On Wednesday, Evan Eneman joined members of the High NY community to share his insights in investing in the cannabis industry. Eneman is a founding partner of Casa Verde Capital, Snoop Dogg’s cannabis-focused venture capital firm. Addressing everything from brand development to the common mistakes he sees entrepreneurs make, High NYers were eager to learn about how to succeed in this new and exciting space.
For investors, Eneman emphasized thorough research. When he and partners Ted Chung and Snoop Dogg started Casa Verde Capital, “we wanted to understand what the opportunities were for us. It was a very lengthy process of due diligence,” he said. “We spent a lot of time researching [new] markets.”
Not only do investors need to be armed with such research, but they also must be patient. Eneman cautioned against investing in a good business idea alone. “As an investor, it’s a long-term relationship that you’re going to have with an entrepreneur… Make sure you have a good relationship with them,” he said. “Developing a good brand takes a lot of time and a lot of patience.”
The two most important things for Casa Verde Capital are progression and innovation in the industry. One of the firm’s priorities is to bring safety to the cannabis space, which means investing in companies that may not necessarily be very profitable early on. “[We’re] helping to build a sophisticated and robust industry, which is more important than any one investment,” he said.
Eneman had some useful advice for entrepreneurs as well. One issue that concerns the industry is the threat of raids. Despite the fact that more than 20 states have legalized some form of cannabis, dispensary owners still operate under the threat of law enforcement.
“[Raids are] always going to be in question until there is really significant change from a regulatory standpoint on the federal level,” said Eneman. “You mitigate that risk by adhering to every possible regulation… presenting what you’re actually doing and being as transparent as you can be.”
Sadly, even when entrepreneurs go to great lengths to be compliant, they can still suffer ruinous raids from law enforcement. Michigan couple Annette and Dale Shattuck started a medical marijuana dispensary and worked hard at ensuring that their business was legit. The Washington Post reports:
They worked to ensure every last detail was in full compliance with the law as they understood it: They obtained the permission of the landlord of the building where the dispensary, called the DNA Wellness Center, was to be housed. They went to local planning commission meetings to obtain the proper permits and licenses. They discussed business hours, security measures and even signage requirements with the planning commission.
The town building inspector checked the property and approved the signage. The chairman of the planning commission publicly thanked the Shattucks for working within the allowed legal framework. According to court documents, the Shattucks even went so far as to call the local sheriff’s Drug Task Force to invite them to inspect the property and verify their compliance with the law.
But despite all these measures, their business and home got raided, traumatizing their four children and saddling them with financial burdens. Entrepreneurs in the industry must be aware that there are always risks, even when you are compliant with individual state laws.
Just like investors, entrepreneurs need to do thorough research before even approaching VCs for investment. “A common [mistake] for us is [entrepreneurs] not doing enough research on the market,” said Eneman.
Many founders will pitch their startups without mentioning all of their competitors. For example, an entrepreneur might say he has two other competitors, but the potential investor knows it’s more like eight. “That’s a big red flag for us,” said Eneman.
Another pitfall he sees among cannabis startups is not prioritizing the team. “The hardest thing you’re going to do when starting a business is to function as a team effectively,” he said.
So aspiring entrepreneurs take note: Make sure you have a solid team and have done your market research before seeking capital.
Mona Zhang is a New York-based writer and editor of the cannabis newsletter Word on the Tree. Follow her on Twitter @ZhangMona.