High times and uncertainty as marijuana startup looks to future
SAN FRANCISCO — It’s a terrifying and exciting time to be running a tech startup with a business model that’s entirely dependent on California’s legal marijuana industry.
The state’s voters in November approved recreational use of marijuana, and on-demand cannabis delivery company Eaze expects that by expanding into that market, it can grow its customer base to more than five times its current size. At the same time, the burgeoning industry faces potential challenges from the new Republican administration and Attorney General Jeff Sessions, who has spoken out against legalization in the past.
“I think what a lot of people are doing is waiting and seeing,” said Eaze CEO Jim Patterson.
In the meantime, San Franciscobased Eaze — an app that lets approved medical marijuana users order products from dispensaries and have them delivered to their door — is planning to double its staff by the end of the year, and the startup is considering expanding service to Nevada.
Patterson sat down with The Mercury News to talk about where the marijuana industry is headed, and the challenges that still face businesses in this sector. The interview has been edited for length and clarity.
Q: How has Eaze changed its business model since California legalized recreational marijuana?
A: We haven’t changed yet. What happened the day after the election is now all California residents can possess up to one ounce of marijuana, but recreational sales are not legal yet. So the state is still working on that framework.
We intend to support both recreational and medical as those progress. As a practical matter, once things are in place, the main difference will just be tax structure. It’s going to be the same products, the same everything, just if you have a medical card you’ll be exempt from some state taxes.
Q: What do you hope California’s recreational marijuana regulations will look like?
A: I think the big one’s a tax structure. If you look at what happened in Colorado, they put a pretty heavy tax on recreational use. So what happens is there becomes a big gap between medical and recreational, and then you just have a gray market where people are buying it on the medical side and then reselling it on the recreational side. So I think that’s one (important thing): Obviously, marijuana should and will be taxed, but not getting too aggressive on that taxing because what you’re trying to do is move a black market into a more legal structure, and if it’s too expensive, not everyone will come over.
Q: What about city regulations? Is there a fear that certain Bay Area cities might impose strict rules?
A: Yeah, certainly. I would say the No. 1 problem for most local governments is they’re afraid of the mass proliferation of dispensaries. The majority of people are in favor of marijuana legalization, but almost no one wants to live next to a dispensary. So what a lot of cities are doing is restricting pretty severely the number of dispensaries. For example San Jose only has 16 legal dispensaries in a city of a million people. But if you allow delivery from each of those, each dispensary can sort of augment their foot traffic with the delivery traffic.
Q: Are you worried the Trump administration will crack down on the marijuana industry?
A: I personally think that medical is, at this point, pretty safe. Even in extremely conservative states, medical initiatives are passing with 60, 70 percent margins. It’s recreational that I think is a little more controversial.
Worst-case scenario is it goes back to DEA raids. That’s certainly something that they theoretically could do. I think that’s a little bit aggressive. I would say it would start probably with letters to people in the industry.
At the end of the day, the federal government could sue the (recreational) states and it would probably be a legal battle. Honestly, it depends on how much the states are willing to fight back. And that’s somewhat unclear.
Q: Could Eaze get caught up in DEA raids and lawsuits?
A: We’re focused on being a technology layer. Definitely the dispensaries we work with carry a little bit more risk than we do. We spend a lot of money on lobbying and legal to insulate ourselves from touching the plant or requiring any kind of regulation. As far as we’re concerned, we’re not breaking any laws, either state or federal.
Q: What inspired you to get involved with Eaze?
A: The big one is I personally have a passion for building great companies. And it’s not just building a company, but we’re also helping to build an industry. So it’s even doubly exciting.
Q: Do you use marijuana yourself ?
A: I do. As a product person I would never not use the product that I’m selling. I definitely find it helps at night for sleeping.
Q: Is there an especially prominent culture of marijuana use at the Eaze office?
A: I would certainly say someone who works here is more likely to use marijuana. There’s definitely people here who don’t. And a lot of people do. It’s not happening during the day or during work hours, but certainly in people’s free time, people go out together.
Q: Would it be acceptable to be vaping in the office at 5 p.m. after a long day?
A: We prefer not to do that. In terms of a Friday night, something like edibles might be a little more discreet.