Why Silicon Valley wants to end the drug war

By Ben Branstetter on February 15th, 2015

In a way, it now seems obvious that the Venn diagram between the tech world and pot should have a generous cleavage. Both are forward-looking dreams led by wunderkind organizers, embracing a burgeoning brand of progressive libertarianism that seems ready to dominate the entirety of the millennial generation and beyond.

So the recent explosion in startups and fundraising rounds centered on weed should not come as any surprise. Peter Thiel raised eyebrows last autumn when his Founder’s Fund threw a rumored $60 million toward legal weed firm Privateer Holdings, a company whose aims include “professionalizing the cannabis business landscape through the power of private enterprise.” And with the PayPal founder’s massive angel investment, it very well could be the first golden pair between pot and tech.

While Thiel’s firm is the first industry-standard organization to invest in pot—now legal for recreational use in four states and the District of Columbia—it is far from the first toe Silicon Valley has dipped into that pool. Drugs, both legal and not, have forged a relationship with the tech sector that makes Wall Street’s adoration of cocaine seem like a brief school-days crush. For reasons both personal and business, Silicon Valley isn’t just empowering drugs—it could possibly be empowered by them.

Aside from Thiel’s massive investment, Privateer also runs Leafly, “the Yelp of weed,” where users can post reviews of dispensaries and specific strains or products of cannabis. In San Francisco, delivery-only dispensaries like Eaze and Meadow are fighting the intense rent and regulations by attempting to be “the Uber of pot.” As vaporizers change the tobacco market, companies across the U.S. are engineering the latest high-tech gadgets and engineering marvels—for tobacco use only (wink wink).

For reasons both personal and business, Silicon Valley isn’t just empowering drugs—it could possibly be empowered by them.

That winking, in fact, is a very serious concern. The major reason such firms are struggling to gain legitimacy is not the product they’ve centered their businesses on but the shaky regulatory ground on which they rest. Weed delivery services, for example, must pay hefty fees and go through a bureaucratic hellscape if they want a physical space to run their business.

Much like how Uber doesn’t need property in every city it operates in, weed delivery can subvert these regulations by running completely as a delivery system, sustaining themselves more as an app than as a store. Such “disembodied cannabis collectives” are not the most stable form of business, but regulation is the only thing holding them back.

While no major lobbying by tech firms has been done in the name of weakening drug regulations, it’s clear the demand to do so is there. Nowhere is this more obvious than in the vaporizer market, where firms must comply with the archaic and rather silly “headshop rule,” which dictates that any product sold must be for tobacco use only. Despite the liquid legal status marijuana is finding across the U.S., manufacturers like Ploom or Firefly are held back from validation by investors by laws that are barely enforceable and definitely pointless.

With a majority of Americans supporting legal marijuana use and nearly half having tried it, the only thing stopping a gold rush are the laws and business norms restricting technology—the industry best poised to flush weed companies with cash—from embracing and lifting up this new market so well-suited for innovation.

Geoff Lewis, the Founders Fund member who led the fundraising for Privateer, called the company’s stake a “first-mover” advantage, meaning those who get in on the early ground have more time and ability to learn from the market. As Privateer CEO Brendan Kennedy says, “They want to end prohibition and the harm caused by prohibition, and they want to do it by creating a smart, professional brand in a space where most of the brands are so amateurish.”

The only thing stopping a gold rush are the laws and business norms restricting technology.

In the same way not many politicians are willing to stand up and speak the plain, simple truth about pot due to the damage it could cause to their reputation, executives from other companies might not want to be associated with a brand like Privateer that distinctly sells marijuana. Despite Privateer making hires from Microsoft and Amazon, for example, Marley Natural is yet to fulfill even foundation-heavy roles like a COO.

So if you’re a progressive-leaning executive with “success in building, energizing, and motivating teams and ability to develop an infrastructure in a rapidly expanding business”—and at least a bachelor’s degree—the weed market is ready for you. The only thing likely stopping most candidates is the ghettoization of weed as a business.

One of the major roadblocks for most legal dispensaries, for instance, has been the complete refusal by most banking institutions to even handle money used to pay for weed. Because weed is still classified as a Schedule I drug by the federal government, banks could face money laundering charges if they process even debit card payments from pot shops. Weed, as always, is a cash-only business.

That makes faith in the industry as a whole hard to come by. Having to stock the massive wave of actual, physical cash in the back of your shop as an industry practice doesn’t do a lot to convince possible investors or executives you’re the industry for them. This social cost stems out to every pot-affiliated service, from delivery to vapor, dragging down a potential boom.

Young economies grow faster, but pointless regulation and outdated social stigmas are hampering pot’s ability to enjoy the rush of talent and innovation that is changing all other sectors of the world economy. By state referendums, the U.S. is now home to the most liberal weed laws in the Western world, but due to federal regulation, Silicon Valley might pass over an industry begging for its change.

Photo via HBO