This Week in Startups – Episode 2241

Title: How decriminalization led to an explosion in cannabis startups
Date: January 29, 2026
Host: Jason Calacanis
Guests: Ford Smith (Ultra Native VC), Andrew Duffy (Sparkplug), Socrates Rosenfeld (Jane)

Overview

In this episode, Jason Calacanis dives deep into the evolving cannabis industry, exploring the business opportunities, regulatory challenges, and innovations that have arisen from decriminalization. Joined by three industry leaders—Ford Smith, Andrew Duffy, and Socrates Rosenfeld—the panel examines how legislative changes and market trends have shaped cannabis startups, the impact of state vs. federal policies, the role of technology in retail, and product safety concerns amid explosive industry growth. The show maintains its trademark balance of candid insight, founder war stories, and discussion of complex legal/business terrain, all while considering future regulatory and market shifts.

Key Discussion Points & Insights

1. The Cannabis Industry’s Growth and Regulatory Landscape

Timestamps: 05:31–09:01, 14:57–17:59, 18:30–23:38

• Rapid Growth Post-Decriminalization:

  • The legal cannabis industry has surged from $3B to $30B in ten years, driven by state-level legalization. Big states like NY, CA, and pending legislation in Florida/Pennsylvania are fueling growth.
  • Quote [05:31, Andrew Duffy]: “The growth of the industry since COVID really has been astronomical...an order of magnitude of growth primarily fueled by more and more new states opening.”

• Hemp vs. Cannabis Definition & Regulatory Arbitrage:

  • The 2018 Farm Bill federally legalized hemp (THC < 0.3%), creating a loophole for THC-infused products from hemp to be sold nationwide D2C, avoiding harsh taxes and marketing restrictions.
  • Companies have exploited this to compete more efficiently, but the lines between “hemp” and “cannabis” are often regulatory, not botanical.
  • Quote [01:09 & 09:01, Ford Smith]: “Cannabis is a scheduled drug, but hemp is not…[the Farm Bill] technically still nationally federally legalized THC. So there is a weird loophole…”

• State-by-State Patchwork & The Push for Federal Legalization:

  • U.S. legalization is complicated by state-specific regulations (“50 different sets of regulation”); interstate commerce is still blocked, limiting scaling and market efficiency.
  • Quote [17:59, Jason]: "Here’s the reality of the framework changing on a federal basis…50 different sets of regulation.”

2. Startup Experiences: Surviving and Thriving

Timestamps: 06:21–08:24, 14:57–15:57, 25:30–27:34, 27:34–29:12

• Startup Pivots & Missed Opportunities:

  • Some startups hesitated to leap into the gray-area hemp market, missing early-mover advantage, while others scaled quickly by taking these risks.
  • Many “fly by night” brands, low-quality products, and some regulatory scandals followed the D2C boom in hemp-based products.
  • Quote [01:09, Ford Smith]: “We decided to not go into that space because we thought it was a little too risky. ...In hindsight, I wish we had done it because there’s been a lot of brands that have done really well...”

• Survival is Success:

  • Investment peaked in 2021 (peak ZIRP and peak cannabis), then slowed as many startups failed or pivoted post-bubble. The industry mantra: “Success is spelled survival.”
  • Quote [25:30, Andrew Duffy]: “Success in this industry is spelled survival...it’s all about continuing to exist...”

• Shift from ‘Growth at All Costs’ to Profitability:

  • Companies now focus on endurance, profitability, and enduring headwinds. This “bloodbath” environment is driving out weaker actors and rewarding creative, resourceful operators.
  • Quote [27:34, Socrates Rosenfeld]: “21 was peak and now it’s a game of endurance rather than speed...we’re going to have to think creatively and resourcefully like this industry has for decades.”

3. Federal Rescheduling Prospects and Effects

Timestamps: 17:59–20:00, 20:00–23:38

• Bipartisan Momentum for Rescheduling:

  • Both Trump and Biden have shown unprecedented bipartisan interest in rescheduling cannabis, boosting industry optimism—though repeated letdowns have bred skepticism.
  • High hopes for catalytic changes (280E tax repeal, interstate commerce).
  • Quote [18:30, Andrew Duffy]: “This is the first time that we have seen truly bipartisan support at the executive level...cannabis is one of the only bipartisan issues right now.”

• Investor Sentiment Shifting:

  • Traditional CPG investors and big names are lining up, poised to enter the market as soon as federal prohibition eases.
  • Arbitrage opportunities exist for investors to buy distressed or undervalued startups before regulatory clarity boosts valuations.
  • Quote [20:19, Ford Smith]: “Now you’re starting to have the conversations with traditional consumer packaged goods investors…”

4. Taxes and Market Distortions

Timestamps: 30:50–32:39

• Tax Burdens a Major Barrier:
  • Effective tax rates of up to 70% due to IRS tax code 280E (no cost deductions for Schedule I drugs) make profitability nearly impossible for fully legal operators.
  • State excise taxes further exacerbate the gap between illicit and legal markets, hindering customer migration and hurting businesses.
  • Quote [31:03, Andrew Duffy]: “They’re paying 60, 70% effective tax rates. So if you were to legalize and remove 280E, then these businesses would be profitable overnight...”

5. Product Innovation and Consumer Education

Timestamps: 35:14–38:59, 39:08–44:05, 46:06–48:59, 52:03–53:01

• Potency, Safety, and Regulation:

  • The illicit/prohibition environment led to a market emphasis on ultra-high THC content (“moonshine of cannabis”), further perpetuated by overregulation and taxation.
  • New forms like dabs, shatter, and waxes crystallize THC content, making products dramatically more potent.
  • Quote [37:51, Socrates]: “What we’ve come to realize is that’s like drinking wine based on alcohol percentage...no one’s basing their wine purchasing decision based on how much alcohol they have. Maybe back in prohibition they were doing that.”
  • Quote [39:50, Ford Smith]: “It is the crack of cannabis. Yes. You nailed it.”

• Risks Around Overdose, Psychosis, and Child Safety:

  • Unregulated, super-potent edibles and extracts pose genuine risks, especially for naive consumers or children.
  • Legalization, education, and federal regulation are seen as solutions—comparable to limits on high-proof alcohol or caffeine powders.
  • Quote [44:07, Socrates]: “A 400 mg [edible]...would be 40, maybe 100 times more [than a normal dose]. You don’t want laying around.”

• Self-Regulation and Third-Party Audits:

  • In response to regulatory gaps, responsible industry actors created third-party certifications (e.g., Echo Certified) to ensure product safety and voluntary compliance.
  • Quote [46:06, Ford Smith]: “We built a set of standards...the brands that actually care, the good actors are coming in...to do random audits, test the products...”

6. The Broader Market Picture: Alcohol, Youth, and Shifting Consumption

Timestamps: 30:18–30:50

• Declining Alcohol Consumption & Cannabis Opportunity:
  • Alcohol is in secular decline, particularly among Gen Z, opening room for THC beverage startups.
  • Quote [30:18, Ford Smith]: “Alcohol consumption is down to 54%...when previous generations were at like 70%. That’s a massive dip...most of their new [Total Wine] consumers are coming into the store looking for THC beverages.”

7. Policy Recommendations & The Way Forward

Timestamps: 44:48–46:06, 48:59–50:47, 50:47–52:03

• Smart Regulation Needed:

  • Panelists advocate for legal, regulated cannabis with enforceable safety standards, potency limits, and consumer education—mirroring approaches in alcohol/caffeine.
  • Quote [44:48, Andrew Duffy]: “If you expand the network of consumers that feel comfortable...then more diverse businesses with low dose...can start to provide real reliable products to those people...”
  • Quote [50:47, Socrates]: “Let’s legalize it, let’s study it...and let’s put smart regulations around the plant so that people aren’t put in a position where they could be...putting themselves in danger...”

• Entrepreneur’s Call to Action:

  • Responsible startups are urged to self-limit product dosages and lead by example in the absence of clear federal rules.
  • Quote [52:03, Ford Smith]: “If you’re selling anything above 10 milligram, you have no regard for like this market existing further than a few more years...you know this isn’t right...”

Notable Quotes & Memorable Moments

• On Endurance:

  • “Success in this industry is spelled survival. It’s all about continuing to exist and being able to be poised to take advantage of the opportunity...”
    — Andrew Duffy [25:30]

• On Federal Arbitrage:

  • “I think there’s interesting pricing that can happen right now because there’s uncertainty...you might get a nice discount on buying these businesses.”
    — Ford Smith [22:50]

• On the Future of Cannabis:

  • “People will find a way to this plant, people will find a way to sell this plant whether it’s legal or not, whether the financial markets are backing it or not. Because this plant helps millions and millions of people. I think this is the next great American industry, period.”
    — Socrates Rosenfeld [00:00, echoed at 27:34]

• On Harm Reduction:

  • “The risks of cannabis and the consequences when not consumed responsibly are outweighed by the benefits of responsible consumption on personal lives as well as from an economic perspective...”
    — Andrew Duffy [41:00]

Structured Timeline & Highlights

| Timestamp | Segment | |:---------------:|-----------------------------------------------------------------| | 00:00–00:45 | Socrates: Why cannabis will always find a way; essence of industry | | 05:31–09:01 | Andrew/Panel: Industry growth, legal vs. illegal market evolution | | 09:01–13:05 | Ford: Regulatory loopholes, hemp-derived THC, missed opportunities | | 14:57–17:59 | Socrates: Jane’s vision; digitizing retail, consistency & trust | | 17:59–20:00 | Rescheduling prospects, bipartisan politics | | 20:00–23:38 | Ford: Investment, arbitrage, investor interest | | 25:30–27:34 | Survival mindset, post-boom hangover, pivot stories | | 27:34–29:12 | Socrates: Bloodbath, forced creativity, endurance | | 30:18–30:50 | Gen Z alcohol drop fuels THC beverages | | 30:50–32:39 | Andrew: Tax code 280E, profitability block | | 35:14–39:08 | Cannabis potency, “shatter”/“shards”, prohibition’s legacy | | 39:08–44:05 | Safety, form factors, edibles, education | | 44:48–46:06 | Market response to stigma, soccer moms, product diversity | | 46:06–48:59 | Third-party certification, neem oil toxicity, pesticides | | 50:47–52:03 | Harm reduction, need for federal regulation | | 52:03–53:01 | Ford: Call to responsible dosing |

Conclusion

The episode offers a candid and comprehensive look at the current and future cannabis business landscape. The guests underscore the importance of entrepreneurship, regulatory clarity, responsible product development, and consumer education as the industry matures. The legal and financial uncertainties may create short-term turbulence, but the move toward federal rescheduling and smart regulation is widely expected to unlock an era of responsible, profitable growth making cannabis “the next great American industry.”

Connect with the Guests:

• Socrates Rosenfeld (Jane): iheartjane.com, LinkedIn
• Andrew Duffy (Sparkplug): sparkplug.app, Podcast: High Touch
• Ford Smith (Ultra Native VC): Ultranative.com, @FordHSmith on X, EchoCertified.org

For more episodes, show notes, and resources, visit This Week in Startups