Marijuana startups could be decimated once legalization hits

Last week, I got legal pot delivered to my Bay Area doorstep faster than most Postmates orders.

I picked out a new cartridge for my vape pen from Eaze, a medicinal marijuana delivery startup that’s been dubbed the “Uber of weed,” and fewer than 20 minutes later, a courier pulled up outside my apartment and handed me a white linen bag that hid my purchase.

A new “Uber of weed” or “Yelp of marijuana” crops up on the legal pot landscape every other week. There’s a Birchbox-like service for “every kind of stoner.” Users find love on High There, the “Tinder for weed smokers.”

But one angel investor says marijuana startups are going to be decimated once legalization happens, unless they distance themselves from the “‘X’ of marijuana” cliché.

Ben Larson left his job directing a startup accelerator in 2015 to launch Gateway, one of the first incubators for pot entrepreneurs. The program helps founders develop their business models, find mentors, and learn about raising capital.

Since Gateway set up shop in Oakland, California, Larson has been flooded with “‘X’ of pot” pitches.

But a catchy tagline isn’t enough. Let’s say you run a payment processor company for marijuana dispensaries. You nickname it the “Stripe of pot.”

“You have got to be much, much more,” Larson says. “Because as soon as it becomes legal, after the stigma drops a little bit, what stops PayPal from coming in and kicking your ass?”

Take Postmates. The company’s couriers deliver everything from Thai food to toothbrushes. In a future where legislation ends the prohibition on pot, it’s not crazy to imagine a big-name, on-demand startup like Postmates adding dispensaries to an existing network of shops and restaurants.

The company already has a massive user base, making some 1.3 million deliveries a month in 40 cities. It would have the infrastructure to support an influx of marijuana consumers should the laws change, whereas smaller, pot-focused delivery startups might struggle to meet demand.

Another slogan that irks Larson is the “iStock photo for cannabis.”

“It’s like, not only can I go to iStock and search cannabis and get pictures, but what stops them from beating you?” Larson says. “They’ve been doing this for years, they have a huge database.”

In defense of these fledgling pot startups, many have experience on their side. The “Yelp of marijuana,” Leafly, has curated tens of thousands of reviews of strains and dispensaries since it was founded in 2010. It would be impossible for a potential competitor like Yelp to bulk up its database overnight and match Leafly’s expertise — or gain their users’ trust.

It will also most likely be years before legalization sweeps the U.S. Companies like Uber, Postmates, or Yelp won’t touch the plant until it’s reclassified under federal law, one startup founder at Gateway tells me.

At Gateway, founders are developing business plans that will help them avoid potential devastation.

One marijuana edibles company in Gateway’s first batch, for example, provides infused products to several California dispensaries, but wants to branch out into non-medicated products, like cookies and “cake bites.”

They hope to sell them at retail giant Whole Foods, so that they will have a fully legal portion of the company outside the cannabis realm that can grow and gain name recognition. When legalization arrives, they will already have a major distribution source.

Another pair of startup founders at Gateway tell me they’re optimistic there will be “room for everyone” when legalization hits, so long as startups can carve out truly original niches.

Source: Business Insider