Pubdate: Sat, 10 May 2014
Source: Baltimore Sun (MD)
Copyright: 2014 The Baltimore Sun Company
Contact:  http://www.baltimoresun.com/
Details: http://www.mapinc.org/media/37
Author: David Pierson, Tribune Newspapers
Page: 8

MARIJUANA'S OTHER HIGH

Businesses Prosper While Making Support Products for Pot

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 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 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.

In addition to product suppliers, marijuana retailers and 
dispensaries are also increasingly seeking lawyers, accountants and 
security consultants, said Troy Dayton, CEO 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."

Wu, of Kush Bottles, is following state-level legalization efforts. 
As more states permit pot, regulators will be looking at child safety 
requirements for plastic pharmaceutical containers that carry medical 
marijuana. Unlike child-resistant twist-off containers, Kush Bottles 
open only when squeezed with enough strength. That's intended to stop 
children 5 and younger from opening them.

Wu said the Santa Ana, Calif., company's focus on safety alleviated 
some of his girlfriend's reservations. She initially feared 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 to convert grams to ounces. 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