California State University East Bay

Cannabis industry a ‘hit’ with new tech startups

August 14, 2014

Leafly, the smartphone app, recently ran a full page ad in the New York Times.

Leafly, the smartphone app, recently ran a full page ad in the New York Times.

Illustration | Brittany England

Illustration | Brittany England

Leafly, the smartphone app, recently ran a full page ad in the New York Times.

The beginning of August marked a milestone within the emerging cannabis industry in the U.S. For the first time in its history, the New York Times ran a full page advertisement for marijuana sponsored by Leafly, an online database that directs users of its smartphone app to the nearest medical marijuana dispensary.

Functioning as a ‘Yelp for weed,’ Leafly, which is owned by Privateer Holdings, based in Seattle, is not alone in what are called ‘cannabis startups.’ “There is a lot of room for innovation,” says Joshua “Red” Russak, sales manager of Seattle-based startup Apptentive.

The new tech startups tread new but ambiguous ground. The legality of marijuana is unchanged and remains as a Schedule I substance under the Controlled Substance Act. With the Justice Department backing off when it comes to legalization within specified states, according to an internal justice department memo released last summer, smaller venture capital companies are stepping in where big business refuses, according to Cy Scott, co-founder of Leafly.

When asked if the shift in public opinion is emboldening tech to take a bigger bet on the business of marijuana, David Baggins, professor of political science at California State University, East Bay admitted that in the realm of enforcement, “we are living through a major shift in policy.”

President Obama has ordered the Justice Department to respect states [wanting legalization]… “Two thirds of states have opted out of the federal prohibition…the House has proposed un-funding the effort [to enforce],” said Baggins.

The techies who are forging ahead in this seemingly forgiving governmental climate are watchful that federal laws that are still on the books institute a possible maximum first time penalty of one year in prison for a person who is caught with any amount of the Schedule I substance, according to the NORML organization.

Russak, labeled the ‘Sultan of Startups’ by Drive the District, General Motors’ online technology news website, warns “there is still a black market view of the industry. It is up to the entrepreneurs to make a positive name for the industry overall.”

But financial analysts warn that illegitimacy of the legality of the cannabis business is not a wise choice for investors to grab on to. “I do believe that some of what purports to be venture funding for the cannabis business is in fact fraudulent investment promotion,” says Mark A. R. Kleiman, professor of Public Policy at UCLA.

Klieman and others warn that shell companies can pose as a firm interested in investing money in the cannabis industry but end up leaving the investor empty handed. Since dealing in illegal product, the avenues to reclaim money for fraudulent investment are none.

Whether illegitimate or not, California will most assuredly have its own choice to rebuke federal laws, like Colorado and Washington did, through the election process in 2016.

Governor Jerry Brown is against legalizing the substance saying it would make the state less great while Lieutenant Governor Gavin Newsom has chided Brown for using terms like ‘potheads’ and ‘stoners.’

With the first of its kind ad in the New York Times, Leafly and other cannabis innovations are not to be outdone by the Berkeley City Council which voted in July to compel medical dispensaries to set aside 2 percent of product to be given free of charge to low income residents.

Companies like Leafly and Eaze, the app that delivers medicinal pot on demand to one’s residence are already fighting for a place at the table with many competitors. “There are tons of apps already out there,” said Daniel Tannebaum, a senior at CSUEB.

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