Pot Pioneers Gather in Austin to Explore Texas Market Opportunities

By Laura Lorek
Publisher of Silicon Hills News

Pioneers in pot see a huge market developing nationwide for legal cannabis, and they think it’s not if, but when, legal marijuana will become a huge market in Texas.

That’s the big takeaway from the first ever Austin Cannabis Entrepreneur conference held last Thursday and Friday at the Hyatt Regency downtown.

“I think we are ahead of the curve in Texas,” said Hugh Forrest, programming director at South by Southwest, who created the conference. “It is a market that is being disrupted and that’s what entrepreneurs like.”

The Texas market for adult recreational marijuana is worth about $2 billion initially based on the population and use rates, said Troy Dayton, co-founder, and CEO of The Arcview Group, based in Oakland, Calif., a research firm focused on the cannabis industry.

“Texas is a great market because there is a lot of money in Texas,” Dayton said. “And it has a particular type of investor. Particularly people who have been investors in oil and gas – they are used to being pioneers and taking big risks in the possibilities of things. There is a lot of excitement here.”

Legal cannabis has already become a $10 billion industry, up 33 percent in 2017, according to an Arcview report. It forecasts by 2021, the legal market will more than double reaching $24.5 billion.

About 200 people attended the Austin conference.

Among them, Elena Marquez with Culinary Cannabis Consultants, based in Colorado, helps cannabis companies expand into the edible cannabis industry. The products can include soda, gummies, chocolates, candies, cakes, and more, she said.

“The laws are challenging in Texas right now, but there is a national and international push for this industry to become legally valid,” said Marquez who is originally from Austin. “It’s been taboo for so long, but it really isn’t.”

Today, 29 states, the District of Columbia, Guam and Puerto Rico allow for comprehensive public medical marijuana and cannabis programs, according to the National Conference of State Legislatures.

In 2012, Colorado and Washington became the first states to legalize marijuana for adult recreational use. Since then seven more states and the District of Columbia have followed, according to the Marijuana Policy Project.

Texas still has some of the most restrictive cannabis laws among all the states. In 2015, Texas passed the Compassionate Use Law, SB 339, to allow the use of “low THC-Cannabis” and cannabidiol, also known as CBD oil, a therapeutic ingredient and low in THC, which produces psychoactive effects. The CBD oil can only be used to treat patients who have been diagnosed with intractable epilepsy.

The Texas law was monumental, but it didn’t go far enough, said Heather Fazio, Texas Political Director of the Marijuana Leadership Campaign. She’s hopeful the law will be expanded to cover more illnesses and that some of the barriers will be taken down so that more than 30 doctors in Texas can prescribe the CBD oil to patients.

Compassionate Cultivation, a startup based in Manchaca, a suburb of Austin, was the first facility to receive a license from Texas’ Department of Public Safety to grow marijuana legally for medicinal purposes. It opened its door in February. It is one of only three facilities in Texas to receive a license even though more than 40 applied.

Despite the passage of legalization in the states, federal law still classifies marijuana as an illegal controlled substance. And that creates a lot of uncertainty in the market.

“The laws need to change on the federal level to give states more rights,” said Rep. Jason Isaac, R-Dripping Springs. He wants to expand the Texas law to cover more illnesses such as PTSD, autism, and cancer.

There is tremendous opportunity in this emerging market for startups, said William Hurley, known as Whurley. He spoke at the first session of the conference on “Why Austin is Ripe for Cannabis Startups.” He has seen more than 50 pitches for cannabis-related startups in the last few years. He hasn’t invested in any of them yet, but he sees the market maturing.

“This is a movement that is really unstoppable,” said Carlos Martinez, managing partner at OM Greens, an investment firm in the legal cannabis industry. “This is a trend that is now inevitable. We’re going to have legal cannabis – it’s just a matter of when.”

Real estate is one of the safest investments in the cannabis industry right now, Martinez said. There is about $25 billion of infrastructure needed in the states that are legal right now, he said. Examples include retail, manufacturing and grow operations, he said.

Among the leading Texas pioneers in pot is Country Music Star Willie Nelson with his marijuana brand called Willie’s Reserve, which raised $12 million in January.

Willie’s Reserve came to market in Colorado and Washington in August of 2016.

It’s difficult to do a multi-state brand because of legal limitations in moving products across state lines, said Emily Paxhia, co-founder and managing director of Poseidon Asset Management, which invests exclusively in the cannabis industry. It’s best done through licensing and partnerships, she said.

Willie’s Reserve launched in California last week, partnering with Flow Kana, a cannabis provider that works with small farmers.

Aside from CBD oils and cannabis overall, the industrial part of the hemp plant has more than 25,000 derivative products, Paxhia said. It includes applications in plastics, cement and carbon nanotechnology, she said.

CanopyBoulder , the oldest accelerator in the cannabis industry in the U.S., has launched several successful startups such as Wurk, an HR payroll software company, BDS Analytics and Leaf, a home growing unit.

“The startups are providing the infrastructure for the cannabis industry,” said Patrick Rea, co-founder and managing director of CanopyBoulder, which has made 79 investments since 2015.

“There are so many opportunities and voids in the industry that need to be filled,” Rea said.