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Will Pot Forums Fuel CrowdGather Comeback?

CrowdGather Inc. first made money selling advertising space on Internet forums for motorcycle enthusiasts, techies or fashionistas. Then it became an online game developer. Now, it’s back to buying online forums, but with a new topic – cannabis. For two years, the Calabasas company operated Boston-based online game studio Plaor Inc. It sold the company last month after nearly buckling under the debt burden from the acquisition. Now CrowdGather wants to return to buying and growing online community groups, and it believes it can sell advertising to pot businesses that want that audience. Sanjay Sabnani, CrowdGather’s chief executive and founder, says he’s confident that returning to its forum business model but focused singularly on cannabis will be successful because of the company’s experience growing forums and the industry’s burgeoning popularity. Investors nodded their approval after CrowdGather bought cannabis website Weedtracker.com in April, a site for users which tracks dispensaries and marijuana plant strains and hosts seven forums. “All of a sudden, we started experiencing resiliency in our share price; investors were calling and speaking to me,” Sabnani said. “So I decided to look at this as a business opportunity.” Still new, cannabis faces unsettled and contradictory legal issues and negative stigmas that can become pitfalls for new and existing companies, experts say. On the flipside, that can spell opportunity for small players willing to deal with the challenges and tough learning curve too risky for large companies. “There is no road map necessarily, as there are if you were going to a franchise event and learning how to buy a franchise,” said Adam Bierman with the Culver City marijuana consulting firm MedMen. “That’s the real hard part. If you’re going to get in, you’re flying naked trying to figure it out, even for existing businesses.” Burdensome debt CrowdGather bought Plaor in May 2014 for nearly $6 million, according to filings with the Securities and Exchange Commission. The company’s games simulated a casino environment that players accessed through Facebook, Google Play and the Apple App Store. Play was free, and players didn’t win money but instead bought virtual money Plaor sold them, which they could use to play its other online slot machines and poker games. After a year owning Plaor, CrowdGather’s annual revenue increased to about $2.4 million for the year ended April 30, 2015, compared to $1.5 million for the prior year. Net loss narrowed to about $7.1 million from $7.7 million. But buying Plaor and running it incurred more than $2 million in debt – nearly equal to CrowdGather’s annual revenue – and higher payroll, administration and rent expenses. After owning the company for almost a year, CrowdGather had only about $74,000 left in cash. “We could not get the capital to grow the business,” Sabnani explained. “The money we raised we ended up having to take on debt with very hard terms.” So Sabnani returned to buying forums, this time focused on cannabis, which Sabnani had started using for medical purposes, he said. Last April, the company paid $5,000 in cash for Weedtracker.com. The company plans to sell ads on its forums by targeting medical dispensary owners, recreational cannabis vendors, and branded cannabis products. “We believe in name recognition – WeedTracker shows up high in searches because of its history – and we want to leverage those search engine rankings,” Sabnani said. Last month CrowdGather sold Plaor for $3.5 million. Bierman, the marijuana consultant, said that businesses in the cannabis industry use traditional outlets for marketing, such as trade shows and events. There are risks for established companies getting into the industry because their core business could be affected by pot’s stigma, but there are also tremendous opportunities, he added. “It’s the fastest-growing industry in the United States and worth $50 billion, but still isn’t institutional, and still fragmented,” Bierman said. “Because of the legal issues, you won’t have any national, large-scale big boys getting into the space.”

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