Words: Cara Cordoni | Photos: Whitney Beatty photos by Ragsdale Photography
Cannabis business is booming. Legalization is sweeping the country and the marketplace is estimated to hit 40-50 billion dollars within the next few years. Until recently, women and minorities were at the forefront of the industry. But now that ‘capital’ is a major factor in scaling and positioning companies, the number of women leaders is falling quickly.
Why are we losing our pioneering leaders and what can be done about it?
Whitney Beatty, CEO and founder of The Apothecarry Case, sums up the current situation this way: “As more money comes pouring into this space you see the number of women CEOs taking a dive. Four years ago, everyone was talking about ‘cannabis has more women executives, and at 39%, more women CEOs than every other industry’. Now it’s down to 23% and it’ll be just the same as every other industry in another three years, because they’re not giving us money. We can’t compete against the big money that’s coming in to the male-led firms and can drown out our noise quite quickly.”
Beatty should know – she’s a professional black woman who’s been through the process of raising funds for her luxury accessory brand, working with the Canopy San Diego business accelerator, and repeatedly pitching to venture capitalists. Overall, she’s part of a huge trend in black women entrepreneurship that extends beyond cannabis, according to Harvard Business Review, Entrepreneur and Fast Company. Despite this surge, black women rarely receive venture capital funding, or even bank loans for their endeavors. According to Forbes, “in 2017, only 2.2% of venture capital (VC) funding went to women-led companies. Women received only $1.9 billion in funding compared to the $83.1 billion that men received.”
That’s all women — black women receive far less at an estimated .0006% of total capital.
Jo Marini is the co-founder of Mother Superior, a business accelerator in San Francisco focused on building cannabis businesses for underfunded founders, including women and minority legacy operators.
“These are the people that have been doing the work from the ground up, right? They understand the nuances, they took the real risks, and they bore the burdens of enforcement — we also learned that they’re the ones struggling to make a profitable transition into the legal market.” She continues, “From our lens, we see access to capital as a near universal challenge.”
It Pays To Invest In People That Don’t Look Like You
Adding insult to injury is the bottom line evidence that businesses with diversity in the C-suite, meaning women and minorities, outperform those without by a range of 22% to 63%.
Yes up to 63%.
If investors — i.e. venture capitalists — are in business to make money, why aren’t they backing women? Including minority women who are starting and leading companies at an all-time high.
The reason is hardly controversial. “You’ve got implicit and explicit bias coming from angel investors, which are the easiest people for a new startup to reach out to,” says Beatty. “But angel investors invest in people that remind them of themselves… older white men. They don’t see themselves in me — a black, single mother. That’s not what they see themselves as, so I have to work a shit-ton harder in order to be able to get some credibility for them to listen to me seriously.”
Jenny Kassan, Attorney and author of the book Raise Capital On Your Own Terms: How to Fund Your Business Without Selling Your Soul isn’t surprised at the challenges Beatty has faced. Most of her clients report similar experiences and the research substantiates them.
Says Kassan, “The venture capital vulture capitalists come along, and they pretty much only fund men. Women try to play the game, but they’re really having a horrible time of it.”
Marini believes that what investors are missing is “really thinking about diversity as a competitive advantage, not a box that you check — in all areas, including in cannabis, it pays to invest in people that don’t look like you.”
The Venture Capital Trap
Is funding by existing venture capital the way forward? Not according to Kassan: “There’s a lot of feminist finance people out there that think we should be focusing on diversifying venture capital. But why would we want to ask more women to be part of a model that is all about forcing businesses to grow fast at any cost and making the top 0.1% even richer than they already are?”
According to Kassan, VC-style investors are shooting for a 10x return in one out of 10 things” they invest in. The definition of success is an “exit” when the company is sold to another larger company. “Basically, you have to have no life for five to seven years, while they come in and become your boss and tell you what to do,” she explains. Investors “push you so hard to be one of their successful exits because part of the model is that many will not make it. So why would you choose a model where it’s part of the model that most people won’t make it? A model that pushes founders to grow so fast, that a majority will fail? That is a destructive model,” she concludes.
Beatty and many other legacy founders are not willing to agree to the terms presented to them when they do catch the attention of an investor.
“I’ve had so many people waste my time with lines like, ‘We’re really interested, we really like your numbers, we really like your brand, blah-blah-blah,’ and then all of a sudden, they hand me over a deal with terms that feels like someone’s going to come and break my kneecaps if we miss a payment. This is not the deal you’re doing with other people. This is a predatory opportunity for you to make money off of me. I’m asking you to invest in my company. Not only have you wasted my time, but you think I’m stupid. You think I’m dumb,“ shares Beatty
“So, my big message is, we sort of have two choices: lean-in versus lean-the-fuck-out!” asserts Kassan.
“Lean-in is like, try to play their game, try to dance backwards in heels to impress them and be one of three women they fund this year. Do things on their terms, let them become your boss, let them dictate how you grow your business, sacrifice all your values, everything that’s important to you. Or say, ‘No, I don’t want to play that game. I’m going to raise the money I need from a completely different ecosystem!” she concludes.
Alternative Ways to Raise Funds: Power to the People
If venture capitalists are not investing in women and minorities — and maybe that’s actually a good thing given the extractive business practices that they perpetuate — where can these burgeoning leaders find the capital they need to thrive in this expanding and competitive market? According to Kassan, “There’s this huge untapped source of funding that a lot of people don’t even think about, and it’s basically everyone who’s outside of the professional finance realm, just regular folks: your customers, your community, wealthy people and not so wealthy people.”
Kassan continues, “You have to have a whole mindset shift about who could be a potential investor for you. Of course, you don’t want to ask everyone — you want to ask the people who are passionate about the things you’re passionate about, who share your mission, who are inspired by you. Maybe your customers, maybe your suppliers.”
Claudia Mercado is a Latina Founder & CEO of Calibueno, one of the first licensed cannabis distributors in Oakland, CA. Besides investing everything she personally had, she endured the last few years of turmoil thanks to the confidence and support of her suppliers: the farmers.
“Some of my funding came from growers believing in me and what we’re trying to do. That’s the growers wanting to be aligned with individuals that are value aligned,” says Mercado.
Kassan agrees that values are a key differentiator for non-professional investors. “They’re way more mission-driven. They’re investing their own money, not having to meet some criteria, or some target return. They invest based on their values and their gut feelings like, ‘Do I think this woman is awesome? Do I want her to be successful?’ And they have not been brainwashed into a model of investing that is ‘get rich as quickly as possible’,” she explains. Plus these everyday investors don’t want to run the business they back — they expect and want the founder to maintain control.
But do mission-driven and values-based businesses make money? Yes, according to Marini: “It’s a myth that purpose driven businesses are not profitable.” And according to Forbes magazine, “Research proves that purpose fuels profits.”
Beatty also raised her seed round from within her community.
“The friends and family round I did only had people of color in it because it was all those people close to me — none of which had ever invested in a company before. They gave this money ‘cause they believed in me,” she confides. “So they’re pulling out 401Ks, they’re giving me money they might not exactly have to give, or to risk, because they believed in me. To this day, that money, that $30,000 remains the heaviest money over my head — mentally — because that’s ‘aunty money’, that’s ‘uncle money’, that’s someone who I love, someone who I ‘sit-down-at-the-dinner-table-with money’!
On hearing of Beatty’s seed round, Kassan wishes that her family and the rest of us knew that “there are ways that you can actually leave the money in your retirement accounts. It’s still an IRA, but a self-directed IRA. You have to put it in a custodial account and just tell the custodian what you want them to do with it. You can say, ‘I want you to invest in this woman.’”
Friends, family, suppliers, customers — basically, we, the people — have the greatest investment potential. Angel and professional investors only make up .3% of investors, and regular folks with stocks, 401K and IRAs make up the substantially larger 99.7%, based on Kassan’s calculations.
Information and education are the big gaps per engaging the public, leading Kassan to write a book and co-found Angels of Mainstreet. “It’s an angel group for anyone, regardless of how wealthy you are, to join and learn about investing, and be able to collaborate with other people who want to do the same — and invest in the businesses and people you care about,” explains Kassan.
In addition, there are up-and-coming business amplifiers dedicated to creating sustainable businesses with triple bottom line impacts, like Mother Superior.
“We have nontraditional MBAs, and it’s a major advantage for us because we’re trying to think about business from a holistic perspective. It’s an empathy-driven lens, which goes into our entire business design process. It’s grounded us in this belief that the future successful cannabis businesses are built for agility. And they’re built to drive positive personal, social and environmental impact, in the same way that they’re built to maximize profit. It’s no longer just one or the other — you can and need to be doing both,“ shares Marini.
Investors invited to participate in funding these businesses understand from the beginning that they will not be perpetuating the old model of extracting value at the cost of the individual, the community and the planet. Instead, they are amplifying the legacy founder.
“We are investing in the potential of these founders. We look for integrity, we look for vision, we look for legacy experience and industry connections — and we build these exceptional supportive teams to round out the rest,” explains Marini.
“It pays to invest in people that don’t look like you. Legal cannabis is new but cannabis businesses are not. Legacy operators are the most valuable resource in this space,” she iterates.
“If every single one of us moves 1% of our investment dollars into small businesses that we care about, it would be billions of dollars,” concludes Kassan.
The opportunity then is to bring together the everyday investor, who likely does not consider themselves an investor, educated and forward thinking business professionals and legacy operators in order to reverse the downward trend in women and minority cannabis business ownership. Doing so is an essential step in reversing the impact of the War on Drugs on Black people and amplifying the women run businesses that support a sustainable and just community and world in which we can all thrive.
Cara Cordoni is a writer, life coach and president of Minerva Minded, a social purpose tech start up based in the Emerald Triangle of Northern California.