Pubdate: Thu, 04 Apr 2013
Source: Atlanta Journal-Constitution (GA)
Copyright: 2013 Los Angeles Times
Contact:  http://www.ajc.com/
Details: http://www.mapinc.org/media/28
Author: Andrew Tangel, Los Angeles Times
Page: A11

PROFITS SEEN IN LEGAL MARIJUANA

Entrepreneurs Pitching Ideas to Would-Be Financiers.

BELVIDERE, N.J. - Amid the whir of fans and the glow of soft white 
light, workers tended to bright green seedlings sprouting in a giant 
greenhouse.

Located about an hour's drive from Manhattan in the hills of 
northwestern New Jersey, the facility produces basil, chives, oregano 
and other herbs that are sold in grocery stores around New York City.

But if Ken VandeVrede has his way, the facility will one day be 
growing a much more valuable plant: marijuana.

VandeVrede is chief operating officer at Terra Tech, a hydroponic 
equipment maker based in Irvine. The small company wants to double 
the five-acre New Jersey greenhouse operation. The aim is one day to 
supply the exploding U.S. medical marijuana trade and to prepare in 
the event that recreational marijuana ever becomes legal nationwide.

"We can scale this thing very, very quickly," VandeVrede, said as he 
surveyed his indoor fields of produce and flowers. "When hemp and 
cannabis become legal, we're ready to rock and roll."

To do it, Terra Tech needs to raise $2 million. And like a number of 
small businesses in the burgeoning U.S. cannabis industry, it's 
trying to enlist Wall Street's help. Business owners have been 
pitching their ideas to potential investors, coming to New York in 
some cases to meet with would-be financiers.

Wall Street has good reason to smell potential profits.

Washington, D.C., and 18 states have already legalized medical 
marijuana; there are formal measures pending in 10 additional states, 
according to the National Cannabis Industry Association.

Colorado and Washington legalized recreational marijuana use in 
November. In addition, a measure allowing "adult use" of pot has been 
proposed in Maryland, according to the association's tally. Various 
bills to legalize marijuana and hemp have been proposed in Congress too.

Although pot remains contraband under federal law, some entrepreneurs 
see marijuana heading down the same path as Prohibition, which banned 
the manufacture, transportation and sale of alcohol from 1920 until 
it was repealed in 1933.

"More and more people see the inevitability," said Brendan Kennedy, 
chief executive of the Seattle private equity firm Privateer 
Holdings, which targets cannabis-focused startups. "They see that the 
Berlin Wall of cannabis prohibition is going to come down."

Privateer is raising $7 million to acquire small companies that have 
a hand in the trade but don't grow or distribute marijuana. Its first 
acquisition: Leafly, a Yelp-style online rating site in Seattle for 
dispensaries and varying strains of marijuana.

With pot still federally outlawed, others are making similar bets - 
funding firms that supply equipment or ancillary services while 
steering clear of marijuana farming and sales.

Take Lazarus Investment Partners, a $60 million hedge fund in Denver, 
for example. One of Lazarus' investments is in AeroGrow International 
Inc., a maker of hydroponic kitchen appliances geared toward growing 
herbs, lettuce and tomatoes.

Lazarus, which owns 15 percent of AeroGrow's shares, has suggested 
that the company tweak its products to accommodate taller plants, 
including marijuana, said Justin Borus, the fund's managing partner.

"We want to be selling the blue jeans to the gold miners," Borus 
said. "We don't want to take a bet on which state is going to get 
legalized and which dispensary is going to succeed, or (which) 
cannabis growers are going to be successful. We want to just make a 
bet on overall legalization."

In California, MedBox, a West Hollywood, Calif., maker of automated 
dispensing machines for doctors' offices, pharmacies and pot 
dispensaries, is on the hunt for funding.

Vincent Mehdizadeh, MedBox's founder, said the company is actively 
exploring raising $20 million in equity to boost staffing and fund 
research and development, acquisitions and marketing.

Mehdizadeh said he's seen a "major spike" in interest from potential 
financiers looking to invest in the small company since Colorado and 
Washington legalized recreational pot use last year.

"Everybody's loosening up a lot because they realize the momentum has 
shifted and the financial world is going to have to make room for 
this industry," he said. "Wall Street and investment banks are going 
to have to come along for the ride, eventually."
- ---
MAP posted-by: Jay Bergstrom