Bennett said he's seen the industry mature in recent months. "We are selling to CFOs now as opposed to the chief grower," said Bennett. "In the cannabis world, they are reaching out, trying to find the best, newest components."
Because marijuana use is illegal under federal law, major banks and credit card processors—subject to strict regulations—have, so far, been unwilling to take on the legal risk of doing business with marijuana purveyors. That has created an opening for startups.
Spare CS Inc. founder D'ontra Hughes said he has more than 100 neighborhood corner stores using his app, which is kind of like a mobile ATM. Stores and their customers download the app and connect it to their bank accounts. Customers can request a withdrawal through the app, which then displays a bar code. Once the store owner scans it, the amount is transferred from the customer's bank account to the merchant. Then the shop employee can give the customer cash from the till. The shop and Spare each get a share of the convenience fee paid by the customer.
The company had been gaining traction with shop owners when Hughes got a call from his dad, suggesting he pursue cannabis dispensaries instead. "He said, 'Hey, they are showing up to the IRS with duffel bags of cash because they can't deposit it," Hughes said. He explored the laws and decided to give it a shot.
Hughes moved from California to Colorado and joined cannabis accelerator group Canopy Boulder earlier this year. Spare is now developing a product using the same technology but with extra data collection features required by regulators and geared to dispensaries. A handful of dispensaries in Colorado, Washington and Oregon are now testing it, the company said.
"We want to make sure we offer a solution but are treading cautiously," said Hughes, adding that he is watching policy changes closely and has kept the original Spare product separate.
Since its inception two years ago, 29 startups have completed the three-month program in Boulder, exchanging equity in their companies for Canopy Boulder's expertise on regulation and compliance, connections to investors and business mentorship. "We're seeing more and more companies, saying, 'Hey, this can be applied to cannabis,' " said Canopy Boulder partner Micah Tapman.
Still, it is early days for cannabis startups. And for those that are publicly traded—some 55 companies in all that trade at 10¢ or more, according to a report last year by Bloomberg Intelligence—it's far from steady growth.
Since HelloMD pivoted into pot last year, it has issued more than 14,000 medical cards to California residents. Hadfield said he expects that number to increase to several hundred thousand as his startup expands to serve residents in other states and as additional states legalize marijuana. HelloMD recently launched a marijuana community forum on its website, allowing the public to post questions for doctors. Hadfield said the forum addresses the need for accurate information from credible sources and fulfills his company's expanded mission to be a trusted guide for consumers.
The growing client base, which also pays annual fees to renew their cards, is easier to reach than general medical patients, Hadfield said. "People are much more passionate about cannabis than they are about sore throats."