First, I want to start on a positive note. The article is meant to be constructive criticism, so I want to make sure to talk about what is being done right before I get to what can use some help. Overall, I have been really impressed recently with the pitches I have seen from the cannabis industry. The slides are poignant and well organized, the pitches are direct and well rehearsed. I am happy to see the image of cannabis shift from grungy backroad grower to shiny c-suite professional.
But…of the pitches that I have seen, there is a glaring mistake that almost every founder makes. It is usually one of the first things out of the presenters mouth after their name and it goes a little like this: “This is a chance to invest in an industry already worth $6 billion and set to grow to $20 billion by 2021 [dramatic pause for gasps]” Out the surface it seems like a nice stat to put in, but in my opinion it does more bad than good.
Why preach to the choir? You are not even preaching to the choir, you are preaching to people who donated to build the cathedral.
First off, why preach to the choir? You are not even preaching to the choir, you are preaching to people who donated to build the cathedral. They get it. By attending a cannabis pitch event you know that everyone in the audience: a) is not morally against the idea of legal cannabis, b) sees a growth potential in the industry that outweighs the risk, c) wants to see detailed information about the growth strategy of a company and d) has already seen a few pitches and is getting bored/thirsty. Yet another entrepreneur spewing this fact only shows that they didn’t have the time to do any research past googling “cannabis industry forecast”.
Worse yet, I could show signs of over-optimism and under-thinking. Anyone that has been around the industry knows that those numbers are highly speculative. With the clandestine history of cannabis consumption data before recreational cannabis taxation should be suspect. Even in California, with legal recreational cannabis right around the corner, many companies are still keeping a lot off of the books. Not because they are shady mind you, they just have to because of the lack of banking options and unclear tax codes.
So, if there is not a good base of historical data, predicting the growth of the market is next to impossible. Statistical discrepancies get amplified more and more the further out a model is forecasted. Don’t get me wrong, I think the market might be even bigger than forecasted. Many people consume secretly and would never get counted in any attempt at polling. Investors are looking at your analytical skills more than anything so copy and pasting data might not be the best way to exemplify it.
Another problem is that the total U.S. cannabis market is probably completely irrelevant to your company. Are you going to sell products in every category to every state? Not legally, as inter-state transactions are the jurisdiction of the federal government and not exactly the kind of game investors want to fund. Be as low altitude as you can with your data. Talk about your state, hell even your region, as it pertains to your target market. Is your target market “all cannabis users”? That is another red flag. Brands appeal to each unique demographics differently. Like tools, brands don’t work well when they try to do it all.
Now that you have defined your market, you can attempt to make a growth assumption. Again, instead of lumping all cannabis together to find an average growth, be honest about the market you intend to sell to. Every state is at a different place on the growth curve. Investors are intelligent, so speak to them that way. If they don’t understand something, they will ask. If you talk down to them it sounds like you are hiding something.
One of the best pitches at assessing market share I have seen was Front Range Biosciences. I saw them pitch at a CannaAngels meeting in San Francisco. They are developing a way to harvest tissue cultures to replace the mothering process in nurseries. Instead of talking about cannabis consumption, which doesn’t really apply to their enterprise focused technology, they looked at the average R&D spending for other crops (it is about 15% if I remember correctly). Then they applied that 15 percent by the size of the market for wholesale cannabis flower. This not only came to an impressive number, it showed the audience that they had taken the time to find parallels in other industries. Not surprisingly, Front Range Bio just raised $1.5M in a funding round with the likes of Intuitive Private Equity, Salveo Capital, Sand Hill Angels, Harvard Business School Angel Alumni of New York, and the New York Angels.
Another memorable pitch that did not fall into the “total market” trap was Octavia Wellness, a direct marketing company for elderly medical users. The founder Carrie Tice started with a nice story about her mom’s terrible experience going to a dispensary for the first time. From there she showed the growth of the 55 and over cannabis market and how well direct sales companies outside of cannabis have been at selling to that segment. Again, Carrie closed the round for Octavia and using the investment to rapidly expand her operation.
I realize that most presenters see the setup slides as a filler before they can start talking about their business proposition. Keep in mind, though that opinions are formed very quickly. By racing through the problem part of the problem-solution-execution pitch format you might show your worse side to investors by trying to make more time to show them your best. I look forward to seeing more pitches as the industry grows in profitability and sophistication, but hopefully, I won’t have to hear the same statistic anymore when it comes to market size. Remember, nothing sticks in people’s memory better than a new idea and nothing shows how well you will do on the test by how well you did your homework.