Source: Financial Times
by Andrew Jack,
The online marijuana company became an unconventional case study taught at MIT
While his classmates at MIT’s Sloan Business School were poring over worksheets on discounted cash flow and eyeing careers in blue-chip institutions, Socrates Rosenfeld was thinking about drugs, alcohol and money.
Eighteen months after graduating with an MBA, he abandoned a conventional job with McKinsey to launch a start up with an unusual focus: the online distribution of cannabis, which drew on the lessons of Prohibition — another market emerging from a long period of criminalisation.
“During the day I was studying disruptive technology, and at night I was studying cannabis,” he says. “I thought if I could only combine the two worlds, it would be a dream come true.”
It was an unlikely initiative for a military veteran and fellow classmates at a university better known for technological innovation.
Yet his company Jane (an abbreviated form of Mary Jane, slang for marijuana) has grown rapidly since its creation in 2015, and this summer became a rather unconventional case study taught at MIT, where Mr Rosenfeld has shared his experiences with students and sought fresh recruits.
Scott Stern, the professor at MIT who taught him and jointly wrote the case, says: “Cannabis wasn’t an area I had a lot of experience in. What I loved about the company was how it explored the choices you face in how to implement an idea.
“There are many examples where the central challenge is that you don’t know if there’s demand or whether the tech will work,” Mr Stern says. “In the cannabis industry, there’s demand and supply but it’s fundamentally disorganised. At a time of change in regulation and law, some companies involved in the founding moments are able to take advantage.”
It was Mr Rosenfeld’s belated experiences with the drug that first persuaded him to develop his business idea. “I never consumed cannabis once in my life till I was 29 years old,” he says. “I was an athlete, at West Point, in the army and in Iraq. It was never really an option for me.”
Yet like many other veterans, when he returned to civilian life in 2011, he struggled to adapt. “When you are going from making life and death decisions around every turn, and you are suddenly in a classroom taking notes, it’s a stark transition,” he says. “I couldn’t turn the intensity level down.”
It was his wife who introduced him to cannabis, persuading him of its medicinal benefits. “It really changed my life, helped me find balance and connect with myself and loved ones again,” he says. But he was also quickly frustrated by supplies, with the many strains of cannabis on offer, inconsistent quality, varied formulations, and little transparency over price.
He was also cautious about the complexities of a product which has been illegal under federal law since 1970, although the law has been liberalising for medical use in individual states, led by California in 1996. That tension continues to create problems for suppliers, as banks and investors shy away from direct involvement.
Within a few months of graduating, Mr Rosenfeld and his classmate Scott Tracy-Inglis decided to quit their jobs and create the company. They recruited Mr Rosenfeld’s younger brother, who had two computer science degrees from MIT, and two fellow MBAs.
By tapping the younger Rosenfeld’s technical skills in systems integration with the credibility of an “MIT-built” online platform as an online intermediary, they began to win support from suppliers and purchasers alike. “We were doing something no one else was: ecommerce that allowed consumers to review prices, compare products and get a personalised and curated subset geared to them,” he says.
He avoided expanding into cannabis production with its legal complexities, or antagonising distributors by offering to go around them. Instead, the company charges a flat fee to sellers, helping link them to buyers and providing efficient inventory management.
“We are a software company that just happens to service the cannabis industry, not a plant-touching company,” he says. That has allowed him to raise funds and access bank support still unavailable to many of his customers.
“Fortunately, we haven’t experienced any confrontations with black market operators,” he adds. “They can’t compete with the product, the sophistication, the shopping experience.”
He credits Prof Stern as a continuing source of advice, notably the academic’s suggestion that the company build a potentially lucrative niche by collecting the most comprehensive data on the legal industry. Mr Rosenfeld says it now covers 80,000 products sold through 500 dispensaries in 19 states to 100,000 clients registering “millions” of sales each month.
As a result, he was happy for his experiences to be written up for MIT. “It was almost surreal to be back in the classroom,” he says. “Where we had been reading cases, now students were reading about us. Like most students, they were quite honest. They made a stink about why we made certain decisions.”
Prof Stern says: “We try to create live cases where the answer is not known in advance. They were looking at an industry with a good degree of uncertainty, trying to understand prioritisation and how you organise in an industry which faces massive regulatory challenges and change.”
Prof Stern has used the case study to discuss which parts of the market the company should focus on: closer to dispensaries or consumers; nationally or locally; and whether to explore commission-based pricing or other sources of revenue.
He says there was no moral objection by any of his students in discussing Jane’s product, at a time of growing interest among MBAs in creating start-ups and having social impact.
Mr Rosenfeld says MIT has proved a valuable source of fresh ideas and recruits, including a regular supply of interns. Since the company’s launch, and the publicity it has received through the case study, he has received many expressions of interest.
“There are cannabis clubs popping up everywhere. Wharton, Stanford and Harvard reached out to us. They are very interested in internships and trying to understand our business model,” he says. “We welcome the competition.”