Perfecting the Pitch

Startups share lessons learned from cannabis industry investors.

By Ebby Stone

Each day, hopeful cannabis entrepreneurs reach out for investors, advice, and partnerships. There is fierce competition for investment dollars and the pandemic only fueled the fight for funding. That’s why Cannabis & Tech Today, in partnership with the Emerge Virtual Cannabis Conference, launched the Cannabis Investor Pitch Contest. During the summer 2021 event, three companies were selected as winners. Third place was awarded to Green Parcel Service; second place went to Forests Medicinals; and first place was awarded to Surge Automated. Cannabis & Tech Today followed up with the winners to discover what they learned and how far they’ve come since meeting with investors to strengthen their business models.

Green Parcel Service Transportation

Cannabis & Tech Today: What do people find most surprising about your services?

CEO and Founder Patrick Duddy: Being a transportation company in a state split by a giant mountain range can be tricky, and our customers are surprised by our consistent ability to get their products delivered safely to many dispensaries throughout the mountains and the Western Slope of Colorado.

C&T Today: How did the pitch contest help you refine your business strategy?

The pitch contest helped us realign our objectives and allowed us to focus on the most important deliverables for 2022. Over the past year, we designed, developed, and implemented an order management system that has streamlined the order placement process for our customers, and has added significant efficiencies to our operation. In 2022, we hope to continue the momentum from the roll out and build on our platform. This will allow our customers the ability to easily manage their deliveries as well as analyze their supply chain.

C&T Today: How is your company helping the cannabis industry evolve?

We are trying to develop ways to reduce paper waste. Currently, we are required by the state to use an excessive amount of paper when making deliveries. In 2021 alone, we used over 250,000 physical pieces of paper while making deliveries. Our goal in 2022 is to reduce paper waste by digitizing required paperwork for deliveries. We are currently working with industry regulators to see what is acceptable from a compliance standpoint, and how we can be a leader in the process.

Forests Medicinals

C&T Today: What’s unique about what your company is offering?

Founder, CEO, and Chief Creative Officer Sasha Forests: We are creating never before seen products in the cannabis space fueled by scientific and medical research, centering justice and restoration of the communities most impacted by the war on drugs, and utilizing the most human-body friendly extraction and delivery methods available on the market.

C&T Today: How did the pitch contest help you refine your business strategy?

Emerge showed us how unique we are as a company and reaffirmed our strategy. Having conversations with the judges helped us to refine how to speak to investors. Emerge is a privilege to pitch for because investors and judges know exactly what this market entails. However, that is not always the case. Investors need training on cannabis and Emerge showed us where we could buffer up some of our information to make more sense in translation to those folks looking for great investments like Forests Medicinals.

C&T Today: How is your company helping the cannabis industry evolve?

Many ways! First, our people. We have an incredible group of folks who are already marginalized in cannabis, including myself, working towards a beautiful and abundantly diverse cohort of managers and future employees.

Second, our products will defy the norm of cannabis today. Too often, there is an “if it ain’t broke don’t fix it,” attitude in cannabis. Our products push the bounds of what cannabis is and how it can be experienced. We are going to be tough to beat.

Third, our manufacturing philosophy is tech forward and inclusive. Meaning, we want to bring new entrepreneurs into the fold, find ways to offer them royalties, and offer them the most technologically-advanced extractions to work with.

Fourth, our culture. We are centered around justice for folks incarcerated. There are a ton of great companies and initiatives, but my question is always, “Are people out of jail yet?” Until all incarcerated folks are released and their lives repaired, our work is not and will not be done.

Surge Automated

C&T Today: What is unique about Surge Automated?

Co-Founder and President Joseph C. Long: Surge is a technology company that goes beyond automating age and ID verification. We protect cannabis operators from regulatory violations and consumers from putting their personal data at risk of exposure.

No more turning over your IDs to anyone, including websites. It’s vital to understand the risks that ecommerce brings to the industry, as it goes well beyond marijunaspecific regulation. Add delivery on top of the regulation equation and the risks multiply. The regulators are aware of the volume of likely age violations and are gearing up to increase scrutiny and enforcement — it’s already happening in the Canadian market.

C&T Today: How is your company helping the cannabis industry evolve?

The industry has to take underage access and exposure more seriously, or face increasing resistance from communities and advocacy groups, not to mention daily violation of most state regulations around age verification. By taking on the compliance and infrastructure overhead, Surge is making it easy and affordable for the industry as a whole to demonstrate their commitment to community safety by protecting against youth access and fraud, while increasing transparency and accountability.

C&T Today: What advice would you offer other entrepreneurs looking to enter the cannabis space?

It is still a bit of the wild west … essentially a business that was done in the “dark” is now in full sunlight. There are a wide range of players with an equally wide range of experience. Be careful, be patient … and plan for the long game. ❖

The Future of FinTech

New technologies and innovative organizations are fueling change in cannabis finance.

By Kirsten Trusko, Co-Founder & CEO, Emerging Markets Coalition and Michael Flores, CEO Bretton Woods, Inc. and Senior Advisor, Emerging Markets Coalition

The Emerging Markets Coalition (EMC) is a member-driven advocacy and educational organization for financial services in highly cash-based and underserved markets. Our first targets are the cannabis-related industries (hemp, CBD, cannabis). EMC advocates and drives for the normalization of financial services — enabling these businesses to operate as do other legal businesses in a growing, regulated, emerging market.

Why was EMC founded and why did we choose to drive innovation in one of the toughest markets to bank? Because the EMC co-founders have done this before — in an industry that was where cannabis is today — highly cash based, with much misinformation driving unfair vilification of the industry and businesses. Through a coalition like EMC, we went proactively to legislators, regulators, law enforcement, the IRS, consumer groups, and media to share the facts. This proactive transparency fueled the passing of federal legislation, regulation, and tax treatment that was workable for all, and media coverage that focused on facts vs fallacy. That industry now has normalized financial services and we’re seeking to collaborate with cannabis industry leaders to do the same here.

Financial Innovation in a Partially Legal Industry

Until federally legal, financial institutions will be wary of serving cannabis-related business (CRBs). State chartered banks and credit unions that do serve CRBs are making a risk-based decision that regulators will show leniency given that, while legal in their state, they are conducting business with federally illegal product.

In the current regulatory environment, cash is the primary payment method. It is the only payment method unencumbered by the federal and state disconnect on the legality of cannabis. It is not, however, without constraints brought on by the alphabet soup of AML, BSA, KYC (Anti-Money Laundering, Bank Secrecy Act, Know Your Customer) with which banks and credit unions must comply. The compliance burden created by the trifecta of acronyms drives high incremental costs that financial institutions must pass on to their cannabis customers. To address these costs, financial institutions and FinTechs are seeking technology solutions. CRBs are also seeking technology solutions to track and trace all aspects of financial flows from seed to sale.

EMC has members offering industry leading services to both sides of the market to meet compliance requirements in holding and moving money without having to add an army of compliance experts.

There are risks and costs of running a cash-based business, many of which can be addressed by enabling electronic payments. Federally, EMC is driving electronic payments, gaining buy-in from even the most conservative legislators that this will make cannabis transactions “transparent, traceable, taxable.” Legislators especially like that last point, even when we point out this means fairly taxable.

Allowing credit, debit card, and contactless payments drives costs down, provides an audit trail, and significantly reduces risks of theft.

The best-known payments alternatives/innovations for CRBs include: • Cash dispensers/ATMs • Cashless ATMs (more to come on this hot topic…) • Payments via the Automated Clearing House (ACH) network • Crypto

EMC founders have worked with Washington, D.C. regulators in innovation for years. During after hours discussions, they would share that their biggest fear is that we would “innovate faster than they could

regulate.” Cannabis is similar in that the existing conflicted state and federal legislative and regulatory environments have placed compliance in front of innovation.

Payments Options for Cannabis

EMC is developing national standards and best practices for all things involving cannabis money. The first to be released is cash management, the next is payments.

Cash Dispensers or ATMs

ATMs are placed in the CRB so customers can access cash to pay for product. The legal rationale is that the transaction is between the customer and the bank — the CRB is not in the primary transaction.

Cashless ATMs

Cashless ATM or Point-of-Sale: a merchant takes an order, rounds up the total to an even number, and then runs a transaction, coded as an ATM withdrawal. The difference between the amount of the purchase and the ATM transaction is handed to the customer as change. VISA has put these businesses on notice in a memo that states:

“…Acquirers will be subject to noncompliance assessments and/or penalties, when they — or their third-party agents — are found in material non-compliance with the Visa Rules,” the memo continues. “When found to have willfully violated the Visa Rules, adversely affecting the goodwill associated with Visa and/ or the Plus system, brand, products and services, an acquirer may be subject to further compliance enforcement.”

Translation — cashless ATMs are not permitted by the rules of the major card brands.

Automated Clearing House (ACH)

ACH refers to the process of transferring money between banks without checks, wire transfers, or cards. These transfers are electronic, the funds go directly from the customer account to the CRBs bank account.

To accept ACH from your customers requires a third-party solution. Customers first register through the third-party system, download the mobile app, and then check in at the dispensary through the app and pay at the POS. There are a few good solutions available, the most agile and compliant of whom are EMC members.

Crypto

A Motley Fool article shares that crypto can offer cannabis companies:

Photo: iStockphoto.com/stockforliving

Non-cash transactions. Accepting crypto/ digital currencies as payment avoids cash.

Lower money fees. Some banking services in this space have higher fees. Crypto comes with relatively low fees, without a cannabis premium.

Transparency. Blockchain technology supports a secure and tamper-proof ledger, to help CRBs track each step in the supply chain.

International. Cannabis companies working overseas can make payments fast/lower cost using digital currencies.

Cryptocurrency may enable CRBs to minimize their reliance on cash, but this isn’t without challenges. For example, the way cryptocurrencies are taxed is different from regular business income and carries high compliance costs. Volatility is also important to consider as the prices of cryptocurrencies can fluctuate wildly.

EMC is collaborating with many organizations and companies to drive normalization of financial services for this market. Learn how you can join in fueling this success at EMCoalition.org ❖