Pitching Marijuana Startups Brings New Meaning to High Tech

Investing in a social network closely tied to a booming industry sounds great, until Apple kicks the thing you invested in out of the App Store because the platform is all about marijuana.

It’s one of the many things that can happen when two of the fastest growing industries in America come together, as is taking place this week in San Francisco, where several dozen entrepreneurs are pitching 200 or so investors, Shark Tank style.

Organizers of the investor-pitch forum cite as legitimacy the recent multimillion dollar investment by Silicon Valley titan Peter Thiel‘s Founders Fund in a holding company of several marijuana-related firms. The entrepreneurs at the Fairmont Hotel are pitching startups selling marijuana-growing equipment, apps that help with medicinal marijuana delivery, and even a spray that an entrepreneur says was developed at the Lawrence Livermore National Laboratory that coats marijuana with grower information, acting as a kind of DNA bar code.

“It’s more suited to what cannabis would be in the future,” says DNA Trek founder Anthony Zografos.

Since Colorado and Washington first voted to legalize recreational marijuana use in late 2012, the legal cannabis market has grown from $1.5 billion in 2013 to $2.7 billion last year, according to industry estimates. That kind of velocity gets the attention of investors, many of whom focus on tech.

Mass Roots, the “social network for the cannabis community,” is one of the startups pitching to members of the Arcview Group, which organized the event. Several group members have already helped MassRoots raise $1.4 million, the last half at a valuation of $25 million, MassRoots says. Then last fall, the company got a call from Apple that MassRoots and other marijuana-related apps were being shut out.

Isaac Dietrich, the 22-year-old chief executive of MassRoots who helped “conceptualize MassRoots while smoking in a college apartment,” according to the Web site, says MassRoots’ time will come. “Eventually Apple is going to change their policy,” and his company is “the first one in the gate, and hopefully will dominate this niche.”

Investor Douglas Leighton hopes so. His company, Dutchess Capital, invested in MassRoots in 2013. Mr. Leighton flew out from Boston for the forum, and said he sees upside in the App Store setback.

He reasons that if mainstream social media does not welcome the surging marijuana industry — often shutting down accounts devoted to pot businesses — that leaves an opening for MassRoots, where businesses and users can find a safe haven. “LinkedIn is your professional profile,” he said. “This is your cannabis profile.” And the data harvested about users’ marijuana use — how they check in or post about using it — is “incredibly valuable” for marijuana-related businesses, Leighton said.

Another startup pitching its blend of tech and marijuana Monday was Eaze, an app promising “medical marijuana delivered to your doorstep in about 10 minutes” by connecting users to nearby dispensaries. In true Silicon Valley style, the San Francisco startup is also seeking drivers, such as those employed by Uber and Lyft. “Do you drive professionally and know a thing or two about marijuana?” the company’s Web site asks.

Separating which startups will boom from the wacky ideas is tough, says investor Rodger Wheaton, an attorney from New Orleans who has put about $100,000 into the new industry. “There are a lot of snake-oil salesman,” Wheaton says, surveying the room.

To combat this, Wheaton invests with Poseidon Asset Management’s Pioneer Hedge Fund, which focuses solely on the cannabis industry.

Run by brother and sister team Morgan and Emily Paxhia, the San Francisco-based fund has put about $5 million into companies, including Mass Roots. Typically potential investors unfamiliar with the industry make jokes, Emily Paxhia says, asking “Oh, did you bring free samples? Ha, ha.”

Also providing investor opportunity is the Marijuana Investment Co., which runs the Marijuana Index, a free online dashboard for investors in the industry athttp://marijuanaindex.com.

Mr. Leighton says the industry is not just growing, but growing up. Big data, maturity of companies, and moving away from smoking are three big trends in the industry, he said. “Smoking anything isn’t good for you,” he said.

That’s where Auntie Dolores’ vegan, paleo, gluten-free glazed pecans come in. At $20 a bag for 10 “doses,” the Oakland, Calif., company’s nuts are delicious and potent, founder Julianna Carella boasts.  ”About three pecans” are a recommended serving for recreational marijuana users, she said. “They’re really good, and the effects are great.”

Auntie Dolores’ Glazed Pecans cost $20 and contain “10 doses per package.”

Jeff Elder for The Wall Street Journal

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