A Look at Venture Capital in the Cannabis Industry with Roger Tilton
Venture capital funds dedicated to particular market niches are nothing new. Those specific to the cannabis industry, however, are a bit more novel. But a cannabis investment company that began on April 20? That’s the date in 2016 when Roger Tilton, a 27-year veteran investment advisor, left his day job and announced full_tiltON ventures, LLC, his new venture fund dedicated to the cannabis industry.
I started this in April of last year to invest in early-stage legal-cannabis related companies. Since then, I’ve talked with more than 400 cannabis-related companies.
During an exclusive interview with CannaBiz Journal, Tilton shares his plans for the new company and makes a few predictions regarding legalization in California and at the federal level.
CannaBiz Journal: What prompted you to start full_tiltON ventures, your new cannabis-centric investment firm?”
Roger Tilton: It’s really just a logical extension of what I’ve been doing for 27 years: Matching investors with investments. Venture capital is at the top of the risk pyramid for investment. And venture capital for cannabis is the greatest risk because it’s federally illegal.
We’re looking for companies to invest in that aren’t actually getting their hands dirty. We’re looking for tech companies and software companies and those that are developing smartphone apps for the cannabis industry. These new entrepreneurs are laser-focused on their tech for the cannabis industry. But maybe they’re missing the big picture; maybe what they’re doing could be applied to the world in general.”
CJ: Where do you see the cannabis industry in three to five years?
RT: We see the industry as currently being in a very infantile stage. But cannabis has been around at least 6000 years. It’s been a thriving black market business for the last 60 or 70 years. All we’re watching—and want to participate in—is the movement from the black market to the free market.
My company is minimizing risks to our investors by steering clear of touching the plant. We’re not going to grow it; we’re not going to process it; we’re not going to distribute it; we’re not going to retail it; and we’re not going to market it. That’s for others to do.
CJ: What are some of the problems that you’re witnessing in this early stage of the industry?
RT: What we’ve found in the last year—and especially in the Seattle market—is that a lot of the early investors in cultivation, processing, and distributing … they’ve run out of money. It was more expensive to get into this business than they thought.
CJ: How is full_tiltON ventures positioning itself in the cannabis investment space relative to competitors?
RT: We don’t want to just throw money at growers and processors and distributors. We’re really a boutique cannabis tech VC. That’s our niche. We’re looking at people who create software and games and smartphone apps for the cannabis industry.
CJ: How do you qualify your prospects?
RT: Rule number one is that they have a sound business plan to make money in the cannabis industry. secondarily, how does their product work in the world at large? Can we grow their business exponentially by taking it from cannabis to something else?
Not that the cannabis business isn’t going to be great on its own, but we’re looking for the 100-fold return or 1000-fold return—as every VC is. We’re looking for the next Uber.
CJ: Are you and your peers excited about California, the most populous state in the nation at 40 million residents, adopting legal adult use cannabis?
RT: Definitely. In fact, I would use the term ‘giddy’ [laughs]. If the five states poised to legalize in this year’s election do so, fully one quarter of all adults in the United States will be able to walk into a store and buy cannabis, just like they currently can walk into a store and buy a six-pack of beer.
I think passage of legalization in California will be the tipping point the president is going to have to seriously reconsider his decision not to reschedule cannabis on the narcotics list.
Once California votes for legalization, it’s really only a matter of time before the rest of the states come along or before the politicians in Congress decide, ‘You know what, this is actually a pretty good revenue source. It’s not as dangerous as we’ve been led to believe all of these years.’
CJ: What are some of your biggest challenges when trying to attract money from the finance industry, which is traditionally conservative, to cannabis investments?”
RT: Part of the problem with conventional investors and venture capitalists is that the stigma of the illegality of cannabis is holding them back. There’s also the federal banking regulations that don’t allow for businesses associated with cannabis to have bank accounts.
Is my venture fund far enough removed from touching cannabis? I think it is. The legal advice that we have gotten says that it is.”
CJ: What is your elevator pitch for full_tiltON ventures?”
RT: We’re looking for companies that are providing something of value to this newly legal industry. I want to hedge this over many different companies that have an eye toward building and developing the industry itself—not just a specific company or niche. We’re here to benefit from the growth of this newly legal industry.
CJ: Is it fair to say that you’re planning long-term by focusing on businesses that will scale into a market that could be 500 or 1000 times larger than it is now?
RT: Oh, it’s going to be bigger than that. It’s going to be bigger than 1000 times what it is now. We’re going to see tens of thousands of jobs created in this newly legal industry. Those jobs will come with tax-paying employees. The Arcview Group predicts that cannabis will be a $20 billion industry by 2020. That’s only three-and-a-half years from now.
This is taking off. We’re in at the beginning, but it’s going to ramp up fast.
To learn more about full_tiltONventures, visit the company’s website at fulltilton.com or email Roger Tilton at email@example.com