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O.C. Firm to Launch Accelerator for Cannabis Cos. in S.D.

An Orange County-based investment firm that has made more than three dozen investments in cannabis-related startups will launch an accelerator in San Diego this summer for companies in that arena looking to go public.

Kodiak Capital Group LLC, which was founded in New York in 2009 and is now headquartered in Newport Beach, opened an office in La Jolla in April.

Although the firm is sector agnostic, Kodiak is most active in life sciences, internet technologies and consumer products, making investments that range from about $250,000 to $2 million.

“Within those verticals, we have found a lot of cannabis opportunities over the last few years,” said Ryan Hodson, co-founder and managing director of Kodiak.

Kodiak’s La Jolla-based accelerator plans to accept up to three companies into its inaugural 90-day program.

The Deal

Ryan Hodson

Hodson said participants will be introduced to a network of potential mentors, from attorneys with experience in the cannabis industry to veteran entrepreneurs of the industry. If they complete the program successfully, each company will receive $100,000 from Kodiak in exchange for 5 percent equity.

“We see a lot of business moving out of Silicon Valley, and they’ve made their way to L.A. and Silicon Beach, then down here,” Hodson said. “Even right here in La Jolla we’re seeing a lot of activity. As a result, we are seeing a lot of cannabis companies emerging in San Diego County.”

To be considered for the program, cannabis companies must be privately held and looking to expand through mentorship and investment in order to go public by themselves or be acquired by or merge with a public cannabis company in the Kodiak portfolio, Hobson said.

Kodiak has worked with more than 20 publicly traded cannabis companies, including San Diego-based MyDX, in which Kodiak was the first institutional investor. MyDX makes a handheld chemical analyzer for consumers, which can be used to analyze marijuana’s chemical properties and identify various strains.

Startup Friendly S.D.

By being in California, the largest cannabis market in the world, San Diego is a good location for investors interested in cannabis-related businesses, said Eric R. Gomez,

Eric Gomez

CEO of Canopy San Diego, the region’s first accelerator for cannabis-related startups. (The Canopy ecosystem started with CanopyBoulder, a similar accelerator in Colorado.)

San Diego is also receiving more recognition as a spot for startups. A report released recently by the Kauffman Foundation ranking cities by their level of startup activity listed San Diego fourth in the nation, up seven spots from its ranking in the previous year.

“It’s easier for an entrepreneur to build an employee base and pay rent and get enough capital and exposure to do it here in San Diego,” Gomez said. “That combination of being a startup-friendly city and being in the largest cannabis market in the world makes sense for an accelerator like ours to be here and for others to do the same.”

Canopy’s San Diego accelerator is a 16-week long program, which provides the startups that are selected with a workplace, mentorship and at least $20,000 in seed-stage money in exchange for up to 10 percent equity.

The accelerator works solely with companies that provide ancillary products and services — software for inventory management or systems for storage, for example — to the industry; it doesn’t invest in startups that cultivate or sell marijuana directly.

Gomez said while the industry is immature, some investors — predicting eventual federal legalization of cannabis for recreational purposes — think now is the time to invest.

“All the value is being created right now,” he said. “These companies have an insulated environment to develop and then becoming acquisition targets when legalization happens.”

It’s likely seed-stage investing in cannabis-related companies will continue to increase because large companies aren’t yet becoming involved in the sector because of the complex regulations that govern the substance’s use, he said.

“The accelerator model or the seed-stage investment model is incredibly popular, kind of out of necessity,” Gomez said.

Sector Agnostic in Investing

It’s unclear whether any other city has two accelerators devoted solely to cannabis-related businesses, but San Diego is likely among a select few. In addition to Canopy, well-known accelerators include Gateway in Oakland and Greenhouse Ventures LLC in Philadelphia.

Kodiak’s Hodson said the firm’s accelerator will be sector agnostic, investing in “anything and everything cannabis.”

A total of 75 startups applied to be part of Kodiak’s inaugural accelerator class this summer, Hodson said: primarily Southern California-based firms, though some were from Northern California and a handful were from out of state.

Hodson said he expects to start considering applications for Kodiak’s second group of startups later this year. The accelerator aims to debut its second cohort Oct. 1.

“We want to build a couple companies every six months,” he said.

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