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Need help growing your cannabis startup? A new crop of incubators are here to help…for a cost. Here’s what to know.

Unless you’re a wealthy business genius who fully understands every aspect of the cannabis industry, you probably need some advice—and a little funding—to get your company off the ground. In the tech industry, this assist often comes in the form of an incubator, like Y Combinator or Techstars. These groups work with companies they believe have potential and help take them to the next level.

Now incubators are starting to pop up in the cannabis industry, too. To help you decide whether to try one, here’s the lay of the land:

What, exactly, is a cannabis incubator?

It’s a company that gives selected cannabis startups a boost in their early stages. Generally, incubators provide expert advice on the direction a startup should take, helping it evolve from its earliest stages into a viable enterprise. Some incubators invest directly in their clients while others help them find funding. When they do invest, they usually take 5 to 10 percent of the new company—which means they also have a stake in grooming that startup to be successful at raising more money. It’s something of a symbiotic relationship.

As one cannabis incubator executive explains it, their primary focus is to help new companies think through every detail related to starting a business, including getting investor-ready. “Our goal is to ensure that our teams have a response for any objection or question that an investor asks as they go out to seek funding,” says Celia Daly, who handles investors and community relations for CanopyBoulder. “As investors ourselves, we aim to help our companies grow rapidly so we can return capital to our investors.”

Do you need one?

No. Many a cannabis company has succeeded without the help of an incubator. Some founders don’t like the idea of giving up company equity so early, even if it’s only 5 percent. But a good program can offer a competitive advantage. “As a concept, incubators are great,” says Morgan Fox, a spokesperson for the National Cannabis Industry Association. “Cannabis is a difficult industry with many confusing regulations and requirements that other fields don’t have to deal with. It can be very useful to build up a model or a business plan before spending large amounts of startup capital.”

Aside from getting help securing funding, you can also make great networking connections through an incubator and learn from what others are doing. 

Is it hard to get accepted?

Incubators are selective about which startups they’ll partner with. But the whole industry—like cannabis itself—is growing quickly, and the programs are getting more specialized and sophisticated, with increasing opportunities for applicants. Because each incubator looks for different qualities in the startups it chooses to partner with and, in turn, offers different expertise, programs, and investment deals, it pays to shop around and vet a few to find the best fit.

What are some of the top cannabis incubators?

Incubators come in many shapes and sizes. These four are a good place to start:

CanopyBoulder ► Its focus is on startups that involve “ancillary products and services” in the cannabis industry, although it works with a diverse array of businesses. Located in Boulder, Colo., the incubator is a strategic partner with the well-known cannabis investor network Arcview Group, and has incubated more than 100 companies, including Wurk, Front Range Biosciences, DeepGreen, and BDTNDR.

CanopyBoulder’s program guides its entrepreneurs through 16 weeks of mentorship designed to teach them the ropes and set them up for success. It invests $30,000 in each company and takes between 6 and 9.4 percent in equity. “This year,” says Daly, “we increased our offer from a $30K investment [via an additional $100,000 convertible note] as a way to attract top talent and keep up with the rising level of sophistication of entrepreneurs in the space.”

Gateway Incubator ► This incubator accepts 20 startups a year and invests $50,000 in each, for 5 percent in equity. As a Silicon Valley company, it has a lot of tech-related businesses in its portfolio. Joining Gateway means access to its office space and large network of experts and investors, along with mentoring. Some of the companies Gateway has incubated: Arc Pipes, GrowX, Field, and Trellis.

Greenhouse Ventures ► Greenhouse is a Pennsylvania-based incubator of cannabis and hemp businesses that has done a lot of work in the health sector. Greenhouse offers both early-stage and growth-stage programs, depending on what phase the startup is in. The early-stage accelerator lasts 10 weeks and can be done remotely, which is a unique feature. Offered twice a year, it helps new businesses learn about marketing and the industry. Companies receive between $80,000 and $120,000 in exchange for 5 percent equity. The growth-stage accelerator lasts one to two years, and Greenhouse offers between $100,000 and $1.5 million for 10 to 40 percent equity. Its companies include Releaf App, Wild Fox Provisions, and Heally.

The Initiative ► The Initiative, an accelerator based in Portland, Oreg., focuses on women entrepreneurs. “Our goal is to help more female-founded companies succeed in the cannabis space and to prepare those founders for growth,” says Amy Margolis, one of the founders. Many existing women-run businesses grow to a point—but end up hitting a “fund-raising wall,” she says. As an accelerator, The Initiative helps them get past that hurdle. Companies participate in a three-month bootcamp, where they learn how to raise capital and create a successful business strategy. At the end, they pitch to a highly curated group of investors. It’s not only a chance to receive funding in their company, but also to address the gender gap in cannabis while the industry is still young.

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How Good are the Jobs in Cannabis?

The cannabis and hemp industries are certainly creating jobs but are they good jobs? One research team at CSU-Pueblo is on a mission to find out.

KRISTINA ETTER Before becoming a freelance cannabis journalist, Kristina Etter spent 20 years in corporate IT with a niche in mobile technology. Today, she combines her love of technology with a passion for the cannabis industry as the Editorial Content…

According to Indeed.com, cannabis job postings are up 90% just over the last year, and cannabis-related job searches are up 650% since January of 2016. With an incredible amount of opportunity and thousands of curious job seekers, are we just assuming the grass is greener on the other side of the fence? One team of researchers at CSU-Pueblo wants to learn more about the quality of the work inside these two booming industries.

Brad Gilbreath, a Management Professor from the Hasan School of Business at Colorado State University-Pueblo, has always been interested in creating psychologically healthy work. He stated in an interview with Cannabis Tech, “We see that municipalities are happy with the tax revenue created by the legal cannabis industry, and we’re certainly happy with the number of jobs being created, but how happy are the employees who work in those roles?”

BENCHMARKS BEYOND PROFITS

While highly recommended by the human resources profession and commonplace in corporate America, benchmarking employee morale in the cannabis space hasn’t been at the top of the priority list. While Gilbreath believes that the reason may be the infancy of the industry and a lack of awareness of the benefits of employee attitude surveys, he believes that cannabis and hemp businesses will find value in the reports he provides.

Some data that Gilbreath is interested in collecting for his research include:

  • Job Control – How much control do employees have over the work they do?
  • Social Support – How well do co-workers support each other at work?
  • Workload – Is the workload appropriate, or do employees feel overloaded?

Besides a standard set of questions aimed at learning how employees feel about their jobs, Gilbreath can customize the report to include any information managers may want to learn as well. Items may ask respondents how well the bosses treat employees and about their overall job satisfaction. Employees can answer anonymously, so their responses tend to be more open and genuine, giving employers a window into the inner workings of their staff.

Additionally, Gilbreath mentioned that two other questions included in the survey which have been providing profound results.

“Two questions have jumped out which appear to be super important,” he stated. The first involves authentic self-expression and asks employees to consider if they can truly be themselves while they are at work. He continued, “Another of the biggest influences so far is job self-concept fit, or does the job truly fit the employee as they envision themselves or their ideal self? Both of those work factors seem to be heavily influencing the extent to which employee consider their job to be a good job.”

BENEFITS BEYOND THE OBVIOUS

Gilbreath and co-researcher Pat Radigan are doing more than just collecting data. Companies which participate in the research receive a full report of the results including a detailed roadmap of what they are doing well and areas where they could stand to improve. “While these businesses are scrambling to get established, we help them find areas where they can reduce employee turnover and increase job satisfaction,” Gilbreath offered. “The research shows that employee attitudes translate into measurable effects on things owners care about such as customer satisfaction and profits.” As Herb Kelleher, former CEO of Southwest Airlines once said, “If the employees come first, then they’re happy. A motivated employee treats the customer well. The customer is happy, so they keep coming back, which pleases the shareholders. It’s not one of the enduring green mysteries of all time, it is just the way it works.”

The same can be said for the customers in any industry, including hemp and cannabis. However, the intrinsic benefits of understanding the perception of your staff go far beyond the obvious.

STAND OUT FROM THE CROWD

Indeed.com provided statistics showing that cannabis job listings have nearly quadrupled since 2016. With this kind of growth in the cannabis and hemp industries, the hunt for qualified employees can be daunting. Gilbreath believes that the data pulled from his survey could very well help cannabis employers set themselves apart and attract more candidates, and thus improve the quality of their candidate pool.

Despite the incredible value provided in the reports from the survey, Gilbreath and his team offer the results at no charge to those companies interested in participating in the study. Eventually Gilbreath hopes to have enough cannabis companies on board that he’s able to provide a benchmark list to help businesses see where they rank in terms of being a quality cannabis-industry employer within their respective state or region.

For more information about the data, the research project, or to enlist your firm to participate in the survey, contact Brad Gilbreath at CSU-Pueblo: brad.gilbreath@csupueblo.edu or call 719-549-2157.

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Damaged for decades by America’s drug war, Austin now seeks to prosper from legal marijuana

Jonathan Anderson at his Austin home on Dec. 5, 2019. Anderson was recently one of about 30 residents at a meeting organized by police in Chicago’s Austin neighborhood about the impending legalization of recreational marijuana in Illinois.
Jonathan Anderson at his Austin home on Dec. 5, 2019. Anderson was recently one of about 30 residents at a meeting organized by police in Chicago’s Austin neighborhood about the impending legalization of recreational marijuana in Illinois. (Brian Cassella / Chicago Tribune)

It didn’t take long for the community meeting on the impending legalization of recreational marijuana in Illinois to get to the point.

“I’ve been over here all my life, and I was kinda thinking we have a bunch of liquor stores and … not one black(-owned),” said 59-year-old Jonathan Anderson, one of about 30 residents at the meeting organized by police in Chicago’s Austin neighborhood. “My question is once they get cannabis here, will you be fighting for us, for a minority to get a shot?”

Anderson was later corrected — an African American owns at least one liquor establishment in the impoverished neighborhood. But his point was well taken. Residents who have lived for decades in the midst of the illegal drug sales on so many West Side corners are concerned their neighborhood will miss out on the potential financial windfall from legal pot sales.

The sweeping cultural change for the state goes into effect on Jan. 1.

While several existing medical dispensaries already have won licenses to sell recreational marijuana as well, many newcomers to the industry will be vying for 75 new dispensary licenses up for grabs statewide, including 47 in the Chicago area. The licenses are expected to be issued by May 2020. 

Who obtains the new licenses will be closely watched, to see whether the law achieves one of its main goals: restore and boost the economy and opportunity in communities that have been adversely affected by the war on drugs — from the resulting mass incarceration to the drain of financial resources.

The legalization law was written to give a distinct advantage to license applicants who meet one of three social equity criteria: They live in neighborhoods designated to have been disproportionately impacted by the war on drugs; they, their parent or dependent have been arrested or convicted of a marijuana charge that is eligible to be expunged under the law; or they employ at least 10 people, and half of the workforce meets the first two criteria.

Austin, one of the city’s largest communities that has endured decades of illegal drug dealing and street violence, is one of the designated areas.

A complicated and costly process

The Austin police district organized a series of forums on legalizing marijuana possession after community members raised questions about what recreational use would mean in Chicago.

At the panel last month, city, law enforcement and industry officials fielded a range of questions from the audience.

While carrying up to 30 grams of marijuana would be legal, officers cautioned that smoking weed won’t be permitted in public, including in parks.

A Cook County prosecutor explained that the law calls for mostly misdemeanor pot records to be automatically expunged from court records for convictions one year or older except for those that include other ineligible offenses.

Another resident asked how much dispensaries would pay their workers. A representative for one local dispensary said plans called for those who worked a minimum 30 hours a week to be paid $14.50 an hour for such jobs as “bud tenders” who handle over-the-counter sales.

The meeting had its lighter moments.

The industry rep tried to explain the dispensary’s role in the legal weed chain.

“We’re not the cultivator. We’re not the grower,” she said slowly.

A woman interrupted, calling out, “They’re the dealer.”

But the more serious question looming over the two-hour meeting was how residents could take part in this new financial opportunity.

Some had clearly already given up on such hopes.

“We don’t really have the ability as a community to purchase a dispensary,” Tara Rice, 51, a lifelong West Sider, concluded in frustration near the end of the discussion. “The reality is we’ve been blackballed out of the business because all of the dispensaries are already open.”

But in fact, officials said, applications for licenses to operate recreational marijuana dispensaries won’t begin to be accepted until next Tuesday. The sign-up period lasts until Jan. 2. 

Since Austin has been among the neighborhoods designated to be adversely impacted by drugs, residents would almost certainly qualify for the social equity incentives, giving them a significant boost.

But Ron Holmes, who has opened a consulting business to help social equity applicants navigate the process, cautioned that obtaining one of the licenses will be complicated and extremely costly — into the hundreds of thousands of dollars at a minimum.

Still, Holmes urged residents not to give up.

“I am South Side born and raised. I am still very optimistic about the resilience of black folks,” he said. “It’s what we do. We’ve done it for generations. I think people who want to hustle still have an opportunity.”

Job opportunities at a minimum

Rice, who has lived in Austin for 13 years, had arrived at the meeting with a binder of notes and specific questions to ask about the license process.

Later, she told the Tribune that her neighbors in the recently restarted Quincy Street block club in Austin have been meeting regularly over all kinds of local issues, including legalization of recreational pot and what it means for the city.

Rice said she would welcome the opportunity to employ the young men in the area now working the illegal drug trade.

“Do you know how many kids we could get off the corners?” she said. “They have the know-how for it. They are entrepreneurs. … And this is a great opportunity economically. Get our young people to see the good side of business and that you can live a productive life legally.”

Many of the answers about how to get started in the highly regulated and controlled industry are buried in the 610-page state law. The Illinois Department of Commerce and Economic Opportunity is offering technical and financial support on its website to social equity candidates. In addition, the Illinois Department of Financial and Professional Regulation, which will issue the licenses, opened a public question period on its website and issued dozens of pages of answers on the industry.

While experts celebrate aspects of the law — especially the requirement that social equity applicants retain a 51% interest in dispensaries — they also expressed concern whether average, nonindustry people can overcome the complicated law and rules in enough time to benefit let alone find the necessary financial backing.

“I think the purpose of the social equity provisions was a noble one, but obviously in the execution of it, that is where we can run into problems,” said Bryna Dahlin, an attorney at Benesch Law who specializes in the cannabis industry. “The persons that have wanted to get involved who are social equity have really had to do a lot of legwork on their own. Reaching out, going to various events and trying to meet people. Reaching out to cannabis operators in other states.”

Officials at the Austin meeting urged residents to consider less costly or ambitious ways to benefit from the new legal pot market, including obtaining a license to transport cannabis — available next year — or simply seeking employment at a dispensary.

Ellen Lewis, 49, the operator of a small online business who asked about dispensary wages at the meeting, said it would be a shame if the biggest benefit for residents was only a chance at a dispensary job given the financial windfall the industry stands to make.

“The problem that we have, especially in our community, is there are a lot of people who come in and they set up businesses in our community and … take that wealth with them,” Lewis said. “If there were people who really live in the community and really give back to the community, (we might see) better wages and programs.”

Most people in the audience were older, longtime Austin residents. But the few younger community residents there said after the meeting that some young people, suffering from lack of quality education or jobs, have turned to illegal street drug sales to pay for everyday living expenses.

The idea that outsiders would now come into the neighborhood to work the legal marijuana market seemed unfair to them, but they didn’t write off the possibility of seizing the opportunity to join in.

“One thing about my community is we are adaptable,” said Clifton “Booney” McFowler, an Austin resident and street intervention specialist who attended the meeting. “We have to be.”

asweeney@chicagotribune.com

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