For the last quarter century, civic boosters in Chicago have worked tirelessly to establish The Second City as a first class technology hub. Despite all their efforts, firmly establishing Chicago as a top 10 tech town, Silicon Valley for better or worse remains the undisputed epicenter of the digital economy.
But maybe, Chicago, has a shot at reigning over a booming national bud business.
Here are five reasons why Chicago can emerge as the cannabis capital in the world.
1. Anchor companies appear to be here for the long run
Three Chicago-based cannabis companies, Green Thumb Industries (GTI), Cresco Labs, and Verano Holdings, are starting this week valued at a combined $12.5 billion dollars.
Unlike the dot-comedy of 21 years ago, where profits were scorned and sizzle was all that mattered, today’s pot companies are making net returns hand over fist. They represent three of the top eight revenue generating companies in the U.S. cannabis industry.
The leader of the pack is GTI, founded in 2015. In the third quarter of 2020, GTI generated more than $157 million in revenue and $37 million in income. Cresco, founded in 2013, in that same time period generated $153 million in revenue and $32 million in income. Verano, which was founded in 2014 and is expected to become publicly-traded next month, reported to private investors that it generated $155 million in revenue during the first three quarters of last year.
While cannabis companies have experienced massive swings of volatility over the last 18 months, and Green Thumb, Cresco, and Verano are benefiting from limited competition in multiple states, that likely won’t last forever. A multi-billion industry in Chicago selling medicine and recreational experience will likely overshadow local innovations in parking apps, personalized video messages, and food delivery services.
If GTI, Cresco, Verano, and perhaps PharmaCann, which is currently privately-held, well capitalized and with operations in multiple limited licensed states, remain buyers and not sellers, Chicago has a chance of becoming the Silicon Valley of smoke and strains.
2. Companies can recruit from a deep and wide talent base
Commercially speaking, cannabis is basically a highly regulated, consumer packaged good. From Constellation Brands to MillerCoors to Kraft to Mondalez, Chicago has a deep reservoir of expertise pushing and packaging consumable products that need to abide by a myriad of regulations.
More than $1 billion of cannabis was sold in Illinois last year and for many months operators couldn’t stock enough of the product on their shelves. They are now just beginning to serve an expanding base that now has legal and social permission to seek alternatives for relaxation and pain management.
3. A crop of canna-tech companies are emerging
Among Chicago’s fastest growing startups are software companies focusing on serving plant-touching businesses.
Founded in 2019, Fyllo has raised close to $30 million to develop a compliance-based digital marketing platform for cannabis companies. Chicago corporate stalwart Christie Hefner recently joined the company’s board of directors.
Leaf.Trade, founded in 2017, a year ago raised $5 million from Hyde Park Angels to build a wholesale digital marketplace for cannabis cultivators and dispensaries.
Equilibria, founded by serial entrepreneurs Coco Meers and Marcy Capron Vermillion, raised $2 million from prominent angel investors. That company develops personalization software and services to help CBD consumers make more informed consumption decisions.
Salveo Capital, a venture firm founded in Chicago in 2015, has more than 21 portfolio companies that include ancillary and leaf-touching businesses.
4. An increasingly engaged and educated community
All eyes will be on Illinois in the coming months as we see how the next rounds of dispensary, craft grow, and infusion licenses are distributed. The optimism that existed a year ago for social equity entrepreneurs to gain ownership within the industry was crushed over the summer’s delay of license awards.
Thanks to a problem-riddled and still-unresolved scoring process managed by national accounting firm KPMG, the entrepreneurs that Illinois politicians promised to empower in exchange for giving a head start to incumbent licensees, most notably GTI, Cresco and Verano, remain out of the loop.
These entrepreneurs, alongside others who believe in the equitable distribution of commercial success in the cannabis industry, are demonstrating, lawyering up, and before too long will be voting. No incumbent office holder can take their votes for granted now or ever again.
5. Illinois’ governor is a venture capitalist
Before Governor J.B. Pritzker presided over the State of Illinois’ expansion to recreational cannabis sales, he was arguably Chicago’s most prolific venture capitalist.
An early investor in Facebook, SMS Assist, and several dozen Chicago-based startups and a leading supporter of Chicago’s 1871 digital incubator, Pritzker possibly more than any other sitting governor understands the impact an ascending industry can have on the finances, stability, and culture of a city and state.
Already, cannabis as an industry is growing more rapidly in Illinois than technology ever did since the first dot-com boom more than a quarter of a century ago.
However, if Governor Pritzker doesn’t fix the Illinois licensing morass happening on his watch, there is a strong chance that many of the voters he engaged to pass the recreational law won’t give him a chance after the next election to preside over a booming local industry he also deserves credit for allowing to flourish.
Put that in your pipe and smoke it.