Electrum: Cannabis “less risky” than internet in the 1990s

Former corporate finance and investment banking professional for internet and media companies, Leslie Bocskor, managing partner at Electrum Partners, turned his attention to the legal cannabis industry in 2012 and is now fundraising a $25 million private equity fund in the sector. He tells Agri Investor about how and why he chose this sector and where the potential lies in a market some predict at worth over $100 billion.

How and why did you get involved in the cannabis sector?

My background is in corporate finance and investment banking where I focused on internet and new media companies exclusively from the mid-90s, when it wasn’t a popular sector. Of course the internet defied the naysayers and became gigantic and changed the way we live and do business on a massive scale. I was still interested in entrepreneurialism, which I believe is the engine of innovation, but had never thought about the cannabis sector as a potential business opportunity for me until I spent time in Las Vegas – while researching the casino industry – and realised there was already the beginning of a massive industry in the western US.

It’s a $1 billion a year market just in Las Vegas.

I was always sympathetic to the industry’s reputation that I think is based on misinformation and an interesting convergence of economic factors that led to the demonising of it, but had never thought about it from a business perspective. So when I moved here I realised there was this huge potential that we knew nothing about in New York. I also became friendly with a local political operative named Joe Brezny, a former chief of staff to the majority leader of the state Senate for the better part of a decade and executive director of the Nevada Cannabis Industry Association, who convinced me to do a deep dive into the sector. And of course 2012 was a huge turning point when Colorado and Washington legalised the recreational use of it.

Why does Las Vegas hold so much potential?

There are 45 million tourists coming to Las Vegas every year, and they come to the city to do things they wouldn’t usually do; it’s a sort of real-life fantasy island. The amount of wine sold in Las Vegas is so huge it can affect supply to the whole of the US. And when I ran the numbers on how much cannabis would be sold in Las Vegas if available on a recreational basis, it was a $1 billion a year market just in the city.

It also has a very business-friendly and robust medical marijuana law already in place and is the first jurisdiction in the world that allows medical marijuana tourism. The state of Nevada is also set to vote on legalising the recreational use of marijuana in 2016 which is largely expected to pass.

How did Electrum Partners start?

At first Electrum Partners was just a business doing research on the direction we were going to take, and we got involved in doing what we could on the policy front, helping policymakers to implement a very good, business friendly law. I got involved with the local political scene and Joe Brezny asked me to become a founding chairman of the industry association he created, where I was working to establish a business friendly regulatory framework and responsible best practices, the formation of the industry and how Nevada could be an example to other communities in how to do it right. This should be relatively easy for us since Nevada has been regulating vices that other jurisdictions do not, such as gambling and prostitution, for decades. And we have established the best regulatory frameworks for these industries too.

So the first business we incubated in this industry was a licensing and strategy advisory company and have incubated more since. We are also in the process of creating a media company that will be a very high profile platform with lifestyle and consumer content related to the industry. Unfortunately I cannot speak about our fund due to SEC regulations.

Nevada has been regulating vices that other jurisdictions do not, such as gambling and prostitution, for decades.

How does the cannabis industry compare with the fledgling internet industry?

The similarity is that they are both fast growing, worldwide industries. But there is one major difference that is hugely relevant. With the internet, it was a new industry which no one had any idea how it would develop or what types of businesses would result from it. So there was a lot of uncertainty and more risk than in the cannabis industry. That seems counterintuitive, but we actually already know how big this industry is. We are transitioning an existing black market into a regulated one. There is data out there that points to an illegal, recreational market worth between $50 billion and $100 billion. That doesn’t include the medical market, the industrial hemp market, the nutraceutical market and so on. This industry is growing as fast as we can develop regulation for it.

There are already a lot of different companies emerging in this space, particularly on the consumer technology front. What challenges do you see for these start-ups?

Yes there are a lot of businesses in the cannabis industry already. In January 2014 there were around 25 publicly-listed companies related to cannabis; there are now over 300. And that’s just the public sphere. There are several thousand private companies from dispensaries and so on. Not all will have good business underneath, but that’s the case for most industries. Delivery companies might struggle at this stage, however. I love the idea of it but I think from a regulatory perspective, it might be a bit early. It’s one thing to be Airbnb and Uber, forcing regulatory changes in the taxi and hospitality industries. But that’s very different to getting regulatory bodies to look at new regulations for the delivery of something that is still federally illegal. I hope they will find some way to evolve and succeed but there are some substantial challenges.

Are there any businesses you are particularly bullish about?

CannaBuild is creating a mobile application that enables cannabis users to research the type of cannabis they want before getting to the dispensary. It can be very confusing when you get there and don’t know what anything is – so this app helps you make that decision and you can even chat to a professional through it.

GrowBuddy is extraordinary. It allows cannabis growers to record the data about their production, something none of them have ever done due to the illegal status of the market. They can now measure how effective their inputs are and more, so this is an incredibly powerful and useful tool. I think the cannabis industry will soon start to provide innovation to the overall agriculture industry due to the amount of money coming into it. We will soon see new farming techniques come about from cannabis production.