Curious investors, budding business founders and herbal enthusiasts all gathered last Friday for a VIP mixer hosted by Gateway Inc., California’s first marijuana incubator.
Gateway aims to create a group of legal, scalable and investable cannabis businesses in the Bay Area by providing seed investment and mentorship. The incubator plans to accept ancillary businesses where marijuana isn’t touched—like those that produce cannabis grow lights—but also businesses that directly handle the plants, like dispensaries and ventures that develop extraction technologies.
About 60 people poured into Gateway’s new modern headquarters situated in Oakland’s Jack London District to celebrate the incubator’s launch. Congratulatory colleagues and entrepreneurs hoping to join the program pulled founders Ben Larson and Carter Laren in each direction. The festive event was brimming with industrialists in various trades, from organic chemists to technology investors, and over the course of the night both the crowd and the aroma of marijuana simultaneously grew.
“I’m really excited about doing this in Oakland. I think Oakland is going to be the capital of the cannabis industry in the U.S,” said Laren.
Applicants accepted into Gateway’s structured four-month program will receive office space and mentorship from experts in both the tech and marijuana industries. Laren says that launching a business, whether in technology or marijuana, involves the same formula, and the most important ingredient to a successful venture is scalability, meaning that companies should be designed for exponential growth.
But this may prove to be challenging, since medical marijuana is legal in 23 states, and recreational weed is legal in only two. “Scalability is a problem, because you can’t cross state lines with some of the products,” said Laren. “One of the mitigating factors is that California itself is enormous. …You can get pretty astronomical numbers for scaling in California alone.”
Gateway provides $30,000 of capital for each company, in return for six percent equity; one percent will be allocated to the mentors who’ll be coaching the entrepreneurs throughout the entire program. In comparison, the incubator’s sole competitor, Colorado-based Canopy Boulder, a marijuana business accelerator, offers $20,000 in exchange for 9.5 percent equity.
Idea-stage entrepreneurs are discouraged from applying to Gateway. Prospects don’t have to be profitable, but must have a minimum viable product (MVP), which is a prototype, or some proof of concept.
The incubator is backed by the Newport Beach-based marijuana investment incorporation MJIC, Inc. Laren had been advising the investment firm for over a year. “My role there was to help them evaluate seed-stage investments that they would make in the cannabis space,” said Laren. The idea for Gateway arose after a conversation with MJIC managing director John Downs. At first they played around with the idea of launching the incubator in Newport Beach, but Laren insisted on Oakland. “You have access to Silicon Valley, which is great, because you get a lot of mentors from the tech space,” he said.
Laren and Larson are serial entrepreneurs, whose expertise spans from angel investing to mentoring tech startups at the incubator The Founder Institute, which helps entrepreneurs turn their startup ideas to full-fledged businesses in industries like peer-to-peer sharing and 3D printing.
Since the marijuana industry is still nascent—even after the 2012 legalization of recreational marijuana in Washington and Colorado—there is a perceived risk associated with investing in the cannabis industry, Laren said. He adds that finding “the diamonds in the rough” to invest in proves to be difficult, because investors are weary of the ”grey area legality status” that comes with marijuana businesses. Investors want to make sure that licenses are aligned and that founders aren’t building a business based on assumptions about the law that may prove not to be true. “In terms of making the right investment, it’s not as sophisticated of a space as the tech industry,” Laren said.
Though there are skeptics, Laren feels sure that there is a high demand for investment, and he’s hopeful the industry’s landscape will stabilize. “What’s going to happen in the next few years is the standard for success is going to raise in the cannabis industry,” he predicted. “As the industry becomes more mainstream, it will become more similar to the tech industry and other verticals: Standards will be the same, and you’ll have people crossing from cannabis to tech and back and forth from other industries. It won’t be so isolated and insular as it has been in the past.”