Eric Gomez is the CEO of Canopy San Diego, a San Diego-based startup incubator for tech companies who are focused on serving the cannabis space.
Eric recently joined our podcast host TG Branfalt to discuss the current climate for investors who are looking to get started in the cannabis industry, understanding the difference between making safe vs. disruptive investments, international investment opportunities as new medical and adult-use markets pop up around the globe, and much, much more!
You can listen to the interview through the media player below or keep scrolling down to read a full transcript of this week’s Ganjapreneur.com podcast episode.
Listen to the interview:
Read the transcript:
TG Branfalt: Hey there, I’m your host TG Branfalt and you are listening to the Ganjapreneur.com podcast where we try to bring you actionable information and normalize cannabis through the stories of ganjapreneurs, activists, and industry stakeholders. Today I’m joined by Eric Gomez who’s the CEO and founder of Canopy San Diego. How you doing today, Mr. Gomez?
Eric Gomez: I’m doing well. Thank you, Tim.
TG Branfalt: Excellent. I want to thank you for joining me and congratulations on your spring accelerator program. I’m sure you got a lot going on with that, right?
Eric Gomez: Thank you. Yeah. This is our second cohort so it’s pretty cool to have eight new companies in here. We’ve got about 16, 20, got about 22 new entrepeneurs in here so you can imagine the amount of energy that’s in the building.
TG Branfalt: I’m sure it’s absolutely incredible. We’ll talk about that, the energy, the accelerator program a bit more, but before we get into that I want to know about you. What did you do before getting into the cannabis industry and how did you end up there?
Eric Gomez: I came here in somewhat circular fashion. I graduated UCLA with an engineering degree and went into data com, so that was in the late nineties. I basically got into really the dot com and the data bubble right near its peak and near the end of that. When that ended I went back to school, got an MBA in real estate finance and went into the real estate world. This was in the late 2000’s, so again right at the peak of the real estate bubble and obviously the crash on a global basis this time, that that caused.
I got in on two of our lifetimes biggest bubbles right at the end and so now that I’ve had a few years to make some money and become an investor myself I started looking around at what was the next big industry. After an analyst brought some information to me and I made a trip to Denver I realized that cannabis was the right place to be. I came in really as an investor and looking to, if the opportunity came about, to be an operator. This time at the beginning of what is this decade’s great industry.
TG Branfalt: I got to ask. You’re probably the third or fourth or maybe even fifth person that I’ve interviewed on this podcast that has worked previously in the real estate sector. Can you maybe offer some insight as to why so many people who were in real estate end up in this space?
Eric Gomez: I would say if they’re currently operating and investing then there’s clearly a reason for elevated values. My experience has led me to be very, very wary of real estate investments at this point in time in cannabis because they are elevated. We all know that right now margins and pricing is higher than they will be tomorrow and we’ve seen that data prove that out in Colorado and Washington and now Canada’s starting to see the same thing. I think that that’s probably why real estate guys say, “Wow, this is great because now my property that was useless out in the desert is worth four times as much as it was six months ago.” I would say that’s reason number one.
Reason number two might be because, let’s face it, real estate is a bit, it’s a bit boring. When you have a little bit of cash, again, from previous investments and now you look at a new and upcoming thing that is slightly tied to something you’re familiar with, which is real estate, I think a lot of guys are jumping in and saying, “Hey, let’s build a portfolio.”
TG Branfalt: Can you draw any similarities between the emerging cannabis industry and what you noticed while working in the tech sector during the dot com boom?
Eric Gomez: Yeah. I would say there’s a lot of similarities. Number one is venturing into the unknown. I know we’ll get into the investment landscape in a bit here but a lot of investors are really, really taking a big risk and they’re saying, “Hey, I don’t know where this is going to go but I know it’s going somewhere, I know it’s growing very rapidly, and I know if I get in with the right teams and in the right sectors and protect myself well enough that I’m going to have a decent investment.” There’s that similarity.
There’s also clearly a bubble effect. A true bubble happens not because there’s organic growth that is deserving. It’s when that growth starts pulling funds from other industries that are also equally deserving. I think cannabis is not quite there yet but I’m starting to see signs of people throwing money at cannabis simply because they have the money. That’s a bit scary. Warning to all investors. Really do your due diligence as you normally would. Really think through all the possible scenarios. Protect yourself on a legal side. Make sure you’re getting the right teams and research everything two, three times over because a lot of the information that’s out there today is largely hyped.
TG Branfalt: We’re definitely going to talk more about the investment stuff in the second part of the show, but I want to move back a little bit. You guys over in Canopy San Diego, you’re the first cannabis industry accelerator in southern California. Why do you think that took so long?
Eric Gomez: That’s a great question. We’ve asked ourselves that exact same question many, many times. The startup scene here is a bit disjointed. It doesn’t have the organization that Silicon Valley has, that Austin, Boulder, Boston, New York has. And I think it might be just because there’s so many different industries at play here in southern California and I think a lot of the VC firms, wherever they put down roots, that tends to flow down and then create those other groups that start building accelerators and other sort of startup structures. It’s a great question. I honestly don’t have a certain answer for you. I can only kind of guess at the different reasons.
As far as cannabis, SoCal is the biggest probably consumer region in all the United States in terms of consumption. Obviously it’s a huge population base. The manner in which it’s developed has been largely gray market. There are thousands of dispensaries in Los Angeles. Thousands of dispensaries in the rest of SoCal, but only, what? 20-30 are operating legally. I think maybe there’s a larger gray market here than in other markets and I think that’s because of the slow roll through the regulations and also because we do have such a disperse population.
TG Branfalt: You did a lot of your overview, I don’t really want to call it training, with the guys over at Canopy Boulder. What are some lessons that you learned from that experience that you brought with you to SoCal?
Eric Gomez: Yeah. Those guys, they’re the reason we duplicated the model, because when I went out to Denver as an investor I found a couple of companies, one of which is BDS, which is still doing quite well and just closed, I believe, a two million dollar round. It was that investment philosophy that made sense to me and I understood that due to the stage of this industry, basically being brand new, that an accelerator model made sense. Because you really need to have a safe place for people to come together for mentors, for entrepreneurs, and for investors to come together, share ideas, and really build value in these new companies in a very strategic manner. Due to the legal risks and the banking risks, it’s just not as easy to just sort of create startups and invite entrepeneurs in and develop enough of a critical mass of companies that you can produce enough investible companies.
The accelerator model that Canopy adopted, which is essentially a copy of Tech Stars, Y Combinator, the big guys out there, made sense to me at this particular point in time. Because as I just mentioned the gray market feeling out here in SoCal for cannabis just doesn’t lead to any platform where you can access information and invite entrepeneurs, mentors, and investors in and have them sort of feel safe.
TG Branfalt: That makes a ton of sense. I’ve spoken to a lot of investors who simply won’t invest in any sort of gray market system such as … I’m in Michigan. No one will invest in Michigan because of all the questions. Mark Twain, he had said during the gold rush, “It’s a good time to be in the pick and shovel business.” Over at Canopy San Diego you guys have embraced this philosophy. You’re only investing in ancillary businesses, none of the startups that you’re working with touch the plant. What sort of growth are you seeing right now in California’s ancillary industry in the lead up to the recreational regime?
Eric Gomez: It’s exciting because I think the way it rolled out was almost perfect. You had legalization in Colorado in 2014 and that led … And kudos to all the regulators in Colorado that really kind of let it take its own form. Now that that small market, relative to California, has fully developed or not fully developed but is getting the are, they were able to really give us an example of what to do out here. Because we just passed the vote in November and now in 2018 we’re waiting for the actual licenses to be handed out we’ve got plenty of runway to develop software, develop hardware, develop solutions, put those all in place, put them through the accelerator, make sure they ramp up with the licensed dispensaries for medical marijuana here in San Diego and SoCal. Then once everything comes onboard in 2018 we’re ready to really go and have all of our ducks in a row ready to go.
The timing was really great and we’ve already seen, I mentioned BDS earlier. That was an early Canopy company. They just closed a two million round. Werk is also an early Canopy company. I think they were the cohort following BDS. They just closed a two million dollar round. Tradiv, which is also a Canopy company, actually has had an office out here in Serrano Beach. They raised a decent amount of money.
Those guys are our role models and they’re all looking at California as the next market that they want to go into. Now that they’ve got a foothold, they’ve got investors behind them, and those investors include California investors, Florida investors, Chicago investors. A nice geographic differentiation that’s really focusing on these companies and really that’s the growth potential for them, is California. We’ve got two-three billion dollar business today and that’s expected to double in 2018 when rec comes online. The growth is all ahead of us.
TG Branfalt: Are there any kind of internal discussions to get involved with businesses that touch the plant eventually?
Eric Gomez: In terms of our accelerator?
TG Branfalt: Yes sir.
Eric Gomez: Discussions, yes. The exact pathway to that is yet to be determined. You’ve got to, number one, align with your investors and so one of the big pitches for being the picks and shovels is that we are highly de-risking cannabis investments. That’s the best way to take advantage of all the upside of the industry without assuming the full risk profile of touching a plant. That would be the first task, would be to go to the investors and say, “What is your appetite for this? Are you willing to basically take two times the risk here, right?” You’re touching the plant and you’re talking about startup companies and we all know that the percentile of startup companies that actually make it big is very small.
I think that risk appetite might be trough to swallow. If we can find people that are willing to do it then by all means we could set up a separate fund and put investors into that vehicle that are now dealing with those kinds of companies. I don’t know that we’re ready for it here yet. There’s certainly a lot of science that’s being developed but speaking to various scientists that are starting to look at cannabis, including our managing director Jack Scatizzi who is a PhD in immunology, the viewpoint is you’re not looking at tech startup scalability, right? You’re not talking about building a company in three months, producing revenue in six months, and potentially scaling up to an exit in three years. You’re talking about doing research for a number of months if not years and then the actual commercialization of that research may not even be possible. It may just end up being something that’s shared with the community in general. There’s a lot to think about there and we haven’t committed to that yet.
TG Branfalt: I want to talk to you a bit about the projects that you are working on and you have worked on but before we get into that we got to take a short break. This is the Ganjapreneur podcast. I’m TG Branfalt.
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