Why enterprising folks are banking on pot's future
Amendment 64 was a sign this entrepreneur couldn't ignore
Sohum Shah graduated two years ago with a dual degree in finance and information systems, a knowledge base that would make him an attractive hire even in today’s tough job market.
But the Denver native, now 26, turned down a job offer from tobacco giant Altria Group Inc., opting to go into business for himself. Shah is CEO of Cannabis Commodities Exchange, a service that matches marijuana producers with retailers. He and two partners, both lawyers, have been up and running since April 2014.
Shah’s gravitation to the cannabis industry was shaped by two events. The sub-prime mortgage crisis that hit in 2007, his first week of college at CU Boulder, prompted him to re-think his goal of becoming an investment banker. Then came the passage of Amendment 64 in April 2013, legalizing recreational marijuana in his home state of Colorado, weeks before he was to graduate from the University of Arizona.
“I took the passage of Amendment 64 as a sign I couldn’t ignore. I decided to turn down my job offer and come back home and get into the industry,” says Shah, one of six panelists at a cannabis-focused session hosted by Denver Startup Week in early October that drew a standing-room-only crowd of more than 100. “It was a huge risk, and I turned down a pretty good job, but I realized I didn’t want to wake up when I was 30 and see somebody else made a ton of money off the industry when it could have been me.”
Cannabis Commodities Exchange was initially conceived as a fully electronic service that would take advantage of Shah’s finance as well as his IT expertise to match producers with retailers. But, he says, “We’ve pivoted our revenue model quite a bit.”
One move was to scrap the subscription fee in favor of a consulting-based revenue model. Another was to rely less on the website for sharing product information and more on personal inspections of wholesalers’ cannabis.
“We use the website more for the extracted goods (such as edibles),” Shah says.
Shah is hardly alone in his plans of seizing opportunity in the budding cannabis industry. Because marijuana remains illegal on the federal level, traditional financing through banks is nearly non-existent. Hoping to fill that void, Denver-based Dynamic Funding Inc., a 20-year-old equipment leasing company, announced in September the formation of a subsidiary, Dynamic Alternative Finance, geared to assisting marijuana businesses in need of financing for equipment, facility improvement or retail expansion by matching them with lenders. The company does no lending to marijuana businesses itself.
“We wanted to form a subsidiary to just focus on alternative businesses, with cannabis being the largest and the juiciest of the alternative businesses,” says Scott Jordan, director of business development for Dynamic Alternative Finance. “We also wanted to give ourselves a little bit of breathing room, just in case something should change with the fed or the authorities, to have a separate company that would not be contaminated with the 20-year-old company.”
Jordan describes the lending terms as “similar to credit card-type of rates; mid-teens and higher depending on risk. But it’s a lot better and a lot less expensive than giving up equity in the long run.”
Shah, the Cannabis Commodities Exchange CEO, predicts that in five to seven years, “We’ll see some federal de-scheduling (of marijuana’s status as an illegal drug).
“At that point, the big companies will come to play with their checkbooks, and more than likely they’re not going to start from scratch,” Shah says. “They’re just going to start buying up the people who have been doing it for five years. I would honestly like to sell the majority of my company in five to seven years, and I don’t know what’s after that. I’ll probably stay in the industry.” cb