Startups Race to Corner Market on Medical Marijuana

For years, David Hua encountered problems when he ordered medical marijuana deliveries. Online menus were often outdated. Ordering over the phone took forever. Sending requests by email risked compromising private data. And delivery dudes were notoriously unreliable.

“Sometimes it took an hour, sometimes longer, sometimes shorter, but you never really know,” he says. “The larger windows made it difficult to schedule your day. But since you’re ordering medicine, you’d wait just like you’d wait for the Comcast guy.”

Hua, who has used cannabis for the past five years to relieve chronic neck and shoulder pain, knew there must be a way to improve service, especially in the Bay Area, where one can order everything from takeout to manicures on demand.

So in 2014 Hua launched Meadow, a one-hour delivery service for more than 30 Bay Area pot clubs. Customers order by smartphones and get estimated delivery times with real-time tracking updates. Online menus update inventory. Patient information is stored on HIPAA-compliant servers. Meadow also offers video chats with doctors who can prescribe cannabis, and software to help collectives more effectively.

Known as the “Uber for medical marijuana,” Meadow became the first pot-related startup to land funding from the Mountain View-based seed accelerator Y Combinator. Meadow has joined a burgeoning medical marijuana industry, which has been dubbed the “green rush” but might as well be the modern-day gold rush, given its growth and profitability.

“Just as the gold rush once needed tools such as pick axes, shovels and jeans, now the tools are online ordering, compliance, streamlining their operations and making sure best practices are followed,” Hua says.

Legal cannabis sales topped $5 billion in 2015, according to industry research firm ArcView Group, and the cannabis sector is expected to reach $6.7 billion this year. By 2020, the legal cannabis market could reach nearly $22 billion in sales.

“In Silicon Valley, entrepreneurs and investors are always looking for the next thing that technology can disrupt, the next marketplace where there’s an incredible growth curve that they can participate in,” ArcView CEO Troy Dayton says. “In that way, the cannabis industry is seen by many as the next great American industry.”

But unlike other industries, Dayton notes, cannabis will be driven less by technological innovation or customer taste than by changes in public policy. In 1996, California became the first state in the country to legalize medical marijuana.

Since then, 24 states as well as Washington, D.C. have decriminalized the drug to varying extents. California has yet to legalize general adult use—a ballot initiative is in the works after a 2010 effort fell 7 percent short. Meanwhile, 21-and-over adult use is now legal in Washington, Colorado, Alaska, Oregon and the District of Columbia.

The nation’s shift towards legalization—58 percent of Americans now support it, according to Gallup—has opened the doors to a growing cannabis industry in California. Gov. Jerry Brown signed off on a slew of new regulations surrounding medical marijuana last fall, giving businesses and buyers more clarity on how to operate above board.

“Because of this shift,” Dayton says, “the best minds of our generation are just finally starting to put their attention on this space.”

Hua agrees: “If we had tried to do this five years ago, I don’t think the market would have been there because people’s risk appetite and exposure weren’t there.”

Cannabis-related startups now include a variety of consumer devices, delivery services, social media, software products and agricultural innovations. Loto Labs, based in Redwood City, developed Evoke, an induction-powered vaporizer that allows users to customize heat and dosage settings on a built-in control panel or smartphone app.

“You’re able to see how much you’re puffing, just like your Fitbit tells you how many steps you’ve climbed,” says Neeraj Bhardwaj, president of Loto Labs. “If you have cancer and you’re trying to dose correctly, or if you’re trying to quit smoking, you can track your progress.”

San Francisco-based HelloMD offers telehealth services that connect patients to cannabis-friendly doctors.

“Going to a regular healthcare provider for cannabis is problematic for most people,” says company founder Mark Hadfield. “Your traditional doctor is going to say, ‘I don’t feel comfortable, I haven’t seen enough studies, or I don’t know how to provide a recommendation.’”

HelloMD also allows patients to order medical marijuana and have it delivered.

“This experience means that patients who have never participated in cannabis are more willing to,” Hadfield says. “We’re seeing the demographic shifting, from young people who are recreationally oriented to an older demographic with more women, who are using cannabis for health and wellness. These people are coming into the market for the first time because of the ease and convenience of the service and lack of stigma. The technology means that they can now participate.”

Even PayPal co-founder Peter Thiel has put his stamp on cannabis startups. Last year his investment firm, Founders Fund, joined a $75 million investment for Privateer Holdings, a private equity firm that invests in the medical marijuana industry.

But not everyone is seeing green. David Welch, founding partner of DR Welch Attorneys at Law, which specializes in the business aspects of the medical marijuana industry, expresses skepticism toward the so-called modern-day gold rush.

“There’s a lot of fool’s gold out there,” he says. “You’ll become a millionaire a lot faster on Wall Street than buying and selling marijuana.”

Silicon Valley’s has started to flex its power beyond investments, though; it’s also throwing weight behind policy reforms. In January, Sean Parker, of Napster and Facebook fame, announced that he was donating $250,000 to support a legalization initiative. The Adult Use of Marijuana Act is slated to appear on California ballots this fall.

While the proposal has received support from groups such as the Drug Policy Alliance, the Marijuana Policy Project of California and the NAACP, groups such as the California Grower’s Association and ReformCA.org feel extensive regulations will hurt small growers.

“It’s disappointing to see Sean Parker attempting to restrict it to where, logistically, only people who have a great deal of money and influence can participate in the industry going forward,” says Mickey Martin, director of ReformCA.org. “It creates a lot of red tape and additional cost that keep the price of cannabis high and makes it difficult for the normal mom and pop business to operate under that regime.”

Attorney Welch agrees, adding that the transformation of the marijuana industry has created tensions between new businesses and longtime players.

“You see a lot of fear on behalf of the old guard, that they’re going to lose their livelihood to people who have less experience but a lot more money,” he says.

But ArcView’s Dayton argues this isn’t the case. “The best teams,” he says, “are always a mixture of longtime cannabis talent with longtime business talent.”

Clarification: This article has been updated to note Mickey Martin is associated with ReformCA.org. 

33 Comments

  1. Mickey Martin hosts a squatted domain with a bulletin board for his solo rants and isn’t the director of anything related with CCPR nor Reform CA the organizations fyi. Not sure why you would attribute his sentiments alongside Cal Growers Association with such a reductionist description of policy differences. The research in this article is not particularly good imho.

    • Nevertheless …………. Martin is right. Weed is gonna get REALLY expensive.

  2. What do Joe Kennedy, Al Capone, and Pablo Escobar have in common? They would have all be laughing their asses off reading this story and yelling I told you so!
    Try an aspirin Dave, its an ages old Chinese remedy made from willow bark and it still works!

  3. > Hua, who has used cannabis for the past five years to relieve chronic neck and shoulder pain,

    The hokey “medicinal” claims for marijuana sound just like the hokey “medicinal” claims for tobacco fifty years ago.

  4. Patient information is stored on HIPAA-compliant servers.

    Right now I’m doing the same thing at our shop. I’ve pretty much absorbed the HIPAA guidelines on data storage and going down a checklist of things to do to make our shop compliant. It’s not a requirement, since MJ isn’t a federally sanctioned medication but better to be ready than not. No more shared passwords, radius authentication on our Wifi, centrally managed security, etc.

    Interesting thing about the San Jose laws. Was talking with the guy that has the “Mount Hamilton Headband” brands yesterday, and he was talking to us about his friends in Eureka who are estatic about the progress we’re making towards legitimizing this business. Lots of vendors are now incorporating, and giving us their EIN numbers.

    • > since MJ isn’t a federally sanctioned medication….

      Ummm. Would that be an oblique way of saying it’s just quackery?

      GOVERNMENT scientists at the FDA know what the active “medicinal” elements in marijuana are.

      If someone REALLY needs the unique “pain management” attributes of marijuana, just go to a REAL doctor and get a prescription.

      If the plaintiff’s bar is functioning like it is supposed to, I would expect to see lots and lots of “entrepreneurs” hauled into court for speculative health claims and adulterated products and relieved of their fraudulent profits — with damages.

      • Interesting bit of history on prohibition. Alcohol during that time could be purchased legally through prescription. The “medicinal” aspect is just a step on the road to full legalization, I won’t deny that.

        I won’t deny that there are some far flung claims on what conditions cannabis can fix, but like alcohol it certainly can be a relaxant at the end of the day (and I would argue it’s much safer). Also, it’s benefits haven’t been studied as well as they could have.

        I don’t think we’ll be seeing Kaiser or Blue Cross doctors prescribing it anytime soon, but the main effects (anti-nauseate, appetite enhancer) have been a proven benefit to those suffering from cancer treatments.

        • > a proven benefit

          Proven by who to who?

          Proven by the people who sell the stuff and make profits?

          Again, if there are “proven benefits”, why doesn’t the FDA accept the “proof”? They’re supposed to be scientists.

          In my mind, there is a clear historical human utility for beer and wine. They provided people a safe source of drinking water in a world where water supplies were often contaminated.

          I have no idea what the historic utility of marijuana is for humans, other than to make people oblivious to their laziness and lack of initiative.

    • San Jose is an absolute mess so I’d curb your enthusiasm if I were you. Not only has SJ failed to shut down the non compliant and illegally operating clubs … more of them are opening every month ! Same for delivery services……..and don’t even get me started on the bone-headed “child proof” packaging the idiots on the city council are pushing.

      • Just 1 or 2 clubs comes to mind, and it’s being worked on. As far as the packaging, CSJ is maknig some really good strides… At first it was incumbent on the clubs to provide packaging, but after some discussion we basically made the point that Bayer doesn’t require Walgreens to package aspirin, so now wholesalers are starting to come into compliance with CSJ laws.

        • It’s way more than 1 or 2 …………. Fortune Wellness, Leaf Lab, Blue Sky, ONAC (recently opened), Firehouse (just opened), Delta-9, San Jose Meds, Medi-Mart ….. not to mention the over (50) Delivery shops. As far as the Child Proof debacle ……. it’s such a far reaching and over the top response by the City …………….. and whoever has to package it is not the point. What’s the latest? Banning vape cartridges all together because they don’t have “child proof” locks on them? What a joke …………..

        • Wholesalers? Vendors? For-Profit Corporations? None of these are lawful entities or lawful ways of doing business according to California law years now. That’s why their trying to turn it all upside down now and coverup the illegal taxes collected on controlled substance transactions. No one is against giving funds to governmental entities to regulate, administrate and enforce reasonable laws and collect reasonable fees for doing so. Only two entities are as lawful as you can be considering what the CSA says, NO “sales” and NO “profit” that’s why a true “collective” or “cooperative” are supposed to be the model NOT glorified middlemen drug dealers (dispensaries) simply buying illegally grown marijuana from (vendors/wholesalers) who knows who and marking it up and reselling it medical marijuana patient who don’t know any better. You see Robert, the state and the City want you and your business to be illegally formed and operating so they can have you collect money from controlled substance transactions for them which is no different than giving a cartel or gang their 10% for “selling” your drugs on their street corner. If you’d like to learn more about the truth and what’s really going on please feel free and contact me and I will bring you up to speed. Our true closed-loop collective is apparently one of the only lawful entities formed and operating by the book and in accordance with the laws as the WERE written. So until such time as the federal government changes the CSA NO one is safe from the potential of prosecution. Yes, it’s a fact that when state laws directly conflict with federal laws despite the 10th Amendment “federal supremacy” will always reign as the highest law of the land. KISS hope this helps people understand what really been going on here in California and why lawmakers are trying to turn compassion into compensation now and hope you never figure out what and why they’ve been telling individuals and organizations the opposite of the truth and the facts and why they created the “grey” area (SB 420) and market for illegal dispensaries to flourish and operate within. It never said that “sales” or “profiting” from marijuana was lawful before even though that’s how they want it and want you to believe is the lawful way to operate. Get it Robert?

          • I read your entire comment twice, you’re basically accusing San Jose of collecting “Protection” Money. How is this any different, than any other government agency collecting fees and taxes?

            San Jose does have the right to do this. State law says laws the final word on how things operate is given up to the county or municipalities. Recent changes in Federal law also gives this type of legal autonomy to the states.

          • Robert, I’m not a lawyer but I can read and I highly suggest you read more carefully before you tread. In a nutshell Robert, anyone having anything to do with a controlled substance like marijuana is blatantly violating the CSA. The higharchy of law in our great country works from the TOP down not the BOTTOM up hence the Federal “supremacy clause”. I’m not accusing the City of collecting protection money because they won’t and can’t protect you from federal or state law only themselves and their own Ordinance which I helped them write. You and anyone else paying money to the City or state are only implicating yourselves in making a “sale” and a “profit” from what came from and amounts to a controlled substance and the transactions involved. There are people in prison for doing exactly this right now and when I ask the state and city for protection from the potential of prosecution they answer, we can’t do that because of Federal law. Trust me Robert if they thought they could do this on their own without recourse they’d be doing it themselves all you need to do is some research. In regard to the NEW laws you mentioned I can tell you this much, “they won’t fly” and not even for a minute! After almost 20 years our lawmakers sat back and twiddled their thumbs doing virtually nothing except creating the “grey” market and area for illegal dispensaries to operate and flourish which has made the “black” market here in California the biggest it’s ever been and the largest in the world. When simple economics are applied to the equation it’s really easy to see why this has occurred ($5 gram on the street vs a$20 gram from a dispensary) and will continue to thrive simply due to the price. If our government truly wanted to eliminate the underground they’d listen to me and lower the price so the choice was an easier one for consumers. Instead after many years of these for-profit corporations getting rich off the backs of not so smart marijuana consumers their lobbyist finally convinced them to turn a law voted on bye the people completely upside down. The state and cities know what they’ve been doing is wrong and illegal but it’s only acceptable because you are an illegal business operating unlawfully. So rather than admitting the truth and taking the well deserved blame our lawmakers are trying to coverup the injustice and the millions and millions of dollars they’ve bilked from poor (reverse Robin Hood) marijuana patients statewide by recreating the law as it has been written for 19 years and now make what they’ve been doing wrongfully okay. My case, Dave Armstring vs the State of California will go to the Suoreme Courts and eventually the Federal government will have to decide once and for ALL what to do with this predicament that Obama called the “great experiment” since he’s a lame duck and won’t finish what he started. It’s pot politics Robert and I truly hope that I’ve helped educate you and many others with this post. My book will be coming out this year around election time and then the world will see and know what I have learned and experienced first hand seeing as I’m swimming in the middle of this quagmire with no save me from federal prison life preserver lol. As Ive said many times and I’ll say it again we are NOT opposed to contributing to governmental entities if it provides administration, education and enforcement but NOT if it is simply to fill their retirement coffers. You simply can’t ask someone to violate a superior law with the potential of a prison sentence simply because you desire money for your general fund. Timothy O’Leary abolished the drug stamp tax in 1967 with the same but opposite argument and now I will do the same with this issue and the Feds and their laws have my back. For almost 20 years the laws in California were written to try and make our Federall illegal entities as lawful as possible with NO “sales” and NO “profit” but the SBOE and several cities could get past the greed problem and decided to take advantage of people who choose marijuana as their medicine. Yes, it’s really a sad day for government when they’re greedy ways and supporting and proporting unlawful controlled substance transactions simply for the almighty money! Hopefully now you see and know the rest of the story as Paul Harvey used to say. Dave A.

          • Taxes aren’t necessarily always related to a sale, they can also be applied to the value of an entity. Other types of taxes are indirectly based on your estimated usage of public resources (think DMV, resource being the roads)

            Question for you though, how does owning a corporate suite at the SAP center benefit your patients? Do they all get use of it, or is it based on what they spend? Or do you reserve the privileged for people in your “inner circle”?

            It never said that “sales” or “profiting” from marijuana was lawful before even though that’s how they want it and want you to believe is the lawful way to operate.

            2 full page ads and a corporate suite. You don’t exactly seem to be running lean there bud.

  5. I’m always amazed at the free for all attitude surrounding this industry. The simple facts in this matter are always overlooked and under estimated. Federal law (CSA) states that YOU cannot “sell” nor “profit” from a controlled substance or the transactions! So until that changes we are ALL looking at the potential of ten years to life in prison even if your the wealthiest person on earth! A new President may bring a whole new presidence and we’ll be right back where we all started. Shame on Obama for saying he wouldn’t prosecute individuals and organizations that follow state law and never following through with that in writing and shame on California for NOT telling us truly how the law was written and meant to be followed just so it could “cash in on our use”! When did compassion become compensation and therefore NO one is in compliance with state law here in Califirnia. Sometime the truth hurts when people are oblivious to it so this weed whistle blower will expose the facts and the truth in court for ALL. Dave A.

  6. Obama not prosecute individuals and organizations that fallow state law. Ask anyone in Arizona if Obama wont step on state law.
    Obama and his administration have crushed the Constitution concerning selective enforcement of Federal law. The next administration might just enforce the law and it may well take the violators and and conspirators that wrote that law under the wing of RICO act.
    My advice, have your bailout pack and an escape plan ready by January 20 next year!

  7. > Here’s a clinical trial on just that subject.

    There’s a LONG, LONG distance between a “clinical trial” and FDA approval.

    Maybe eight-ten years and a billion dollars.

    Most drug candidates that start Phase I clinical trials never get approved.

      • My brilliant posting prompted an even more brilliant question:

        Why don’t the marijuana entrepreneurs such as yourself go along with the system and take cannabis through the formal FDA approval process?

        We know that marijuana is a popular drug. FDA approval would basically grant whoever a MONOPOLY on legal marijuana. What could be better!

        I realize that YOU probably don’t need any more money, but you could help the homeless or something.

        • Impossible as long as it is a Schedule-1 narcotic. Until that is lifted ………..nothing along those lines you mentioned are possible. I don’t see the Feds reclassifying this any time soon. It’s their “card in the hole” in case they decide enough is enough and they shut the whole damn thing down.

          • > Impossible as long as it is a Schedule-1 narcotic.

            What is a “Schedule-1 narcotic”?

            What is the rationale for classifying marijuana as “Schedule-1”? What is at about marijuana that makes it “Schedule-1”?

            Who does the classifying?

        • I realize that YOU probably don’t need any more money, but you could help the homeless or something.

          Bahaha I’m broke as hell SJO. This is an industry that doesn’t see IT skillsets as that important, then again I can’t see any industry that does outside of tech. Remember, I just work here, don’t own it.

          I do my part with the homeless though. I changed the dialog in the Guardian Angels, all chapters are now practicing kindness towards the homeless, distributing clean socks and other basic things when they go out on patrol.

  8. Tell the mother of a child that has numerous seizures every day, that marijuana isnt helping. That the seizures that have finally stopped, is unimportant because some right wing control freaks want to rule outside of their own nest. Tell that mother to go back to comforting the child when the siezures begin again and to try and take some solace in all the pharmaceutical chemicals shes now feeding the kid so the siezures wont be as drastic. Who cares if the kids quality of life is dulled to the point of oblivious from all the meds in between seizures. And for the record, id rather have my loved
    one walk home from a dispensary, then drive home from a bar!!!

    • Last time I look Tricia the country was being run by a left wing control freak that was a confessed pot smoker!

  9. > Tell the mother of a child that has numerous seizures every day, that marijuana isnt helping.

    Why not ask your favorite progressive politician to have FDA scientists do a scientific study to validate or disprove your claims.

    If your claims are correct, the FDA should approve your favorite brand of marijuana and license your favorite marijuana distributor.

    Do you have something against science and the rule of law?

    • SJO I’ve been meaning for us to hang out for a while… I mean. I just like you. I like your opinions, I like your intelligence, I love your use of Occam’s Razor to cut through the nonsense.

      And I hate for us to be on separate sides of an issue. So come down to my work one of these days and lets hang out. Your identity is safe with me.

      What Tricia says is 100% correct. I won’t pull your leg, insult your intelligence, and say there isn’t “Abled bodied” people coming into the shop, but when you see the paraplegics, the folks with walkers, and folks with obvious nerve and muscle damage, after trying everything known to medical science to have found some comfort in cannabis, you can’t really feel good about denying them that comfort and dignity.

      So how about it? Wanna come down, and hang out, see if I’m bs’ing you or not?

      • I dunno.

        Seems like a lot of downside.

        What if I decide to run for office someday and Rich Robinson makes an issue out of my “links” to prominent figures in the drug business?

        I should probably go to church instead.