Twitch.TV’s Justin Kan Talks Cannabis Investing

Photo: Tatiana Bulyonkova - flickr.com/photos/ressaure- Flickr Creative Commons

 
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by David Downs

on January 27, 2015

Now’s the time to take risks on “crazy ideas” in the marijuana industry, successful tech entrepreneur Justin Kan told a crowd of investors at the Fairmont Hotel in San Francisco Monday.

Y Combinator partner Kan founded Twitch.TV, which he sold to Amazon for $970 million in 2014, and was the keynote speaker at an invite-only, $2,500-ticket marijuana investment forum organized by Oakland’s The ArcView Group. Several hundred lawyers, entrepreneurs, and VCs from across the country are attending the two-day event, which included the release of ArcView’s 2015 market report. Roughly 1.5 million people bought legal cannabis in 2014. The legal industry expanded 74 percent to $2.7 billion last year, and is predicted to grow 32 percent in 2015.

The casually dressed Kan joked with the room of suits that he “looked like the guy who’s probably selling you cannabis,” then outlined three reasons why he’s bullish on pot: it’s an in-demand product; there’s not many companies; and it’s similar to Uber and AirBnB in that it’s a “regulatory arbitrage play.”

“People are breaking the law to go buy your product, we call that ‘product-market fit,’” he said.

Cannabis is a $40 billion national market with few players, and “is any investor’s dream,” he said. “There’s this massive opportunity to have first-mover advantage.”

Kan sees parallels between legal cannabis and Uber and AirBnB — in that “they’re not pure tech plays.”

The companies were illegal but grew so rapidly that when regulators called, the userbase rose to their defense. “They grew fast enough, now they can negotiate.”

Companies that grow now within legal states amid federal risk stand to gain the most when the federal policy changes. “To me it’s almost the perfect timing for a business… when you as a risk taker are willing to go all in.” Kan said he has not invested in a cannabis company yet, but is interested in pitches.

Kan started in tech with 24-7 life-streaming business Justin.TV about eight years ago. The team later pivoted to provide live-streaming services to its users, then honed in on live-streaming tools for video gamers.

Kan thought the idea was “awful” at first. Last month, 60 million people watched content on Twitch.TV.

“I’m a big believer in, like, crazy ideas.”

Monday, software as a service provider MJFreeway announced funding by Tao Capital Partners, which has invested in Tesla, Uber, and SpaceX. Last week, venture capitalist Peter Thiel and his Founders Fund injected a multimillion-dollar investment into equity firm Privateer Holdings, which specializes in marijuana-related businesses. Like Tao, Thiel’s Founders Fund also boasts major investments in non-cannabis companies like Airbnb, Lyft, and Spotify.