Brendan Kennedy wants to make the world safe for investing in marijuana. Kennedy, CEO at Seattle’s $5.5 million (assets under management) Privateer Holdings, believes that he can make a profit and make the world better by investing in marijuana companies.
Kennedy earned a BA from the University of California, Berkeley, a Master of Engineering from the University of Washington and an MBA from the Yale School of Management. And I think Kennedy embodies Yale’s missionary values – of both doing good – making society better and very well indeed – as in making big bank.
As he explained in a July 1 interview, Kennedy passionately believes that marijuana will be legal and that he should be a profit pioneer by investing in the “$40 billion to $50 billion industry.”
Kennedy is no stranger to trying to put numbers to an inherently uncertain future. “I was recruited eight years ago to Silicon Valley Bank to be senior vice president of its turnaround group. I grew it from three employees to 50 in the U.S. and 75 in India. We focused on appraising the value of technology-based ventures. It was hard to be right. I tended to over-value companies like [now bankrupt solar energy company] Solyndra and to under-value ones like [booming publicly-traded electric-power car maker] Tesla,” said Kennedy.
In May 2010, Kennedy saw a pitch for a venture “on the inventory side of cannabis.” But when he tried to learn more about the industry, he could not find information. “I tried to study the industry but I couldn’t find much. That same week, I heard a story on National Public Radio about Proposition 19 [California’s medical marijuana legalization ballot initiative]. I got interested in the industry and talked to some colleagues from Yale about building a private equity firm to invest in the industry – while spending nights and weekends doing research.”
In June 2010, Kennedy came across Leafly, “the Yelp of marijuana, run by three engineers in Orange County, Calif.” He liked the company so much that he ultimately bought it and is now its CEO. As he explained, “They were using Excel spreadsheets to keep track of how different strains of cannabis made them feel. And I was trying to learn more about the industry to see if there was an opportunity. But there is no Gartner Group. So over nine months, I talked to growers, medical marijuana dispensary owners, lawyers, and political activists over coffee, lunch, dinner, and beer.”
Kennedy concluded that there was a big opportunity. As he said, “Investing in the marijuana industry is the biggest opportunity I’ve seen. The market is between $40 billion and $50 billion, there are no public companies, no venture capitalists, no private equity firms, and no competition – just green fields galore. It didn’t require a technological leap; I didn’t have to believe someone had the ability to solve a technological problem. I knew the demand was there. It was already an industry but it was loosely knit.”
Not everyone is as sanguine about pot’s profit potential. One expert I interviewed believes that most of the market Kennedy discussed is “payment for illegality” and that the value of the legal market might be in the $3 billion to $12 billion range.
But Kennedy was also aware that investing in marijuana posed legal risks but concluded that it would soon be legalized. As he said, “We researched medical cannabis on a patient-by-patient, state-by-state basis. We concluded that marijuana would be legalized faster than everyone thought. Gallup has been asking whether Americans think marijuana should be legalized for the last 40 years and 52% answered ‘yes’ while 80% of Americans believe that medical marijuana should be legalized. Moreover, money votes for legalization – as it did in Washington State’s [marijuana decriminalization] Initiative 502 — where $6 million supported those who favored I-502’s passage and $6,000 went to those against it.”
Meanwhile, Kennedy sees enormous social costs to keeping marijuana illegal. “There are 50,000 to 60,000 Mexicans who die every year due to cannabis. There is mass incarceration of African-Americans and Hispanic-Americans in the U.S. The changing fiscal status of states and the federal government means that the public is asking whether the costs of keeping marijuana illegal exceed the benefits. And unlike gay marriage or gun control, there is no powerful political support that favors keeping cannabis illegal.”
Despite his optimism for the future of legalized marijuana, Kennedy took great pains to assure himself of the soundness of Leafly’s founders and its legality. “We liked Leafly’s business and found its team to be intelligent, self-aware, and possessed of strong aesthetic skills in its web design. We’ve spent enormous sums on legal fees to make sure that nothing we do violates local, state, or federal laws,” said Kennedy.
Leafly is achieving a beneficial social mission as it grows. Kennedy explained, “Leafly is the largest clinical trial of medical marijuana in the world. It has 60,000 marijuana strain reviews. A user can read Leafly’s reviews to find out the right strain for her disease – e.g., epilepsy, cancer chemotherapy, glaucoma, or HIV.”
He continued, ”And once the user finds the right strain, he can read our 30,000 reviews to figure out which of 3,000 marijuana dispensaries is the right place to buy that strain.”
Meanwhile, Leafly is expanding – both inside the U.S. and to other countries such as Israel and Canada. It had 2.5 million visits in June 2013; is generating about $100,000 per month from dispensary advertising – which consists of colored dots on a map – and is growing its traffic at 15% to 20% a month. We are adding people – with 14 now and we expect to have 30 by the end of 2013.”
Kennedy is using different ways to measure whether Privateer succeeds. “This is a unique opportunity to build a series of successful companies,” explained Kennedy. ”I believe that business is an agent of change – it’s the best form of political activism. When — not if — we are successful, we will have helped to end the harms caused by cannabis prohibition in the U.S. That success will be measured by incarcerating fewer people.”
The expert I spoke with believes that Kennedy is overly optimistic about the societal benefits of legalization. He said that there are 12,000 murders a year in Mexico; its marijuana exports are about a quarter of the country’s total drug exports; and the Mexican killers get paid for Mexican drug dealing, extortion, and kidnapping. In his view, legalizing pot might reduce some of the deaths but not many.