Catharine recently joined host TG Branfalt for our latest podcast episode to discuss the investment strategy behind Vice Ventures, how she transitioned into specifically working with businesses that other investors frequently avoid, her advice for finding and building a successful brand, and more.
Tune in to the interview via the media player below or scroll further down to read a full transcript of this week’s podcast episode.
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TG Branfalt: Hey there, I’m your host TG Branfalt. Thank you for listening to the Ganjapreneur.com Podcast, where we try to bring you actionable information and normalize cannabis through the stories of entrepreneurs, activists, and industry stakeholders. Today I’m joined by Catharine Dockery. She’s a founding partner of Vice Ventures, a venture-capital fund that has raised about 25 million in its first round and invests exclusively in nontraditional, quote, bad-for-you verticals, such as cannabis, alcohol, sex tech, CBD, and more. How are you doing this afternoon, Catharine?
Catharine Dockery: I’m doing well. Thank you. How are you?
TG Branfalt: I’m great. You’re the first person that I’ve ever interviewed or even really known about that is focused on the sort of bad-for-you industries. So I think we have a lot of ground to cover up, but before we do tell me about yourself. Tell me about your background and how did you end up launching a VC firm focused on vice?
Catharine Dockery: That’s a fantastic question. I grew up in the New York City with my dad, went to NYU, studied a combination of neuroscience and finance. Then my first job out of college was trading high-yield debt. I absolutely hated that job. So I quit after my second bonus, spent nine months contracting for different hedge funds, trying to figure out exactly what I wanted to do. Met up with a PR agency, ran their research team two days a week for two and a half weeks.
Then that’s when I met Andy Dunn, who’s the founder of Bonobos. I was presenting research. We got along really, really well. We decided to get dinner afterwards. We decided I should work for him, which is an incredible opportunity, and manage his venture portfolio and just finances in general.
So when Walmart acquired Bonobos, I followed Andy to Walmart. Kind of realized very quickly that Walmart M&A was not for me, despite some people absolutely loving the job. So I interviewed to leave. I had personally invested in the canned-wine business. So when I was interviewing at this consumer venture firms, I kept pitching the company. All these fund managers were like, “We love the founder. We love the brand. We love what she’s doing, but we can’t invest in alcohol. So it’s a pass for us.”
I just couldn’t believe that they couldn’t invest alcohol. I just kind of kept asking, “Why, why, why?” Finally, someone was very honest with me and they’re like, “We have a vice clause.” And I was like, “Well what’s a vice clause? And they’re like, “It just prohibits us from investing in cannabis, alcohol, and nicotine, sex tech, online gambling, sports gambling.” There’s just this whole wide range of categories I thought both had highly … just huge growth potential. Then the other one had just high multiple exit potential. And I was like, “There’s something wrong here.” So that’s how I came up with the idea.
TG Branfalt: So, I mean, that’s a really broad sort of thing. It’s sort of interesting to me if we talk about cannabis and also sort of online gambling, which is being re-legalized or legalized in many cases through the United States. So is there sort of a trend going on of this sort of, I don’t know, acceptance or normalization of vice culture?
Catharine Dockery: So that’s exactly what my Vice Ventures is trying to do. That’s the mission, besides delivering superior returns to the people who believed in us. But we also want to change culture and change stigma and prove that these quote, bad companies, actually aren’t bad at all.
TG Branfalt: What’s been the response to your fund by the venture capital community at large?
Catharine Dockery: Great question. I think some people love it and get it and understand it. I think some people are laser focused on environmental funds or they think social impact is more important, without really realizing that Vice Ventures is also a social impact fund, in a way.
TG Branfalt: Can you elaborate on why you would consider it a social impact fund?
Catharine Dockery: Yes. Because, I mean, just look at the portfolio. All our portfolio companies are harm-reduction companies, whether it’s, we just announced recently a big investment in Lucy, which is a harm-reduction nicotine business. I would call that social impact, educating people that nicotine would not … and consumed in a carcinogenic fashion, i.e. through vapes or through combustible cigarettes, it’s actually no worse than coffee, which is just as addictive as caffeine.
TG Branfalt: So what do you look for specifically when investing in the crowded cannabis space? Are you focused on the same sort of thing that you’d be focused on, say, with the nicotine cessation with Lucy?
Catharine Dockery: So really quick, Lucy isn’t nicotine cessation for the record.
TG Branfalt: My apologies.
Catharine Dockery: They’re a recreational brand. No, it’s okay. Just legally it’s important to specify. When it comes to cannabis, I looked pretty exclusively at cannabis brands, whether that’s edible, company is lower-dose THC, joints. I think it’s really important to invest in really, really sharp brands. I just don’t think we’re there yet.
TG Branfalt: What do you mean by that?
Catharine Dockery: I think we’re very early stages in the cannabis brand section. I think in the next few months, a lot of these companies will run out of money and we’ll be able to see kind of which brands stand the test of time, if you will. I think then it would be a great time to invest in them.
TG Branfalt: So you mentioned low THC. I’m a huge sort of proponent of low THC products. Massachusetts has actually a cap for recreational five milligrams, which a lot of people are like … they’ll boo and hiss at it. But for me, I’m like, “This is fantastic.” Are you seeing more and more companies offer these low-THC or are developing these low-THC products?
Catharine Dockery: Yeah, definitely. I would say almost every cannabis deal I’ve seen in the past week or two weeks or so have been all low-dose products, whether it’s low-dose beverages, low-dose chocolates, it’s low dose is definitely the future.
TG Branfalt: So do you give particular attention maybe to crossover businesses, such as companies that make THC-infused lube?
Catherine Dockery: I mean, I’m all about crossover businesses and I think as long as it fits the Vice thesis, it is definitely worth looking at. But I just think a THC lube or vice lube is a very difficult business to be in, just because it’s so niche.
TG Branfalt: So is there anything else that you … because THC lube, when it first sort of came out, and I worked in the adult shop industry for a very long time.
Catharine Dockery: Awesome.
TG Branfalt: So I saw what lubes worked and what lubes didn’t. So I have this sort of perspective there. My question is are you seeing a lot more companies trying to maybe cross over? I mean, we see beer companies getting involved in the cannabis space, big time. Are you seeing more of this sort of corporate crossover or these partnerships happening from your perspective?
Catharine Dockery: Yes, actually, which is why I think vice investing and the venture capital space is so exciting because I think because of all the crossover, there’s a lot more exit potential than say a normal CBG grocery company. You could, like a CBD beverage, for example, could get bought by Pepsi. It could get bought by AB InBev, by Constellation, by Coca Cola, by Nestle, literally by anyone. So I think that’s what’s so exciting about it.
TG Branfalt: It sounds like you’re half expecting these sort of major deals to occur.
Catharine Dockery: I think some of them will be, for sure. I think a lot of this is brand new products to the market, more so than in any other industry, in a way.
TG Branfalt: So I mean, your firm balances this social responsibility and taboo. How do you think other companies, large companies, such as the ones you mentioned, Coca Cola, Nestle, are going to be able to sort of jive that with their investors?
Catharine Dockery: I think it just comes down to overcoming stigmas. I think a lot of these companies will kind of go wherever is making the most money, as proved by the Canopy-Constellation deal.
TG Branfalt: Which is, I mean, was shocking.
Catharine Dockery: It’s huge. It’s massive.
TG Branfalt: And now they own, they’re majority stakeholders in that company.
Catharine Dockery: Yes.
TG Branfalt: Right. Yeah. Speaking of stocks, last year was not a great year for cannabis stocks. Some of the biggest players, Aurora, Canopy didn’t do particularly well towards the end of the year. What’s your take on that and sort of expectations for 2020?
Catharine Dockery: I think, I don’t know. It’s a weird analogy to me. But I think it’s very similar to Donald Trump getting elected, everybody just thinking that the market is so much bigger than it is. Then people just not admitting that they participate or don’t participate or anything. So I think that’s kind of what happened is people realized that people actually didn’t really smoke, especially when they say that they did. I think that will have some effect on cannabis exits, which is why I think a lot of these companies will go under the next 6 to 12 months. I think we’ll really see which brands resonated with consumers and all that.
TG Branfalt: What makes for a successful brand in your opinion? I mean, does it involve sort of that sort of celebrity, which we just saw Whoopi & Maya decided to close. But we do see a lot of celebrities sort of coming in the space. Or is it leadership? What sort of draws you in with regard to brands?
Catharine Dockery: So I’ll give you example a great brand. Are you familiar with the CBD water called Recess?
TG Branfalt: I am familiar with the name.
Catharine Dockery: Yes. We were early into Recess. They’ve launched in multiple cities across the country in a short 16-month period. We invested in Recess just because of the brand itself. We didn’t even test the product before making a commitment. Just the brand, the idea of taking a recess, that is a nostalgia to every single American who’s taken a recess as a kid.
TG Branfalt: Interesting.
Catharine Dockery: So that to me is a great example of a really strong brand.
TG Branfalt: Something that sort of sticks out in your head, where you hear that and you think of that.
Catharine Dockery: Yeah, exactly.
TG Branfalt: So what are the risks in investing in these industries, sort of aside from the sort of obvious ones. Right? I’m not an investor, a lot of our listeners are. They probably have a better idea on what those risks are than I do, in many ways. But aside from the basic, “You can lose money,” what really are the potential rewards here, sort of the abstract bigger picture, I guess?
Catharine Dockery: I think some of the biggest risks are definitely regulatory, especially for CBD. Nobody knows if it’s going to be outlawed in food and bev or not. I would say also this isn’t a rant, but for cannabis, it’s definitely regulatory as well. So the laws change every three months on that. The alcohol, you need to make sure you comply with the three-tier system. Some people swear by drawing it to alcohol. But that’s even more difficult. I don’t know. There’s a lot of risks.
TG Branfalt: What do you tell your investors are the rewards in this space aside from sort of the returns? You know what I’m saying?
Catharine Dockery: No. What do you mean?
TG Branfalt: So this idea of social responsibility and this idea of sort of ending stigma, is this something when you are making that pitch to your investors that intrigues them just as much as the profits in many cases? Or is it purely profit-driven?
Catharine Dockery: I think any investment should probably be profit driven, just because you have a fiduciary responsibility to help your investors make more money than they had when they put in. Besides that, I think there’s also a social responsibility to make sure that you’re investing in really intellectually honest operators, who know exactly their products, the harm that it can give to the users and just didn’t hide it.
TG Branfalt: I like the term intellectually interesting.
Catharine Dockery: Yeah.
TG Branfalt: Several states expected to legalize this year. Where we are in New York, which we know it happened last year. You’re a lifelong New Yorker like I am, basically. We know Cuomo’s history and the legislature here is a mess. New Jersey, Connecticut, Rhode Island, Vermont lawmakers are right now in the middle of bringing in a taxed and regulated system. Does one state or a couple of states stand out to you as most ripe for investment?
Catharine Dockery: I think Oregon is a really interesting one, just because I think it’s less fragmented than the other states. I mean, tons of people are pouring money into California brands. I’m not sure that makes sense yet.
TG Branfalt: What about as far as the ones that we sort of expect this year?
Catharine Dockery: Give me an example.
TG Branfalt: Like New York, Jersey, Connecticut, Rhode Island.
Catharine Dockery: I think New York would be a great place. I think brands are built in New York City. I mean, look, you have Away, Glossier, Bonobos, Warby Parker. Really strong brands are built here.
TG Branfalt: I mean, and the other thing too, that we have to consider, is the way the medical licensing is set up. It’s really going to be a prime opportunity, I think, the way they’re going to set it up, for branding.
Catharine Dockery: Yep.
TG Branfalt: In your experience thus far with your fund, has there been a particular state that has proven to be a solid enough industry investment? Maybe Nevada, considering it is pure vice?
Catharine Dockery: Yeah. Not yet. Most of our investments to date have been between East LA and New York. Which I don’t know, maybe that’s because that’s where I spend most of my time. But definitely looking at Vice in a every state.
TG Branfalt: So what advice do you have for entrepreneurs who are looking to enter this space as far as brands go?
Catharine Dockery: Well, depends which category. I mean, nicotine is arguably more difficult than cannabis, I would say. But I think it’s all about just pairing up with somebody who’s really good at branding, finding somebody who can do operations and just going out there and doing it, finding distribution and finding partners that can help you.
TG Branfalt: Awesome. Where can people find out more about you, about the firm? Give us the plugs.
Catharine Dockery: Viceventures.com. There’s an email address on there, that’ll link you to me.
TG Branfalt: Brilliant. Thank you so much, Catherine. It’s really been nice to have you on the show, pick your brain a little bit. Like I said, it’s a super sort of interesting angle that you’ve taken there and I really appreciate your insight.
Catharine Dockery: Thank you so much.
TG Branfalt: That was Catherine Dockery. She’s a founding partner of Vice Ventures, a venture capital fund that has raised about 25 million in its first round. Invests in vice, such as alcohol, cannabis, and more.
You can find more episodes of the Ganjapreneur.com Podcast in the podcast section of ganjapreneur.com and in the Apple iTunes Store. On the Ganjapreneur.com website, you’ll find the latest cannabis news and cannabis jobs, updated daily, along with transcripts of this podcast. You can also download the Ganjapreneur.com app in iTunes and Google Play. This episode was engineered by Trim Media House. I’ve been your host, TG Branfalt.