The first cohort of startups incubated by cannabis-tech accelerator Canopy San Diego graduated last week, with several of the firms putting down roots in the region.
When Canopy San Diego put together its first cohort last year, only three of the eight firms were local. After graduating, however, two additional companies plan to move their headquarters to San Diego: Los Angeles-based LoudCloud and Denver-based Lodestone Data Technologies.
The startups join fellow cannabis-tech graduates Direct Cannabis Network, Icarus RT, and Loose Leaf Tech, which already call San Diego home.
Canopy San Diego invests in companies that are developing technology that serves the cannabis industry, and fosters their development through workshops, mentorship, and other programs.
The organization invested $20,000 in each startup in its first cohort, and ended the program with a demo day in which the startups pitched to a crowd of investors.
“Not only has the SoCal tech and cannabis community accepted our companies, but a number of local businesses have also agreed to participate in beta tests or become early adopters of our startups’ technology,” said Jack Scatizzi, managing director at Canopy San Diego.
“Because of this initial traction, a handful of companies participating in our accelerator program have decided to either relocate to San Diego permanently or to operate a regional office in San Diego, he said.
“Our goal when we launched Canopy was to give San Diego an edge in being the next leader in cannabis ancillary products and technology companies, and based on the results from our first cohort, it’s working.”
Bardia Rahim, a serial entrepreneur in San Marcos, is developing an app to take on a giant among cannabis technology: WeedMaps.
Known as the “Yelp for the marijuana industry,” WeedMaps is a popular mobile app that helps cannabis users find dispensaries and weed delivery companies. The Irvine-based company dominates the space for “weed discovery” apps, and last reported annual revenues of about $30 million in 2014.
As the cannabis industry swells following recent legislation, the market for WeedMaps (and its competitors) grows with it.
Enter Rahim and his new app PotDrive, which is also the name for his small company. The firm employs six people and works out of an incubatorlike office where Rahim’s other ventures also operate.
PotDrive will be Rahim’s first technology company, but not his first venture serving the cannabis industry. Rahim owns Kush Candy, which makes vape products sold to dispensaries.
Working in the industry made him aware of the opportunity to develop an app that could be competitive with WeedMaps.
“I’m not very impressed with the competition,” Rahim said.
Blowing Smoke
WeedMaps, although a weighty competitor, is ripe for disruption. The Los Angeles Times reported last summer that roughly 62 percent of dispensary reviews on the app were bogus, severing the trust of many WeedMaps fans.
On top of bad press, WeedMaps users also complain that the app lists dispensaries that are no longer in business.
This has created an opportunity for ambitious app makers to better serve cannabis customers, said Jack Scatizzi, an investor in the cannabis technology industry.
PotDrive set out to address the common complaints of WeedMaps users by creating an app that only lists businesses that are currently in operation. PotDrive focused largely on improving the user’s experience, and building out a “back end” for dispensaries to manage their profiles, menus, and other data shared through the app.
PotDrive has 24,000 dispensary and delivery companies in its directory, with over 2 million products for sale through the app. The app also lists medical marijuana doctors, other retailers, and cannabis-related legal services, adding roughly 50,000 more businesses to the directory. Rahim estimates that this is about 20 percent more data than WeedMaps and MassRoots (the biggest competition) combined. Rahim said the listings on PotDrive are accurate and up-to-date, giving PotDrive an edge over other apps.
Immense Competition
PotDrive would earn revenue by working with merchant banks to take a percentage of every sale purchased through the app.
The legal weed industry’s total sales amounted to $5.4 billion in 2015, with California accounting for 50 percent of the entire market. With adult recreational use legalized last November, most experts anticipate the market will balloon over the next few years, making a sizable market for an app like PotDrive.
But Scatizzi, who invests in cannabis-related tech companies, said that PotDrive’s hurdles will be difficult to overcome. The problem isn’t the lack of opportunity, but immense competition.
“The business plan that I get pitched the most is to be a ‘Yelp for cannabis’ with the lofty goal of ‘taking down WeedMaps,’” Scatizzi said in an email. “I get pitched this at least a dozen times a year.”
But Rahim said the competition is too green, the apps too clunky, or the businesses too underdeveloped to be worrisome. His operations guy, David Wise agreed, noting that PotDrive’s app is already developed and nearly ready to launch.
“The amount of time it would take to accumulate the data we have would take (our competitors) years,” Wise said.
Needs Early Traction
In a later business model, PotDrive plans to charge weed companies to be listed in top slots, similar to Google’s “sponsored listings” feature.
Scatizzi said it will be a challenge for PotDrive to get dispensaries to pay for this feature.
“Most dispensaries are already paying a couple grand a month to have their pin on WeedMaps, along with their point-of-sale system, a marketing software tool that is focused on customer retention and driving up-sells, their seed-to-sale compliance software (which is mandated by state law), plus another marketing app or two to help identify new patients or customers,” Scatizzi said.
“So unless PotDrive can get some early traction with SoCal users, and I mean like 100,000 downloads with great weekly engagement, it is going to be very hard to convince a dispensary owner to pay for another monthly software as a service platform,” he said.
Rahim countered that PotDrive plans to roll out a social media marketing campaign targeting the Southern California region first, and he expects adoption to kick up over time.
“We’re already working with the marketing company that our biggest competitors used, so we think we can get there,” Rahim said.
The company plans to launch the app by February, and has about 1,000 users in a beta round.
POTDRIVE
President: Bardia Rahim
Founded: 2016
No. of local employees: 6 full time, 12 contract developers
Capital raised: $500,000 in friends and family round (intends to close the round at $1 million)
Headquarters: San Marcos
