Cannabis legalization is attracting hordes of hopeful entrepreneurs to the sector. Yet when they have questions about complex regulatory issues and other business challenges, there have been relatively few mentors and programs to offer guidance. A new crop of cannabis-focused incubators and accelerators is hoping to change that by launching programs to assist fledgling firms in the marijuana sector.
“Any startup needs a system of support, and it’s very tough to be an entrepreneur,” says Alex Blumenstein, co-founder of Leaf Forward in Toronto. Leaf Forward is currently raising $3-million for its first accelerator program, scheduled to begin in October.
Incubators and accelerators provide mentoring, education, connections and seed funding to startups, with the aim of getting products and services to market faster. Programs often end with a demo day for outside investors. The model is well-established for tech startups. The Centre for Digital Entrepreneurship and Economic Performance (DEEP), a think-tank in Waterloo, Ont., estimates there are more than 140 startup-assistance organizations in the country.
Even so, there are few specialized services for the cannabis sector, despite growing demand. Leaf Forward already has around 150 businesses preregistered for its accelerator and boot camp program, according to Mr. Blumenstein. “We’re pretty confident we have a strong pipeline for this,” he says.
Along with two co-founders, Mr. Blumenstein, who previously worked in public affairs, first launched a meet-up for cannabis professionals in Toronto last year before expanding to other cities. Once armed with a network of entrepreneurs, industry leaders and other professionals, the trio decided to start an accelerator.
Leaf Forward offers a mix of programming, including online seminars and boot camps covering everything from regulations to marketing to financing. The accelerator, targeted to more mature startups, is envisioned as a three-month program focused on building relationships, setting and hitting performance goals and pairing firms with the right mentors. Leaf Forward currently has a roster of 25 mentors with expertise in areas such as production, branding and law. The program will admit four to six companies in its first cohort.
Leaf Forward could invest up to $50,000 in a company for a stake as high as 10 per cent. (Startups will actually receive $35,000; the remainder covers the cost of Leaf Forward’s programming.) “We want to graduate them on the other end at a higher valuation, where they will be able to raise more money,” he says.
Leaf Forward’s mentors are not compensated, but participating gives them an early look at emerging companies. While many investors are still focused on licensed producers, Mr. Blumenstein says the next opportunity concerns ancillary services, such as technology that provides accurate dosing information or that facilitates more efficient cultivation. Indeed, startups that have expressed interest in Leaf Forward run the gamut from makers of cannabis-infused skincare products to vaporizers to delivery services.
CannJoin, located in the east end of Toronto, is taking a similar approach. The goal is to have three different programs to cover very early-stage efforts through to more mature firms. According to president Dawn van Dam, CannJoin could invest between $50,000 and $100,000 in successful applicants. CannJoin aims to be operational in September, although it’s still finalizing its mentor list.
The accelerator is backed by Cesare Fazari, a founder of a commercial construction firm and an early investor in licensed producer Hydropothecary Corp. Mr. Fazari has since invested in smaller firms, and sees CannJoin as a way to fill a funding gap. “Right now, all the investment is going to the big boys,” he says, referring to publicly traded licensed cannabis producers. “But from what I can see, there’s so much underground innovation happening.”
Another upstart incubator, to be called the Infused Innovations Institute, plans to focus on cannabis food and beverage entrepreneurs. It’s a joint partnership between the Food Innovation and Research Studio (FIRSt) at George Brown College, Toronto non-profit Food Starter, distributor Lifford Wine & Spirits and law firm Dale and Lessmann LLP.
FIRSt at George Brown already works with small- and medium-sized food and beverage companies to develop products, conduct market research and provide sensory and nutritional analysis. (George Brown students are hired to work on at least half of the projects.) Expanding into edibles is a natural move – especially since FIRSt has received inquiries from people with recipes for cannabis-infused products. “We want to educate around regulations and safe production,” FIRSTs director Tricia Ryan says. “What we’re seeing is there’s a lack of understanding about food safety and shelf life and things like that.”
For now, the venture is starting with an edibles conference in October, followed by monthly educational events. FIRSt may eventually apply for a cannabis research and development license that would allow it to work with edibles in a test kitchen, a valuable resource for entrepreneurs. Since edibles are not slated for legalization until next year, existing products are often made in home kitchens. Even without a license, the incubator can assist with market research, as well as legal and regulatory issues.
From Lifford Wine’s perspective, an incubator could act as a business-development channel for its distribution services. Lifford, which works with alcohol makers to place brands in retail outlets, is launching a division for cannabis firms. “Our goal is to take these small craft brands and place them in appropriate markets,” says Lisa Campbell, a cannabis portfolio specialist with Lifford. “The advantage of the institute is it will allow small entrepreneurs to be part of the market, not just big business.”
Even though Canada has a growing ecosystem of accelerators, time will tell how beneficial they will ultimately be. DEEP studied the issue in 2015, and found the top 20 accelerators attracted more than $1.7-billion in follow-on investment, and led to the creation of more than 10,000 jobs. But DEEP also cautioned there is no nationwide performance data on accelerators, so it’s not possible to draw firm conclusions. Accelerators in the United States, meanwhile, have produced large companies such as Airbnb and Dropbox, while there are no equivalent Canadian successes.