Debra Borchardt
- Micha Tapman, Partner Canopy Boulder:
- We’re a venture capital firm. We formed in 2013/2014. We started investing at the beginning of 2015. We’ve made 64 investments to date, or invested in 64 companies. Actually, we made about 70-some investments into those companies. The intent of the firm is to invest in ancillary products and services, so software, technology, consumer products, media plays, around the cannabis industry. We formed initially as a seed stage VC fund built around a business accelerator, Y Combinator model. The idea being initially we were doing VC pure play, and realized very quickly there weren’t enough investible companies in the market to support a VC play.
- Borchardt:
- I should say that that’s what I knew you as – a seed accelerator type situation.
- Tapman:
- Yup. We were proven right, which is sometimes you get lucky. We figured out the right answer. I think we’ve now helped figure out some of the biggest companies in the industry looking around at what people are doing. We still don’t touch the plant, we don’t really believe in investing cultivation, extraction, processing, or retail. We have investments around the world now in companies from Israel, to Brazil, to the US, to Canada. Our categories are broadly software, technology, grow technology, retail technology, data and analytics, media, consumer products. We’re always looking for things that can scale; that’s the natural VC issue. There are a lot of good ideas out there that we can’t see the scalability, so we’re not going to put money into. Even though we like the idea a lot.
- That’s the basics. Patrick Rea (Co-founder & CEO) and I run the thing, and this year we’ve launched a $20 million growth stag fund which is intended to leverage our expertise and knowledge of the seed stage area. Obviously, we know a lot of those companies that now do well, and it’d be nice to do follow-on investing with them. Additionally, we I think see more deals than pretty much anyone else in the industry. In addition to our own company that we’ve brought through the accelerator we also see a slew of other companies that are really strong, very solid companies. I think two good examples of that are Flow Hub and Baker. We saw a bulk of those companies very early on. I saw Flow Hub before Kyle had the idea.
- Borchardt:
- I think that if you’re looking at the future of the industry ultimately to legitimize it you’re going to have to go into those ancillary areas.
- Tapman:
- That’s what we’ve seen. I think the East Coast is so far behind the West in terms of this stuff which is odd. If you think about it, you think the development of a market and what that really looks like, and how supply chains develop, and how marketing and advertising develop around it, and then how consumer behavior changes around it. You can imagine the difference between alcohol during prohibition, when there was a thriving black market, versus alcohol today when there’s a bar on every corner. You pick up alcohol at the store on a very regular basis probably, right? People are coming over, one of your first thoughts is do I have the stuff they want to drink in my house; and you’re going to go the store and purchase things. That’s where cannabis is going. It’s very much a normalized experience, dosage control, consistency, trusted products.
- Borchardt:
- Right and brands.
- Tapman:
- Brands you like and associate with. Social justice and environmental sustainability as core concepts for people.
- Borchardt:
- Do you think by limiting yourself to the “not touching the plant” that you are just that, limiting yourself? Do you foresee maybe in the future that you would ever expand on that, or no?
- Tapman:
- Yes and no. There’s an immediate cashflow, sort of get rich quick mentality to cultivation, extraction, and retailers. Most of them are just gold rush people; they’re trying to make a buck today. Nothing wrong with that but to me I’m not looking to make money over the next two years. I’m looking to make money over the next 10 to 20 years. The creation of generational wealth is not something you typically do in a year.
- It is a multi-year, sometimes multi-decade plan, and execution of that plan is the mark of somebody with real vision and determination. That’s where we see ourselves, creating long term value creating companies that will create tremendous wealth.
- Borchardt:
- With the long term how do your investors feel about tying up their money for such a long time without that exit strategy? Most people when they go into this stuff they want quick turnaround. They want to get in, they want to make a billion bucks, and get out in two years.
- Tapman:
- Yeah. I think as an investor the whole point is to diversify your portfolio into different types of plays. The classic one is stocks and bonds. You’re supposed to whatever your age is subtract that out and have that much in bonds, or whatever was the old adage coming out of the 80s.
- Borchardt:
- Pyramid of investing.
- Tapman:
- Anyway diversifying portfolio so you should have different plays. I always talk to investors, I’m like if you’re looking at net worth and you’re saying now some percentage of your portfolio needs to be in home-run plays, and that’s what venture capital is all about, hitting home-runs. The same way if you’re building a baseball team you want one or two people on the team who can hit home-runs. It doesn’t mean that all nine people who go up to bat are trying to hit a home-run, that’s not necessarily a good idea because strikeouts happen. With investing it’s putting call it 5% of your net worth that you’re going to invest into home-run [ball 00:13:41] If you then hit a home-run that is game-changing. It truly changes your net worth.
- I think that cannabis is a generational wealth event, the same way that the internet boom was a generation wealth event, and we’re going to see families that are now the blue blood families of the dotcom era. Their kids are now growing up now, and these were folks who made money back in 1998. You’re like, well where did that money come from? I started, whatever; I was one of the email founders.
- That’s I think what we’re going to see with cannabis because we’re talking about the creation of a multi-billion-dollar industry. It’s occurring over the next 10-20 years. We’re going to see this legitimize in all these states, we’re going to see wealth creation in all these areas, and to me the biggest brands and the biggest companies are not going to be cultivators. Those are farmers.
- Borchardt:
- Are you having to actively pursue investors or are they really coming to you at this point?
- Tapman:
- It’s both. I’m actively pursuing investors, and looking for good investors, and then I get a ton of inbound for a combination of the really off the wall investors, you know the guy in Long Island who just wants to jump in he has no idea what the hell he’s doing, and then some really savvy investors. I’ve actually recently, in the last week, had a couple of conversations, like three conversations, with people who are like, “I tried to get involved in cannabis investing it didn’t work out so well for myself. I just need a fund that can get me exposure into the industry because I tried and failed in the last two years to figure it out.” I’m getting a lot of those calls now, which is I think pretty wise. I look at it I’m like, I don’t know anything about investing in … A good example, I know nothing about transportation stocks so why would I go invest in transportation stocks? I don’t have any insight there. As an investor, I can either try to figure it all out, which means I get to try to figure out the whole damn transportation industry, or I can go to a fund and be like can you get me exposure in the transportation-
- Borchardt:
- To stick then in their portfolio-
- Tapman:
- I hate the US public stocks for cannabis. I can’t stand them. They drive me absolutely bonkers. There are so few good ones among the mix. I can’t find them, I can’t tell you which ones are the right stock. Most of them are shell companies run by shady characters with SEC violations in their past. You start digging and you realize, wow that’s a good way to lose money.
- Borchardt:
- What are your plans for the next five years?
- Tapman:
- Our growth stage fund, we’ve got our $20 million growth strange venture fund which will be occupying [inaudible 00:28:40] for the next several years, and that’s my primary focus. We’ll make about 10 to 15 investments into cannabis related companies. I’ll help shepherd those along and find exits for them. That’s my strategy. My business partner, Patrick, keeps his focus on the accelerator, seed stage side. He will continue to grow companies, to find and nurture companies through those seed stages and bring them into the industry. Cannabis is 50 different industries in the US with 50 different states, different regulatory environments. It is a combination of a dozen different verticals, so there’s so much room. I come out of cyber security so to me it’s another highly regulated industry, similar to cyber security, where there’s a lot of work to be done to comply with regulations, be compliant, set the stuff up. Innovation will come as a result of that.
