It doesn’t often happen that an entirely new market with a multi-variate product line bursts on the scene. But cannabis is having a moment right now, with a big green explosion that’s resulted in dozens of new businesses across industries from health care to tourism to cosmetics to manufacturing. During a recent panel discussion on the subject hosted by the Wharton Club of New York in Manhattan, moderator Gary Kokalari WG81 noted that cannabis “is estimated to be a $165 billion global business—$150 billion of it illicit, $15 billion legal.” You could almost hear the jaws of the attendees creak open as he bookended those figures by noting that textile and apparel is about a $70 billion industry worldwide, while fast food rings up more than $200 billion in the United States. And as cannabis emerges from its legal shadow across the country and around the globe, experts say, revenues are poised to explode.
Among the evangelists is Ted Chung W99, general partner at Casa Verde Capital—a venture capital firm that works exclusively in the cannabis industry—and co-founder of Merry Jane, a marijuana media company. One of Chung’s business associates is rapper Snoop Dogg, who has launched his “Leafs by Snoop” brand of cannabis strains. As Chung noted at the same Wharton event: “Cannabis has a tremendous lifestyle audience. We wanted to give a nod to the legalization of recreational use in California in January 2018, so Merry Jane worked with Jack in the Box on a Merry Munchie Meal.” The cost: $4.20, of course, a nod to a legendary group of California high-schoolers who gathered at 4:20 p.m. for their daily weed break. “In the QSR [quickservice restaurant] business, a sales uptick of one percent is considered a huge success for a promotion,” said Chung. “The Merry Munchie Meal created a three percent uplift in sales.”
That one-off marketing success is just a sliver of the cannabis revolution that’s poised to muscle into some major turf: anti-anxiety medications (currently a $12 billion global market), skin balms and acne treatments (an $11 billion U.S. market), fabrics ($70 billion U.S.), painkillers ($18 billion U.S.), and of course, the $250 billion beer, wine, and hard liquor market in the States. Consider the potential earnings from cultivation, R&D, manufacturing, delivery, and marketing for all of the sectors above. And the economic makeover won’t stop there—federal legalization would pave the way for affiliated jobs and new tax revenues, plus the opportunity to reallocate an estimated $7.7 billion in annual spending on the War on Drugs.
Forget for the moment, if you can, that this might all turn out to be a terrible idea; scientific research on Cannabis sativa has largely been prohibited for 80 years, and in September, an outbreak of severe respiratory illnesses linked to vaping raised cause for concern over cannabis vaping products. But led by impatient weed revolutionaries in California and Colorado, voters nationwide are increasingly demanding open markets in cannabis products and the freedom to fully study their impact. Now, a wide range of Wharton alumni are trying to make business sense of it all—from seed to sale, farm fields to investment funds, processing operations to retail outlets, marketing opportunities to emerging world markets, and more. Their stories prove that some very shrewd businesspeople are betting their careers on a brave new weed. As Kokalari told the packed house at the New York panel, “Wharton graduates are pursuing [bank robber] Willie Sutton’s model with cannabis. That’s where the money is, so they’re going after it.”
Bibiana Rojas WG10 notes two key inflection points in her career. The first came in 2001, after she had fled kidnappers who’d threatened her family’s chain of businesses in her native Colombia. Rojas, then a college student, escaped to the United States and applied for political asylum. It became a “beautiful opportunity,” she says, because it gave her access to a world of different perspectives and an Ivy League education. After getting her MBA, she consulted with a series of blue-chip companies. But by 2013, the political situation in Colombia had improved, so she rejoined the family businesses back home. Then history intervened: Colombia legalized medical cannabis. It provided her second inflection point, which shocked her: “I was taught that drugs were bad. I was against cannabis. I even broke up with a boyfriend in the U.S. because he was using it.”
Rojas’s romantic choices notwithstanding, her family jumped into the business, and she traveled around the world to learn about the uses and medicinal benefits of the plant. “Through my education, I began to fall in love with cannabis,” she says; as proof, she texts photos of her “babies,” the cannabis crops that now thrive on her farm fields in Colombia. “I began to see it as something beautiful—going from the darkness into the light. It was helping patients, 80-year-old grandmas, and even the farmers who didn’t have a stable income and are now employees with benefits. I could use my knowledge to help develop this industry in my country and change the perception of this plant.”
Cannabis also provided a profitable addition to Colombia’s coffee crops, which take advantage of the same conditions that help it thrive: perpetual growing seasons, equal amounts of sunlight and darkness near the equator, and low labor costs. The Rojas family’s new enterprise was promising enough that last summer, the world’s largest cannabis company, Canopy Growth, dealt a reported $96 million in stock to buy the company. One of Canopy’s key negotiating points: that Rojas stay on as in-country manager.
Alisha Johnson WG11 was in the class just behind Rojas at Wharton. She had studied sociology at Harvard and intended to make a career helping to reclaim devastated inner-city neighborhoods. After completing her MBA, she moved back to her native California and used brand management and marketing skills to boost such renowned food labels as Hidden Valley, Jelly Belly, Dreyer’s ice cream, and Ghirardelli. At the end of 2017, she considered work in product development for a cannabis company, along with the career consequences of a commitment to the so-called “demon weed.” That job didn’t pan out, but after surgery a year later, she saw cannabis as a less risky pain-relief option than opioids. It opened her eyes to a new opportunity. “I thought about it professionally,” she says. “The cannabis industry was at a crossroads. These businesses needed to scale up, and I was in a position to help, with my MBA and my CPG [consumer packaged goods] background. There were lots of startups, and the industry was rapidly changing.” It was, in fact, the perfect proving ground for someone looking for a new career path.
It led her to Humboldt County, California, which had a long and colorful history as the underground farm belt for illegal marijuana. But those same farms were facing enormous challenges and opportunities in the light of legality, and Johnson signed on as a marketing manager with Eel River Organics, a supplier of both medical and recreational cannabis. Like Rojas’s operations in Colombia, the company prides itself on its outdoor farms. It flash-freezes the cannabis flower and processes it into concentrates while retaining the natural plant terpenes—the volatile organic compounds that give every strain a unique (and powerful) bouquet and impact.
“California is a huge marketplace,” she says; sales projections run at $5.6 billion for 2020. With pride, Johnson notes her company’s efforts to satisfy demand: “I’ve launched three new products in the last four months.” And cannabis has also provided a business opportunity for her to revisit her early passion to rebuild communities, starting with her home base in Oakland. “We have a chance at rectifying the harm that has been done if we seek equity in how the business develops and expunge the records of people who were incarcerated,” she says.
Another key to empowering those communities: building the connections that will make cannabis a coherent business. That’s where Nicholas Majka G13 WG13 comes in. The Anheuser-Busch InBev veteran is now the supply-chain director for Canopy Growth; in April 2014, the Canadian business became the first publicly traded cannabis company in North America. It has echoed Johnson’s call for justice by introducing a “compassionate pricing” model for cannabis seeds, selling them to people who need to grow their own plants to meet medical needs.
Scaling up the supply chain has had its challenges. “Growing cannabis has historically been a somewhat informal business,” Majka says, perhaps understating it a bit. “The process relied heavily on intuition and experience—very much an ‘art.’ Things are very different when you go from your basement grow to a million-square-foot greenhouse with literally 1,000 times the number of plants you knew how to grow well in your backyard. Suddenly, things like pest control, drying space, cleanliness discipline, labor management, and post-harvest processing are challenging to do consistently at scale, never mind staying compliant with ever-changing regulatory requirements.”
Then there are the customers to keep in mind. “The goal of the supply chain is to provide product to the market that consumers want,” says Majka. “Right now, consumers don’t really know what they want, because many of them are purchasing and consuming cannabis for the first time. So we need to stay flexible with our product lines, our growing strains, and our packaging, because what sells in the market in the first year of legalization will definitely look different in the second.”
Majka, who works out of Canopy’s headquarters in Smiths Falls, Ontario, not only binds together the disparate enterprises that contribute to Canopy; he also sees cannabis as a unifying factor in our fractured political climate. “When you look at some of the major bipartisan issues the United States is struggling with—opioid addiction, state fiscal deficits, mass incarcerations— federal legalization [of cannabis] could provide some relief,” he says. “It’s one of the few initiatives that could end up on all parties’ campaign platforms. I’m proud to be a part of the story that will show a society can responsibly set up and scale a cannabis industry that’s both legal and profitable.”
He’s also grateful that his Wharton education prepared him to survive the chaotic world of cannabis-business growth, which is all about nontraditional paths to success. “There is no ‘typical career path’ here,” he says. “You have to understand and navigate complex political and cultural environments. We are very focused on international growth, and if you don’t understand the business climate or what’s important to the other side, you’re already behind.”
Raising the Green
Ted Chung doesn’t spend all of his time dreaming up munchie-related promotions for Jack in the Box. At his firm, Casa Verde Capital, and across the industry, investments tend to be divided into two categories: hands on the plant, and hands off the plant. The hands-on people, like Rojas and Johnson’s cohorts at Eel River Organics, tend to be botany nerds with a personal relationship with their “grow.” The hands-off people, like Chung, focus on the many ancillary markets that service the cannabis industry: marketing and distribution, farm equipment, lighting systems for indoor crops, and more. The origin point of Casa Verde, he noted during the New York panel, is his “understanding of the industry,” which Chung developed through two decades in the entertainment industry and his branding and marketing work with Snoop Dogg. The experience gave Chung perspective on the global weed community and led him to a network of influencers—the kinds of people who can launch careers with a tweet and move product with a wardrobe selection. “Cannabis was a sleeping giant,” he said. “We were at the forefront of an opportunity.”
Chung has had plenty of capital to pursue those opportunities. In 2018, Casa Verde raised $45 million for investment in new cannabis ventures. The company is focused solely on hands-off concepts, like LeafLink, an online marketplace for retailers and brands. At the Wharton panel, Chung pointed to moments like Snoop teaming up with Martha Stewart for a VH1 cooking show (Martha & Snoop’s Potluck Party Challenge, pun intended) as having a transformative effect. “Content is a Trojan horse to educate the public,” Chung said. And that’s crucial for an industry that is “halfway to the halfway point. There’s no hierarchy or architecture yet in this industry.”
Chung’s colleague at Leafs by Snoop, Tiffany Chin W11, is co-founder and president of the company and also made her way into the industry through entertainment. Recording artists are all about branding, and the confusing new market for marijuana will need more of that to help consumers sort out the options. “Snoop is the number one dude in cannabis, so he’s a perfect choice for a branding identity,” she says. “He understands the culture, and I can help marry that with the business opportunities.”
Those opportunities are coming in hot as the cannabis business itself moves at light speed: “One year in this industry is equal to 15 in another space,” Chin says. Acceptance spreads, laws change, and markets develop, sometimes on a moment-by-moment basis; note Republican stalwart John Boehner, who’s shifted from “Just say no” to rainmaker for a cannabis investment fund. Chin points to Canada as the pacesetter. “They’re the global leaders in ‘doing it right’ on a federal level,” she says. “They’re doing things Americans can’t do.” Among them: launching a legal market from sea to shining sea, a prospect that’s a long way from reality in the States.
Jeff Monat W00 took a more traditional Wharton path to the ground floor of the industry. He began his career in mergers and acquisitions at Goldman Sachs, then moved to private equity when a hedge fund friend connected him with an effort to raise capital for a company that was vying for a medical cannabis license in Connecticut. The company was Theraplant, and the organizer was Mitch Baruchowitz, who would assume a legendary role as the founder of Merida Capital Partners, another major player in cannabis investment. “I was receiving warnings in the beginning,” says Monat: This is contrary to federal law; you could lose your entire investment, and your product line could be seized. He remembers thinking at the time, “Well, that could be a problem!” Nevertheless, he committed to the business, and his decision was rewarded when Theraplant won one of four production licenses granted in Connecticut.
“The whole industry is going through this huge transition from lone wolves to highly organized enterprises,” says Monat, who’s now a Merida partner. He considers it one of his particular skills to identify credible people with good business plans. “This isn’t a passion project around marijuana for me,” he says. “But it’s clear cannabis can help people with horrible diseases I wouldn’t wish on anybody.” And as the formerly notorious drug undergoes a gradual image upgrade, Monat sees an opportunity to end the federal-versus-state conflict on the issue by following the template for the similar “sin” industries of tobacco and alcohol. “The rational way to handle this is to let the feds defer to the states on regulating,” says Monat. “And ‘sin’ doesn’t even apply to marijuana from a medical perspective.”
Social and political motivations aside, the heart of Monat’s interest in cannabis is as a startup play: “Few businesses of this size will begin in our lifetimes,” he notes. “It will be a $20 billion to $50 billion industry backed with fundamental tailwinds. If we can build companies and leaders in this space, it will be a very attractive investment.”
The Medicinal Marketplace
We might not be talking about any of this were it not for a five-year-old girl in Colorado Springs named Charlotte Figi. She had been diagnosed with a rare form of pediatric epilepsy called Dravet syndrome, a disease that was tragically resistant to drug regimens. When her parents found an account of a child who had been successfully treated with highCBD strains of cannabis, they took the plunge. Charlotte was given CBD oil, and within hours, her seizures slowed, then stopped. When CNN told her story in 2013, cannabis turned from a Grateful Dead cliché to a promising medicine.
Young Charlotte was just one beneficiary of a trend that began in California in 1996, when voters passed the “Compassionate Use Act” legalizing medical marijuana. Thirty-two other states have followed that lead, as accounts surfaced of veterans using cannabis for relief from post-traumatic stress and cancer patients managing intractable pain with the drug.
Cannabis proved life-changing for Rachel Cervantes WG11 as well. Cervantes is the head of business development for GW Pharmaceuticals, the British company that developed an anti-seizure medicine called Epidiolex that treats cases like Charlotte’s. Last year, it became the first FDA-approved prescription medication to emerge from the cannabis revolution. Suddenly, there was science to back the anecdotal evidence.
Cervantes, who has a PhD in molecular biology, was working for Merck pharmaceuticals in New Jersey when she entered the executive MBA program at Wharton. She eventually moved on to Egalet Corporation, where she developed an interest in pain medications. “It was an archaic space,” she notes. “There weren’t that many innovative pain medications.” So she began studying another anecdotally supported effect of cannabis: pain relief. “I’m from Hawaii,” she says, “and marijuana was always around.” She never used it, but she had friends who were supplying it to elderly relatives to deal with arthritis, gout, and diabetes. Cervantes remembers thinking, “So many therapeutic molecules have botanical origins—there probably is something there.”
Now she works to isolate effective molecules “from all the other junk” in the cannabis plant. And she joined GW Pharmaceuticals—active in the cannabis space for two decades—to chase down leads. “There are 120 cannabinoids,” she says, “and half of them may have a therapeutic effect.” That’s a big sandbox, and she relishes being in a spot where she can ask, “Where else can we play?”
Zeeshan Hyder WG13 is enjoying his own corner of that sandbox as chief corporate development officer of MedMen Enterprises, which is active in growing, processing, and selling cannabis products across the United States. Fresh out of Wharton, he worked for a hedge fund that was investing in food and beverage companies. But he began to notice a lot of buzz around cannabis among both the big alcohol distributors and the beverage companies. “They began talking about cannabis in their business models,” he says, “and they were excited about the opportunities.” When California voters legalized recreational use in November 2016, suddenly a market potentially as big as all of Canada was opened up to colonization by cannabis.
Hyder was ready, helping to raise a billion dollars in capital for MedMen in its mission to become the Whole Foods of cannabis. The company projects operations in the major states—California, Nevada, Arizona, Illinois, New York, Florida, Michigan, Maryland—that are on, or about to hop on, the bandwagon. MedMen now boasts 92 retail licenses and 37 stores. “Five years ago—even two years ago—this would have seemed crazy,” he says. “But this is my life now: all-in on cannabis.” He credits his alma mater for preparing him for this moment. “Wharton became a hub for entrepreneurship when I was there,” Hyder says. And in the Wild West of cannabis cultivation and sales, the provenance of his degree is important: “This industry was evolving from illicit to the forefront, and having Wharton people aboard was one way to show we’re legit.”
After a series of rewarding jobs at Union Carbide that saw her end up at its regional headquarters in Paris, Regina Smith W75 shifted to nonprofits and eventually returned home to New York. As the executive director of the Harlem Business Alliance, she’s turned into something of a cannabis activist. “Cannabis is an area we should be involved in,” she says. “I want platforms that will increase economic equity and economic justice. I want entrepreneurs to come into the communities that were most harmed and grow businesses—hire our people, improve conditions with better food and health.”
HBA conducts monthly seminars about the legalization process in New York, and interest runs high in her borough. As the state tangles with legislation, she’s eyeing the Illinois model: “Their program centers around the communities most harmed.” She’s confident about progress at home, too. “Cannabis companies will come in and do well here,” she says. “New York state is a tremendous market. We have the tools and experience to work with entrepreneurs.”
It’s not just New York, of course. Thirty-three states have now legalized medical marijuana for a variety of conditions, and 11 plus the District of Columbia have approved recreational use. But the result is a hodgepodge of state regulations under the shadow of the federal classification of cannabis as a Schedule 1 drug, equating it with heroin and LSD. That may be about to change as well as Congress considers decriminalization, with bipartisan support building. “The transition to cannabis from alcohol could be good for society,” says MedMen’s Zeeshan Hyder. “Five years ago, I’d have thought this idea was crazy. But it’s amazing how fast the industry is evolving. National legalization could happen sooner than you think.”
Wharton grads are well schooled in risk management, and even the most starry-eyed entrepreneurs are maintaining perspective on this new business opportunity. “There is definitely a lot of hype and hot money inflating cannabis expectations right now,” says Canopy Growth’s Nicholas Majka. “The dotcom bubble is a useful history analogy. There will no doubt be shakeouts in the cannabis industry. But the survivors of the dot-com shakeout—Amazon, eBay, Priceline—now dominate their respective markets. Consumers themselves are trying to figure out their preferred product forms, and businesses are only beginning to understand how to meet those emerging preferences. Every day I see new guests pulling up to our visitors’ center in Smiths Falls, looking to learn more about the product and how it can meet their health and lifestyle needs. That’s really exciting.”
While science, social stigmas, and laws surrounding cannabis are still evolving, there’s a revolution under way, with Wharton alumni in the advance guard. As Ted Chung told the crowd at the New York panel, “To be in this industry, you have to be able to do seven things at a time, all the time, and run through walls.” Increasingly, those walls are tumbling down, and cannabis—as a healer, as a high, as a business—is rumbling forward.
Peter Moore was articles editor at Playboy and editor of Men’s Health. He’s now the editor in chief of NatuRx magazine, which explores “better living through cannabis.”
Published as “Growth Opportunity” in the Fall/Winter 2019 issue of Wharton Magazine.