The big moment arrived, and entrepreneur Lou Cirillo was supposed to enter a Shark Tank-style cannabis investor forum to the familiar guitar riff of “Sweet Home Alabama.”
There was a glitch in the timing and no music played. He stepped on stage Tuesday in front of 250 well-heeled investors to the sound of silence.
But the 28-year-old founder of ARC Innovations was unfazed. Wearing his trademark jeans and flannel shirt, he joked about the problem before seamlessly launching into a pitch for what may just be the world’s first electric pipe.
ARC Innovations was one of seven startups competing for a “winner’s fund” of $50,000 during The Arcview Group’s Investor Pitch Forum, held over three days this week in Santa Monica.
Teslas and Mercedes flooded the valet station at the Fairmont Miramar Hotel & Bungalows, as wealthy investors traveled from as far as South America in hopes of discovering the next big thing — and fortune — in cannabis.
“A lot of new people are jumping in,” said attendee Lindy Snider, a potential investor and the daughter of the late Ed Snider, who owned the Philadelphia Flyers and was chairman of Comcast-Spectator. “The investment opportunity is big and I think the interest is at an all-time high.”
Arcview – an Oakland-based financial firm that supports and tracks the cannabis industry – holds five of these pitch forums each year. They always come to L.A., said John Downs, Arcview’s director of business development. They also typically have one in San Francisco or Oakland, and hold the others in different cities. This year, forums are scheduled for Vancouver and Chicago.
Hundreds of companies competed for the opportunity to sell their vision to the “sharks.” They started with an online application, then a pitch via a series of webinars Arcview holds each week.
With cannabis still federally illegal, and with traditional banking services out of reach for the industry, marijuana startups face unique challenges when it comes to raising capital.
Snider, who is looking to get into Pennsylvania’s strict medical marijuana market, has been a “shark” before. This year, she was on the 17-member selection committee that helped decide which companies got this face-to-face meeting, to compete on stage for the $50,000.
“These businesses have to be solid in terms of their business plans and realistic about their valuation, or potential growth, and also their timelines,” she said.
Some pitches came from traditional marijuana businesses that deal directly with the plant.
Access SF was seeking funds to help build, license and launch Nicer Co., a 4,350-square-foot dispensary planned near AT&T Park in San Francisco. Johnny Delaplane, the company’s chief executive, said his intent is to focus on the customer experience, making people “feel like family.”
Another company, Sunderstrom, was seeking backers who can help pay for automation at their Los Angeles factory, where they produce cannabis-infused gummy candies, vape pens and sublingual cannabis sprays. Co-founder Keith Cich said they made $2 million last year with their products in around 200 dispensaries and delivery services. This year, with the recreational market now open in California, they hope to make $5 million.
There were also pitches for consumer accessory products, like Cirillo’s $150 ARC pipe.
The idea was sparked when Cirillo — who’s already developed a 3D body scanning device, an energy drink and an electric power meter — saw his friend struggling to light a traditional pipe while on a ski chairlift.
“It was kind of a joke at first. But I said, ‘The pipe should just light itself.'”
Portable vaporizer pens, which heat marijuana flowers or concentrated oils so consumers can inhale the steam, comprise one of the fastest growing segments of the cannabis retail market. But Cirillo said research shows the popularity of vape pens is largely about convenience, not because most people prefer vaping over smoking.
“No one has thought about innovating the way we smoke since probably since the ’70s,” Cirillo said.
After ARC’s presentation came a pitch for a consumer product that focuses on the agricultural side of the industry.
Leaf touted its “plug-n-plant” system to cultivate cannabis at home. The sleek white box is a fully automated grow system that lets people add needed nutrients and control lighting, among other things, a click on their smartphone. There’s also a built-in camera that lets growers put together time-lapse videos from seedling to harvest.
“Think of it as a beautiful fridge that stocks itself with cannabis,” said co-founder Yoni Ofir.
The Israeli company is already taking deposits for units, which sell for $2,990.
Then came Yobi, a Las Vegas-based startup that wanted funds to help develop and market its operations software for marijuana stores. (Think of the tablets that keep popping up on some restaurant tables, but for cannabis.)
“We do all the boring stuff for you and make sure you stay out of trouble,” said CEO Jeremy O’Keefe.
After the companies finished their spiels, the sharks started grilling.
Unlike on the “Shark Tank” TV show, Snider said the sharks are instructed not to try to stump or slam the business owners while they’re on stage. Instead, they might offer constructive criticism one-on-one after the presentations are over, creating a supportive environment. That positive vibe spilled over to the crowd.
When one young man froze during his presentation — literally unable to speak in front of the crowd — audience members clapped and shouted out words of support until he was able to get going.
“People fear public speaking more than death,” Arcview CEO Troy Dayton reminded the group.
Audience members rated each entrepreneur using an app built by Arcview. The company with the highest ratings wins the $50,000, with another prize for best presentation.
While the cash prizes are coveted, Downs said they’re really just the icing on the cake, with far more funds raised at the forum during deals that take place out of the spotlight, sometimes over a catered lunch or in the hotel’s chic lobby.
Cannabis entrepreneurs also got to pitch their products and services during a round of “speed networking.”
Investors — who included former law enforcement, retired gas company executives and trust fund beneficiaries — planted themselves at tables in the hotel ballroom. Then business owners roamed, with four minutes to sell their plans. One talked of boosting cannabis yields by adding reclaimed carbon dioxide, another talked about how to mitigate banking problems by giving shops a way to accept digital currency.
One of the challenges for would-be cannabis investors
is that the market is currently flooded with inexperienced entrepreneurs, people who have ideas that might be strong but little or no business experience. And even seasoned business leaders tend to overestimate their company’s value, in part because of the industry’s current 27 percent annual growth rate, according to Jeanne Sullivan, a longtime venture capital investor who’s now director of capital formation for Arcview.
“It is hard for serious investors to truly know where to find the great companies that might scale,” Sullivan said.
There’s also been speculation that cannabis investments might slow following the Jan. 4 news that U.S. Attorney General Jeff Sessions rescinded a policy offering state marijuana programs some protection from federal prosecution.
“If there was ever a case of someone who would benefit from medical marijuana, it would be Jeff Sessions,” joked Jeff Bleich, former U.S. ambassador to Australia who currently is a candidate to be California’s lieutenant governor.
Snider said investors are aware of the federal stance, and asking more questions, but that they don’t seem to be pulling back from the industry.
Sullivan argued the opposite is actually taking place, pointing out that Vermont legalized cannabis through the legislature just days after Sessions opened the door for a crackdown.
Cirillo surely isn’t feeling held back by The Man.
When the votes were tallied Wednesday, ARC Innovations — which was formed just eight months ago — won both the best pitch prize and the winner’s fund.
Cirillo said they’re already taking preorders and, with new funding headed their way, plan to start shipping the first ARC pipes later this year.
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