Ganjapreneur is excited to present our latest interview with cannabis investor Douglas Leighton. Leighton is a co-founder and principal partner at Dutchess Capital, an investment group which manages world-class investment funds for start-up, pre-IPO, and publicly-traded companies. Dutchess has been advocating for and investing in the legal cannabis industry since 2012.
In this interview, Leighton describes how Dutchess came to see the cannabis industry as an opportunity, and what some of his predictions are for the next several years. He also discusses some of the group’s current investments, including the popular cannabis social network MassRoots, the edibles producer Dixie Brands, and several others.
Read the full interview below:
Ganjapreneur: When did Dutchess Capital first begin to look at the cannabis industry as an investment opportunity?
Douglas Leighton: We began looking when The Commonwealth of Massachusetts was about to pass the medical marijuana bill via voter approval on question 3. It took us about 10 months of due diligence before we were comfortable to make the first investment. We joined ArcView, the angel network for the cannabis industry, in the summer of 2013 and met Isaac Dietrich of MassRoots and subsequently made the first investment.
In a fully-legalized system, which market would you say is the most significant: recreational cannabis, medical marijuana, or industrial hemp?
The largest market will be pharmaceutical marijuana. This will be a genetically modified version of what is used today for medicinal purposes. The power of this plant is not fully understood; once big pharma understands it, they will get involved. I think the second will be recreational, due to the sheer population size and the fact that people will likely come to realize it is better for you than alcohol with far less side effects. Recent studies have shown there are also less side effects on society from cannabis than there are from drinking alcohol, including violence, addiction, drunk driving, etc.
What do you think some of the most promising niche sectors are related to cannabis?
First I’d say consulting. I think the “top-down” approach has the most potential. I will equate it to the concept of selling picks and shovels to miners during the gold rush. In the case of cannabis, it is the consultants providing guidance to all of the marijuana startups in cultivation and retail and then selling the related products to growers on a B to B platform. There will also be a need to create better efficacies in the current markets as the product becomes commoditized. An example of this is one of our portfolio companies, American Cannabis Consulting (AMMJ:OTC). They are at the forefront of this industry with about 12 major clients in the US and Canada. They provide solutions for businesses operating in the industry through consulting and advisory services, as well as supplies business with equipment and products.
I also like the technology sector. One of our first investments in the industry is the semi-anonymous social network MassRoots. They are largest social networking site for the cannabis community and have grown over 2,000% year over year. They are anonymously collecting a tremendous amount of data from their user base such as a user’s strain preference, time of day they consume, consumption method among other key data collection points. They will be able to monetize this data via sponsored posts of either localized merchants and/or national brands.
Dutchess also likes companies in various sectors with that are building a brand of consumer products and goods. Tripp Keber has done a remarkable job with his branding efforts of Dixie Elixirs. I also think a brand such as Foria, the world’s first THC infused personal lubricant for women, has done a stellar job with its branding, and it shows; they were recently featured in British GQ.
Is there a particular niche that Dutchess Capital has focused on, or are you casting a wide net on the industry?
The industry is so new that we are casting a wide net. In saying that, we like businesses that have long-term contracts or high barriers to entry. We put particular focus on the people behind the products and services; are they hard working, passionate and driven to succeed?
What is the most important thing for an aspiring ganjapreneur to do if they are looking for an investor to help fund their business?
Know your business inside and out. Know every number and statistic off the top of your head. You need to live and breathe your work. Be able to explain it in 2-3 sentences what it is you do, or what you are looking to do. Have your proforma and deck ready at all times. Be able to show how you are going to scale your business with investment. Have a reasonable valuation and realistic expectations of growth. You are not going to sell your business to a fortune 500 company; please don’t tell me that.
Can you discuss any of the cannabis industry projects that Dutchess Capital has invested in to date?
Sure. We have invested in Dixie Brands, the industry leader in edibles and consumables; Mile High Entertainment, a license play with celebrities; Kandy Pens, a vaporizer company; Foria, a marijuana-infused personal lubricant company; American Cannabis Company, a consulting and B to B supplier; MassRoots, a social media company, as well as several grows around the country to name a few.
Have you noticed any common traits among the entrepreneurs you see in this industry, which set them apart from the people in more well-established industries?
I would say the passion for the industry as an entirety, and the desire to propel the movement forward. They also want to educate people who are ignorant to the cannabis plant. People have been lied to for years about the cannabis plant, and the people in this space want to educate that section of the population on why this plant can help so many people.
What do you think the next five years has in store for the industry?
Growth. There will be many bumps in the road, and more growth. Investing in this industry is like playing chess without being able to see the board. Eventually ignorance will abate, the banking issue will be fixed and the drug will be rescheduled.
How about the next fifteen years?
Industrial hemp will be everywhere; pharmaceutical grade cannabis will be prescribed by a doctor and covered under insurance. It will be legal in all 50 states and people will talk about the multi- generational wealth that had been created from the people brave enough to invest at the dawn of this industry.
Thank you for taking the time to answer our questions, Douglas! Ganjapreneurs from every niche and sector in the industry would be wise to heed your suggestions while seeking investors.
If you have comments or questions of your own, feel free to post them below. Or, get in touch with Dutchess Capital directly via their website. Dutchess has also published a guide for cannabis industry entrepreneurs, which you can download by clicking here.