Hi again.
It’s been about a month since we last talked, which is far too long. I honestly feel bad about it. I really wanted this to be a weekly newsletter… But when I set out to build Startup Salad, my life was WAY different.
So much has changed since I pressed publish on that first issue of Startup Salad on January 18th. Back then, I had 0 jobs and had just started a new semester. I was coming off of a relaxing Christmas break and I was excited about all the possibilities of a new year.
Today, I have 2 jobs (I do content stuff at Billbox and business admin stuff at Fintech Today) and am also drowning in school work. My “extra-time” has slowly dwindled down to nearly zero, and prioritizing writing something that 1) I don’t get paid for and 2) I don’t get a grade for, is really hard.
So, I just haven’t. And that’s okay. Startup Salad is not going away anytime soon. There is light at the end of the tunnel. I’m typing this on March 20th. I graduate on May 8th. That leaves 49 days until graduation. We are so, so close to the end.
Anyway, I wanted to drop you a quick line and let you know the situation. There is more coming–stuff I’m really excited about–things like investment demos, interviews, deep dives on specific questions, and more. I love Startup Salad and I’m not going to let it die.
With that in mind, I’m going to publish this newsletter at 11:53 on Saturday, March 20th, and simply say, thanks for being here. I know it’s been quiet, but I’m still here. And we have lots of exciting things ahead of us.
Sincerely,
Nate.
P.S. Here’s a little treat:
In looking back at my first issue of Startup Salad, I realized that I never shared the really cool article I wrote with my friend Troy Sims on the legality of CBD. I’m going to share it here. It’s fun, funny, and informative. I think you’ll like it.
The Legality of CBD
If you are like most people, you have probably heard of CBD. Maybe you heard about it on the Joe Rogan podcast in between wild tangents of aliens and DMT. Maybe you heard about it from your second cousin who has a face tattoo and $15,000 in credit card debt. Or maybe you have seen it on the shelves of the grocery store near the pharmacy, or have read articles by doctors who swear by its benefits. Maybe you have experienced all of these, and are left with the understandable thought: “What the hell is going on with this stuff?”
CBD has grown in popularity over the past decade, due in large part to new companies developing and selling brand new CBD products. Many individuals have experienced the many purported benefits of CBD and become motivated to found startups themselves in order to push forward the CBD revolution. However, timidity over the developing market may keep many potential businesses from moving forward. This is for good reason, since the FDA is still rolling out regulations on CBD products.
Still, the market continues to grow and is projected to continue to do so for the foreseeable future.
What is CBD?
There is a lot of hype about CBD, so let’s try to clear up some things. It is not the “miracle mana” your cousin claims cured his Campylobacteriosis. But it also is not the “dangerous addictive drug” that your landlord claims will lead you down a road of used needles and broken dreams.
Cannabidiol, or CBD, is a chemical found in the cannabis plant that has no intoxicating effect. Let’s repeat that for those blessed with thicker skulls: it has no intoxicating effect. This contrasts with THC, a chemical in cannabis that causes an intoxicating feeling in the user. Commonly referred to as marijuana, cannabis is a tall Asian herb generally consisting of three species, Cannabis sativa, Cannabis indica, and Cannabis ruderalis. This plant is listed on the Controlled Substances Act as a Schedule I substance, the most restricted level of substances.
Though a chemical constituent of cannabis, CBD has been legal (under certain circumstances) to produce, sell, and use for more than two years now. On December 20, 2018, the Agriculture Improvement Act, or Farm Bill, contained a provision “legalizing hemp.” Hemp is defined in § 297A(1) of the Farm Bill as any part of the cannabis plant with less than 0.3% THC (the intoxicating chemical of cannabis). This provision gave rise to the hemp-derived CBD market.
Cannabis vs. Marijuana vs. Hemp
Much confusion has emerged over these three terms, and for good reason; these terms are commonly misused. We all know someone who pronounces the “j” in “marijuana,” or thinks cannabis is “the medical version of pot.”
We’ll quickly try to clarify any confusion between the three terms:
“Cannabis” is the scientific nomenclature for the plant, and is generally acknowledged as the appropriate term.
“Hemp” is a term created in law to describe cannabis components with less than 0.3% THC, and is better understood as a low-THC subcategory of cannabis.
“Marijuana” is a cultural term that became commonplace in public discourse, and its use is being phased out. Many claim its origins have racist roots and is generally associated with misinformation on the plant.
Under the Farm Bill, only Cannabidiol derived from hemp is legal.
What is the legality of CBD?
Thanks to the Farm Bill, I can quit working at the mall, buy some overalls, and start farming/selling CBD, right?
Not quite. CBD production is much more complicated than that... but go ahead and buy the overalls now, because they are both practical and accentuating.
CBD remains a controlled substance but can now be legally produced and sold under strict guidelines. As stated above, hemp was distinguished from cannabis in the Farm Bill and is not a Schedule I controlled substance. Thus, CBD derived from hemp is legal if produced by a licensed grower in accordance with the Farm Bill and federal regulations. Any deviation from these exceptions is prohibited. *Hint: That means it’s illegal.*
To grow hemp, a farmer must be licensed through a state/tribal hemp program or the USDA hemp program. If the farmer’s state has an approved/submitted hemp production plan the farmer must apply through the state, and if not the farmer may apply with the USDA. A farmer can not receive a license if convicted of a felony related to a controlled substance in the last 10 years. Once licensed, farmers must adhere to strict guidelines by reporting their hemp acreage and keeping THC levels in crops under 0.3%.
When it comes to selling CBD, you’ll want to remember one simple phrase: don’t piss off the FDA. Businesses may sell hemp-derived CBD products in accordance with the Federal Food, Drug, and Cosmetic Act. What constitutes legally selling a CBD product is dependent on the intended use, labeling, and marketing of the product. For instance, CBD products may not be marketed as dietary supplements–i.e. food products to which CBD has been added.
One thing that is certain to piss off the FDA is unsubstantiated marketing. While many businesses are enthusiastic about the benefits of CBD, they will get burned if they do not market appropriately. The FDA has sent numerous warning letters to businesses selling CBD products because the businesses claimed the products prevent, diagnose, treat, or cure serious diseases. Since the FDA has not approved such therapeutic uses, this violates the law. In 2019 Curaleaf received one such letter for marketing CBD treats anxiety, depression, opioid withdrawal, even dog anxiety. The FDA asked the company to correct this or face legal action. Any startup seeking to enter the world of direct-to-consumer (DTC) CBD, would be wise to steer clear of such claims.
Growth since the Farm Bill
In 2018 the floodgates opened and out poured a wave of companies, trademarks, and CBD products (like CBD hair gel… why?). The CBD market as a whole has grown significantly since the Farm Bill was passed in 2018, and according to market reports, it reached $620 million in 2018. After the Farm Bill was passed, the market’s growth continued in 2019 nearly hitting $5 billion, good for a 700% increase in one year. While these numbers tend to fluctuate when adjusting the scope of analysis, all numbers reveal that the market increased after 2018.
2020 was a troubling year for many but CBD companies continued to move their products (even the hair gel. I ask again… why?). Market analysts originally predicted the market would grow to over $20 billion in 2023, however, consumer financial strains and shutdown orders negatively impacted the growth of the market. While projections for the 2020 market were reduced to $4.7 billion, the market is still expected to reach $16.8 billion in 2025.
Even though the pandemic slowed market growth, these constraints are expected to be short term. In fact, it is quite possible that the COVID-19 pandemic may have increased the industry’s importance, especially when considering tax revenue, stress remedies, and increased online sales. All numbers still show the market will grow significantly in the future.
CBD Startups
And when it comes to market growth, that usually means startups, and startups and CBD are a match made in heaven. An industry historically on the fringes of regulation with no major power players or incumbents? It’s a startup founder and venture capitalist’s dream! It’s no surprise then, that by 2025 analysts predict the cannabis and cannabinoid derivative market as a whole to reach $34 billion. And as one would expect, founders and investors are looking to cash in.
On the investor front, Calvin Broadus–better known as Snoop Dogg–raised $100 million dollars for his investment firm, Casa Verde Capital’s second fund. While several other firms, like Green Acre Capital and Gotham Green Partners, are also focused on investing exclusively in cannabis and cannabis-related companies, my money is on Mr. Snoop Doggy Dog. He has become synonymous with cannabis and has his own brand of cannabis. Even grandmas bob their head to “Drop It Like It’s Hot.” If a CBD-startup founder has his choice between literally any venture capital firm in the world and Snoop Lion, the choice seems rather easy… It’s likely that Casa Verde Capital, and the world that Mr. Broadus helped usher in, are here to stay for a long time. And the years of work Snoop spent trying to destigmatize CBD are bound to have quite the return-on-investment.
With money flowing into the industry, hot new startups are popping up everywhere. These startups seem to largely fall into three main buckets: supplements, beverages, and enabling tools.
For good reason, the first bucket, supplements, seems to be the most obvious. Many people who find their way into the world of CBD rave about its ability to drastically improve their quality of life. Many entrepreneurs have sought to share these positive effects with others by forming their own companies, one of which is Amanda Goetz’s House of Wise.
Amanda and CBD weren’t always the best of friends. Growing up in a conservative, midwest home, she’d never used any cannabis products. But after a stressful and busy two year period, she turned to CBD for the first time and it changed her life. She says that “CBD brought me calm and focus in difficult times that years of therapy couldn’t touch … [and] I want to share my experience with other badass women so they can do the same, with a supportive community backing them.” House of Wise is a CBD startup aiming to help women take control of stress, sex, and sleep.
House of Wise isn’t the only CBD startup in our “supplements” bucket that is aiming to serve women, as Chicago-based startup Equilibria recently raised $2 million to help women find a CBD regimen that fits with their biology. Equilibria goes as far as matching their customers with a Dosage Specialist to help them find the dosage that is right for each woman. Across the Atlantic, UK startup Daye is trying its hand at infusing CBD into tampons to help reduce period pain–pretty incredible!
Companies with other goals have also joined the fun. Professional athletes Baker Mayfield and Danica Patrick have invested in beam, a startup focused on wellness, under the umbrella of what they call “the beam 4,” balance, performance, recovery, and sleep. Mayfield even claims that beam’s products helped him get through the stress of quarantine. None of beam’s products contain THC, and they claim their products are different than competitors because they use “broad-spectrum CBD, meaning [their products] contain a combination of cannabinoids, terpenes, and other beneficial compounds” instead of “CBD isolate, which excludes some of the beneficial compounds naturally found in hemp.” While all of that might sound like boring science junk to you and me, what it means in the grand scheme of things is profound: startups are doing what they have always done–competing and striving to develop the best product for their customers. Ultimately, a winner will arise in this field, and we all will be better for the competition that drove the innovation! So, cheer on your favorite companies, and don’t be too hard on the others, as the cream will rise to the top eventually!
Beyond the world of supplements, is a fast-growing CBD-infused drink industry, also known as the “beverages” bucket. Companies like Cann, Sweet Reason, Infuzed, and K-Zen are offering flavorful low-calorie drinks, some of which utilize THC and some of which do not. Cann, seemingly the most successful of the bunch, recently raised funding from celebrity investors including YouTuber Casey Neistat, retired NBA player Baron Davis, and actor Gwyneth Paltrow. The company has already sold more than 2 million of its alternatively intoxicating beverage. Meanwhile, companies like Sweet Reasons and Recess leave out the THC, instead offering non-intoxicating beverages that still offer the many purported benefits which hemp-derived CBD offers.
Just like the supplements space, there is loads of competition within the world of beverages–and thank goodness. In their current form, buying these CBD-infused beverages is not like buying a couple beers. Rather, you may need to sell a kidney to afford anything more than the occasional can. A pack of 12 cans of Recess will cost you $50, while a 12 pack of Sweet Reasons’ bottles will set you back $80. For now, all you can do is sit back and wait for competition to *fingers crossed* drive prices down and quality up. In the meantime, try not to go bankrupt from buying your favorite CBDrinks at ~$5 for a can of sparkling water!
Still, it’s not just DTC companies entering the world of CBD. There are many startups offering what we call “enabling tools,” or products and services that help make CBD a practical option for consumers and businesses alike. Caliper Foods, for instance, “offers safe and standardized hemp-derived soluble cannabinoids to both consumers and manufacturers alike.” Or in normal people’s words, they help companies get the CBD into your food and beverages. You don’t have to worry about a 16-year-old kid on an assembly line sprinkling CBD into each bottle, forgetting milligrams are not the same as milliliters. Caliper has developed technology to help companies produce CBD products efficiently and effectively.
It is important for anyone interested in starting a similar business to stay up to date on FDA regulations. Here is a good place to start.
Another company, tCheck, helps cannabis consumers test the potency of their cannabis at home, and LoboGenetics, tests the opposite side of the coin, the user. Their CBD genetic test helps consumers discover CBD’s effect on their metabolism. It also recommends products based on the consumer’s unique genetic profile–and for only $50! Essentially, there are startups striving to help people know what CBD to consume and also helping them test their cannabis to make sure it fits their genetic profile! How cool?! Maybe we could see about applying some of this technology to normal food? Maybe that would confirm what we all already know, Taco Bell is never compatible with our digestive systems…
Finally, there are many startups seeking to enable CBD by helping cannabis-related startups run their business more efficiently. If we think hard enough, we can probably all think of a favorite restaurant that went out of business. The food may have been world-class, but the business simply was not optimized. Fortunately for CBD lovers, help is on the way for their beloved CBD suppliers. Examples include CannaPay and Blackbird. CannaPay is a payment processing startup that helps cannabis businesses who have long struggled with payment solutions, while Blackbird, on the other hand, provides marketing and transportation services to cannabis startups.
Ultimately, in an industry as young and green (sorry, I had to) as CBD, startups are the future. If there’s a problem to be solved, you can bet that a startup is working on it. And if not yet, one soon will be.
CBD Startups in Washington
As one of the first states to legalize medical cannabis back in 1998, it only makes sense that Washington would again be on the cutting edge of the cannabis movement. Since both authors are Washington-natives, we also must mention a few notable Washington State-based CBD startups.
One of those startups was founded by Seattle Seahawks legend Lofa Tatupu. (Mr. Tatupu, if you ever read this, you are the man.) Mr. Tatupu’s company, ZoneIn CBD is a startup on a mission to provide “Premium CBD products recommended by doctors and trusted by athletes to help you ZoneIn and stay focused.” The ZoneIn co-founder suffered chronic pain, lethargy, and mental fogginess after experiencing the many injuries that are destined to accompany a six-year NFL career. Finding CBD changed things for him and now he’s aiming to help others experience the same transformation, and ZoneIn is currently offering CBD in oil, capsule, and roll-on forms.
Another Washington startup, SōRSE Technology, is the leader in water-soluble emulsion technology. Similar to Caliper Foods, instead of selling CBD directly to consumers, SōRSE is helping other CBD companies, like the aforementioned Cann, infuse CBD into their drinks. Beyond consumer goods, they are also working with Canadian company Pascal on utilizing CBD in cancer treatment–and that’s something everybody can get behind. Cancer sucks.
In the arena of CBD medicine, Receptor Life Sciences, is pioneering best-in-class delivery of CBD medicines. The biopharmaceutical company is “developing oral and inhaled cannabinoid medicines characterized by rapid absorption, high bioavailability, and consistent dosing.” Sure, CBD-infused drinks are cool, but helping to provide people with healthy, natural medicine is much cooler. The future of CBD in Washington will surely be bright if Receptor has anything to say about it!
Conclusion
With the passage of the 2018 Farm Bill, the CBD industry is exploding. While the legal hoops and hurdles can be difficult to traverse, it is no doubt a lucrative market for startups to enter. As a parting gift, we offer a few things that any person interested in venturing into the business of CBD should remember:
You can’t just call yourself a hemp farmer and start growing cannabis. There are strict guidelines you must follow. If you don’t you could find yourself in a world of trouble
Don’t piss off the FDA. You have to play by their rules. Unsubstantiated marketing is not going to fly.
The CBD industry is HUGE and growing. There is lots of room for, and money to raised by, startups selling consumer products and building CBD enabling tools.
If you have questions about any of this–and if you were paying any attention you should–talk to an attorney. Attorneys can either help you prevent messes or help you clean them up. You want them to help you prevent messes. It’s much simpler that way.
Do we need CBD in our hair gel? No.
Finally, please don’t forget that Troy and I are not attorneys and this is not legal advice. Check out the full disclaimer here.