Pubdate: Thu, 08 May 2014
Source: Los Angeles Times (CA)
Copyright: 2014 Los Angeles Times
Contact:  http://www.latimes.com/
Details: http://www.mapinc.org/media/248
Author: David Pierson

MARIJUANA'S OTHER HIGH

Where There's Weed, There's Perceived Opportunity

Ben Wu took a six-figure pay cut when he left a career in private 
equity for a shot at the marijuana boom.

Trained to spot small businesses with big potential, he started this 
year as chief executive of Kush Bottles, a Santa Ana company that 
sells child-resistant plastic cannabis containers.

It took some persuading to get his parents and girlfriend to embrace 
the move. But Wu insists it was a sound business decision. As the pot 
industry blossoms, he reasoned, a robust supply chain is needed to 
help grow, package and market legal marijuana.

"The sky's the limit," said Wu, 35, a New York University business 
school graduate and former vice president at Wedbush Capital 
Partners. "As long as states continue to adopt, we're going to double 
growth each and every year."

Container brands like Kush Bottles are among a slew of ancillary 
companies joining what many are calling the green rush. Where there's 
weed, there's also a growing need for everything from greenhouses and 
fertilizer to pipes and vaporizers.

"The annual revenue is easily in the hundreds of millions, and likely 
much more," said Chris Walsh, editor of website Marijuana Business Daily.

Demand for pot-related products and services is expected to grow 
sharply as more states loosen marijuana laws. Already, 21 states and 
Washington, D.C., allow the sale of some form of pot.

Entrepreneurs are attracted by the industry's open field, with few 
established players and many untapped markets. Some say the marijuana 
boom reminds them of the Gold Rush a century and a half ago.

"We're selling shovels in a gold rush is all we're doing," said Rich 
Nagle, a former electrical engineer who now peddles an automated 
indoor marijuana growing system, designed to be managed remotely with 
a smartphone.

No one has been able to estimate the potential market for ancillary 
products and services. But legal cannabis sales are expected to grow 
to $2.57 billion this year, up from $1.53 billion last year, 
according to ArcView Group, a San Francisco investment network and 
market research firm focused on legal cannabis.

In addition to product suppliers, marijuana retailers and 
dispensaries are also increasingly seeking lawyers, accountants and 
security consultants, said Troy Dayton, CEO and co-founder of 
ArcView. But many of those professional firms still avoid the pot business.

"The reason there's so much opportunity in ancillary businesses is 
because the industry is being underserved by traditional players," 
Dayton said. "In part, it's because they fear the reputational risk 
and they fear the market is too small. But it's growing fast."

Growers and dispensaries offer some of the quickest returns on 
investments and fattest profit margins. But they also are exposed to 
risks that don't affect supply chain companies.

The federal government still classifies marijuana as a Schedule 1 
drug, on par with heroin and ecstasy. That means any enterprise that 
handles pot faces the threat of closure or prosecution, no matter 
what state laws say. Because it's a cash-only business, companies 
that sell pot are also at higher risk of being robbed or burglarized: 
Most banks are prohibited from taking deposits from marijuana sellers.

"Any time you're literally touching marijuana, you're subject to a 
different set of laws," said Justin Hartfield, founder of Weedmaps, a 
review website that is similar to Yelp but for pot dispensaries. "We 
don't touch the product itself, and that's how we're able to get a 
bank account."

Hartfield's site is one of the most recognized brands to emerge out 
of the recent rise of legalized pot. Founded in 2007, shortly after 
Hartfield received his first medical marijuana card, Weedmaps grossed 
about $25 million in revenue last year.

Dispensaries post their menu of marijuana plants and prices for a 
monthly fee of $420.

Hartfield is building an empire around legalized marijuana. The 
Weedmaps site is one of a constellation of ventures, including the 
recently redesigned Marijuana.com, a news and forum site, and MMJ 
Menu, a point-of-sales software for tracking marijuana sales, 
inventory and patients.

Hartfield, who grew up in Hawthorne, is betting the federal 
government will relax marijuana laws, fueling the growth of his 
brands. His treasure trove of data on usage and pricing, as well as 
an expanding network of sellers, helps his business stand out.

"I think we've grown a business and brand that would be either ripe 
for acquisition or something we could build out long term. I think we 
have a lot of value. So we're begging for legalization," Hartfield, 
30, said as he sat inside his sprawling new headquarters at an office 
park in Irvine.

Wu, of Kush Bottles, is closely following state-level legalization 
efforts. As more states permit pot, regulators will be looking at 
child safety requirements for plastic pharmaceutical containers that 
typically carry much of the nation's medical marijuana.

Unlike child-resistant twist-off containers, Kush Bottles opens only 
when squeezed with enough strength. That's intended to stop children 
5 and younger from opening them.

"This is pharmaceutical packaging," Wu said. "We didn't reinvent the 
wheel. This industry is really great at adapting what's already out 
there and using it for their products."

Part of Wu's business strategy is having his sales team call or visit 
dispensaries to educate them about the laws for containers. Several 
states require child-resistant bottles. California has no such rules, 
but about half of Kush Bottles' sales come from the Golden State.

Wu said the company's focus on safety alleviated some of his 
girlfriend's reservations about his job change. She initially feared 
that Wu would become the next Walter White, the chemistry teacher 
turned meth cook in the hit TV drama "Breaking Bad."

The new job took some adjusting. Wu put away his business suits and 
learned how to convert grams to ounces. To boost his cred, he 
schooled himself on the lingo for different strains of marijuana such 
as OG Kush and Sour Diesel.

Still, when strangers ask him what he does for a living, he simply 
says he's in pharmaceutical packaging.

"I go to sleep very easily knowing the DEA is not going to kick down 
my door," Wu said.
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MAP posted-by: Jay Bergstrom