
Ask HN: Why would or wouldn't you do a marijuana-focused startup? - martinshen
A lot of HN is libertarian and I would assume that many would see no problem with doing a marijuana focused startup. Considering how much opportunity there is in this space, I&#x27;d expect to see a lot more companies (WeedMaps, Leafly etc.) pop up.<p>I can imagine some of the issues:
  - Family would frown on it
  - &quot;Unfundable&quot;
  - Difficult regulation
  - Not a &quot;sure&quot; thing<p>So HN, why wouldn&#x27;t you do a Marijuana-focused startup?
======
chatmasta
The best opportunity in this industry is selling the pick axes to the gold
miners. The marijuana industry will need a _lot_ of infrastructure. Just look
at all the regulations. For example, there is a lot of tracking involved. So
maybe a startup could focus on tracking inventory for dispensaries. But the
point is that you can make money here without doing anything illegal. Just
build the infrastructure for the people who are selling the weed, and once
it's legal, you'll be in a great position.

~~~
JanezStupar
Are you certain that providing infrastructure to an illegal industry is not
illegal in itself?

And I guess illegal industries have high barriers of entry as participants
tend to be a bit paranoid.

~~~
chatmasta
Obviously I'm not certain because I'm not a lawyer. But it's hard for me to
imagine the Feds arresting the principals of a company that provides inventory
tracking to state-legal marijuana dispensaries with the express purpose of
helping them to conform to the new laws. Infrastructure startups that help
follow regulations are in the best interest of the federal and state
governments because it gives them both assuredness that dispensaries and the
like will be responsive to new law changes.

~~~
LanceH
Your client gets their money frozen. They've been paying you regularly so you
get your money frozen. You spend 5 years in court maybe getting some money
back.

~~~
gte910h
That's a risk you get other places too. Not unlike businesses going under.

However, whomever is poised to move the second the industry goes 50 state
legal is going to make a huge pile of money

~~~
LanceH
Yea, but it's a perfectly good "why wouldn't you".

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rholdy
Regulation. In a true "free-market" system, like we would have if the HN
Libertarians were in charge, running a business of this type would be much
easier and more profitable. In Colorado, for example, the only reason they
have recently "legalized it" is to tax the hell out of the sale of marijuana.
The licenses to run a weed-selling business are expensive and almost
impossible to get, the taxes you pay on each sale are the highest of anything
in the state (more than gas, cigarettes, ect...), and they have crazy
regulations regarding the way you are allowed to acquire inventory (the
majority of your inventory must be home-grown, all your workers documented and
screened, grow-space must be separate from retail space, ect...)

Selling weed legally is a logistical nightmare. Not worth it, in my opinion.

~~~
genwin
Good points. If the OP could navigate the nightmare and still make a good
profit margin, I'd say it's worth it.

Perhaps a risk is black market weed selling for less enough than legal weed
that a legal profit can't be made.

~~~
pyoung
That's is roughly my take on the situation. Until it is legal nationally, it
is much too risky to make big money investments that would produce at scale,
which would compensate for the thinner margins. At this point in time, you
essentially have backyard growers competing against each other and those that
stay on the black market can compete at lower prices and with higher margins.

If Washington and Colorado both make efforts to punish dealers who don't
comply with state law, then that might push the risk-reward balance further to
the legal side of things.

------
DanBC
Cannabis is currently illegal. This means that some of the people involved in
growing and distributing cannabis are vicious criminals. This includes some of
the Mexican narco gangs, and in the UK includes people who traffic illegal
immigrants into the country and force them to work in grow farms. (Here's one
example, but there are more [http://www.chroniclelive.co.uk/news/local-
news/illegal-immig...](http://www.chroniclelive.co.uk/news/local-news/illegal-
immigrant-made-guard-cannabis-1370117) )

Any cannabis related service would have to risk-assess that kind of
involvement.

And any attempt to create a "nice" market - avoiding that kind of exploitation
by having small growers providing small amounts to locals, avoiding the
associated criminality and restricting service to those over the age of 21
would be destroyed by The War On Drugs.

"We" might think it's a good idea, but plenty of people would call it Evil and
get support for that viewpoint.

~~~
j_baker
Cannabis isn't illegal _everywhere_. Washington and Colorado legalized it
recently, and other states will likely follow in the future.

Not to mention that Cannabis is legal as a medical treatment in many states.

~~~
TallGuyShort
>> Cannabis isn't illegal everywhere.

Well that's the first problem I thought of. The federal government maintains
that it's banned at that level, and that's still an ambiguous conflict that no
one's really confronted directly yet. Some local / municipal governments have
also banned it inside these states, often only a short time after the state
legalization.

The reason I wouldn't do a cannibis-focussed startup is because it seems
impossible to predict how you might negotiate this legal terrain. Can you
count on your town not to make it illegal again? Can you count on how the
state vs. federal disagreement will be resolved? Can you deal with such
inconsistency between towns if you have a broad client-base?

~~~
yourmailman
Fair point but the point has actually been addressed. The federal government
will take no direct intervention in the two states so long as the proposed
state laws are followed.

~~~
patmcc
And that could change at the drop of a hat when a new president steps in -
it's simply too risky a business proposition.

~~~
moocowduckquack
Sounds like a good time to lay groundwork and draw up plans for investors and
mabe run a test business in Colorado without burning too much money. If it
then swings in your favour you are early for the rush, if not you can ditch.
Everything is a risk.

------
jjwiseman
Regulatory gray areas are risky, but can sometimes be great opportunities.
Uber and Airbnb are two well known examples of companies that got huge by
doing something that may not have been legal everywhere.

Related examples include drones[1], bitcoin, crowdfunding investment[2], self-
driving cars[3] and 3D printing[4].

Both Airbnb and Uber have become so big that they can try to work the system
and change the regulations in their favor, but smaller companies might have to
be more wily. For example, commercial drone activity is basically illegal in
the U.S., but I know of one startup that currently develops and flies their
technology on manned aircraft with the idea of putting it on drones when they
can, and another that resides in the U.S. but is currently focused on
customers outside the U.S.

[1] [http://www.wired.com/dangerroom/2013/02/drone-
regulation/](http://www.wired.com/dangerroom/2013/02/drone-regulation/) [2]
[http://www.crowdvalley.com/2013/05/06/the-secs-recent-no-
act...](http://www.crowdvalley.com/2013/05/06/the-secs-recent-no-action-
letters/) [3] [http://www.forbes.com/sites/jimgorzelany/2013/06/03/feds-
ask...](http://www.forbes.com/sites/jimgorzelany/2013/06/03/feds-ask-states-
to-ban-self-driving-cars/) [4]
[http://newsfeed.time.com/2013/10/10/how-3d-printed-guns-
are-...](http://newsfeed.time.com/2013/10/10/how-3d-printed-guns-are-shooting-
a-hole-through-firearm-regulation/)

------
mrtriangle
Without going into too much detail, I did found a MJ based startup, however I
ran into 3 big problems:

1\. My startup focused on fostering relationships with producers and
distributors, both of whom are hesitant to openly discuss or display their
business, location etc in a way that can be easily accessed publicly.

2\. Legal fees. I tried to set up everything as legitimately as possible
through a lawyer as well as keep him on retainer in case I ended up in any
trouble with the law. Massive overhead.

3\. Saturation and fear. At the time of my efforts there were two major shifts
in the West Coast market. The first was a flood of growers both indoor and out
that greatly reduced the value of anything that was not of the absolute
highest quality. The second was the crackdown on many major players in the
game; people saw that old names in the MJ industry were getting raided and
prosecuted and started to either withdraw or severely limit their business
relationships.

Basically until everything is legalized at both the state and federal levels
it will continue to be very difficult and expensive to try to revolutionize
this industry.

------
aclevernickname
Canada is a whole new ballgame for Cannabis startups.

Prime Minister Harper announced that legalization is coming in the next 10
years, tops. We have 6 months before the new regulations are in place, which
open the floodgates for corporate cannabis providers. We're currently in a
cannabis gold rush right now, so I figured this would be a great time to start
a Cooperative that courts illegal growers into becoming legal ones, if just to
prevent clogging the courts with people trying to produce medicine for sick
people.

We've gotten a lot of support from Health Canada, too, as it seems that
there's a massive contingent within that's unhappy with MMAR (the previous
regulations) going away. We haven't even sought outside (public or semi-
private) funding yet, because we haven't had to. :)

we have a website with a fantastic (imo) domain name, but we're keeping it
quiet until we're closer to launch. hoping to pimp it here when it's ready.

~~~
epa
Interesting but I see a lot of liability issues on your behalf if you offer
consulting services to people who end up breaking the law for some reason
'based on your advice'. Careful.

~~~
aclevernickname
we're not really venturing into "consulting" per se; more of a franchise sort
of setup, where everyone interested in growing ensures their product and
growing space meets our internal standards, which meet or (in most cases)
exceed the requirements listed in the Controlled Drugs & Substances Act. We're
cooperating at every step with Health Canada to keep our product and
facilities as safe as possible, in order to deliver directly to customers come
April 2014, when the MMAR/MMPR switch flips.

While we've met many people looking for a legal loophole to commit crimes,
we're only really interested in those people willing to be in harmony with the
government's new MMPR program, and are focused on growing medicine for sick
people.

We understand there's a massive Blue Ocean of legal consumer cannabis product
opportunities that will be opening up here in ten years, but weeding out
(sorry) the criminal element is of paramount importance to us before even
thinking of expanding our scope to cover those markets.

------
philwelch
I'm surprised no one has mentioned the obvious thing, which is that you'd end
up in prison. The DEA might ignore small shops in CO and WA but not a
nationally known internet startup.

~~~
zachrose
Websites for Nevada brothels exist.

~~~
zamfi
Prostitution is not illegal under federal law, only under (most) states' laws.

Marijuana production / distribution / etc is illegal under federal law. The
DEA (a federal agency) could come after you -- and would, if you get big
enough -- even if it's legal in your own state.

------
bradleyland
I'm not saying I wouldn't do it, but I do have an anecdote that might explain
why you should be cautious.

About 15 years ago, I did some work with a guy who ran online pharma websites.
He made a mint in the business, but it wasn't without it's bumps.

This was before the online pharma boom, and before the Feds really got
involved. He ran a website where users filled out questionnaires, which were
then reviewed by a doctor (no really, an actual doctor), who then wrote a
prescription, which was then filled by a pharmacy.

One day, the men in the black suits came knocking. Right now you're probably
thinking that everything above was clearly illegal and this guy is screwed,
but that turned out not to be the case. He and his partner sat in jail while
the Feds figured out exactly what they were doing wrong. They had good,
detailed records of every "patient", and because selling medication over the
internet was so new, there weren't a lot of laws that covered exactly what the
requirements were.

In the end, the two owners spent about 90 days in jail, and had millions of
dollars seized by the government. The Feds dictated that they could continue
to operate their business under a handful of conditions:

1) They could no longer operate their own pharmacy.

2) They could no longer directly employ the doctor reviewing prescriptions,
and the doctor must be paid regardless of whether a prescription is written.

3) They could not sell any drugs of a certain classification (controlled?).

There was some specific class of controlled drugs they couldn't sell, but I
can't remember what it was.

This guy, and his family, ended up in the press with their name slandered all
over the place. They ended up moving out of state to escape the aftermath.

I'm sure plenty of people are lined up ready to judge the guy, but I knew him.
He was the kind of guy who gets shit done, and he ran an above-board business
considering what they were doing. That's the only reason he's not still
rotting in a cell.

So, the moral of the story is, these kinds of businesses can be very
profitable, but they're not without risks. This is an entirely different kind
of risk than what an investor is willing to take on. We're not talking capital
risk, we're talking criminal prosecution. Those are the risks when you operate
in a legal gray area. Don't get me wrong, someone has got to do it, otherwise
there will be no progress, but you should go in with eyes open.

------
codeonfire
Karma. You're in a business that's easy for ordinary people and makes a lot
money and is arguably exploiting people who develop a habit. You are competing
with the illicit drug industry. In societies eyes, anything goes, so if
someone with a little power wants to strongarm you there will be no one
anywhere on your side. If you have any success someone will just come and take
it from you. Many people won't even do business with you. Good luck even
renting a space. There are much better industries and opportunities to be in.

~~~
MartinCron
You do realize that Karma is a metaphor and not a real thing, right?

~~~
codeonfire
The dispensary application fee in CO is $18k. Karma is the thing that costs
$18k.

------
unoti
I would do a marijuana-focused startup. Marijuana has a real impact to improve
people's lives in an abundance of ways. Culturally, it's not very well
accepted now, but that will change. To me, it's a lot like sex: a couple of
decades ago, there was this tremendous stigma surrounding sex that eroded to a
large extent in our culture. I think we're seeing the same thing with
marijuana.

A lot of people have no experience with marijuana, or experience limited to
partying in high school and college. There's much more to it than that which
society at large has not yet realized. Modern strains with high CBD combined
with carefully controlling your dosage and using smoke-free delivery systems
such as vaporizers and tinctures make taking it a much cleaner, less offensive
affair. Not all marijuana has to blow your mind; it's quite practical to
control your dosage and type to just give anxious people clarity of mind, help
uneasy people sleep better, and a hundred other applications.

I know lots of people who wouldn't take drugs or smoke a joint, but when I
show them a neatly packaged high cbd lozenge which will help them get right to
sleep and have no hangover effects are most intrigued.

I bought a Pax vaporizer and it's amazing, and made by a San Francisco
startup. It's a tremendous product.

------
mikekij
In 30 years we'll be looking at a billionaire or two who made their money from
the decriminalization of marijuana. The question is wether you want to be one
of them or not.

I don't smoke weed. Never have. But I don't see anything immoral with a
marijuana based company. In fact, providing a legitimate means for people to
buy weed would take a lot of money away from violent drug criminals. So you'd
likely be doing society a service.

------
lubujackson
I would try to learn from the lessons of music sharing businesses from Napster
to Spotify. For legally-vague ideas with a lot of money to be made, the key
seems to be staying in front of how things are being regulated. Marijuana in
CA, for instance, is more or less legalized for consumers but the feds have
spot-targeted producers and storefronts through infrastructure attacks (like
threatening landlords). To me, this sounds like a stalling tactic to keep the
industry from growing too rapidly.

If I was to work on a startup in this field I would focus on the consumer end
of the business and only in a supplemental way, like a review site. What you
don't want is a business with a warehouse full of pot or a lot of bills owed
from producers/retailers who are used to being threatened and have no
incentive to pay you.

~~~
nilkn
I think Leafly is already dominating in the review space:

[http://www.leafly.com/](http://www.leafly.com/)

------
squozzer
Despite some of the obvious problems, the matter of "taste" provides the
biggest challenge / opportunity. By "taste", I mean something similar to what
plagues wines especially, but also beers and single malt scotches -- maybe
better described as snobbery.

How does one either surf (or conquer) the matter of "taste" in weed? What
happens when -- by analogy -- someone makes the weed version of "Sideways" and
you're the guy holding the weed version of merlot?

~~~
vytasgd
Just make some types more expensive. Here's a study that was showing "You get
what you pay for" essentially saying that when you pay more for a wine, you
get more pleasure (than if you bought that same wine for cheaper).

[http://news.cnet.com/8301-13580_3-9849949-39.html](http://news.cnet.com/8301-13580_3-9849949-39.html)

~~~
dylanhassinger
yeah weed isn't like that

if you can produce good shit, there will be a market for it

but the real startup opportunities (for now) are not in mass production

------
Plasmoid
Unless I had full-on born in the US grade citizenship, I wouldn't touch it.
The US legal hassle plus the arbitrary nature of border guards makes this an
absolute non-starter.

------
6d0debc071
Sounds boring unless you're prepared to do the illegal stuff, and then that
introduces its own problems.

------
MWil
From a legal standpoint, I'd love to get involved just because it is a kind of
frontier.

------
scrabble
I wouldn't do one because I don't know the domain, so can't figure out what
the problems surrounding it are for enthusiasts.

