally and illegally. We visited Jamaica and licensed manufacturers in the Sea of Galilee in Israel. During a trip to Amsterdam, in one day I visited more than 80 coffee shops where they sold cannabis.
Sometimes there were problems. We were tough short-haired guys in formal suits – many immediately mistook us for federal anti-drug agents. Gaining trust was not easy. We paid for hundreds of cups of coffee, breakfast, lunch, and dinner and asked thousands of questions to industry experts. The network of contacts built in those early days was perhaps the most useful investment we have made. She still feeds us with industry news from around the world.