Pubdate: Sun, 18 May 2014
Source: Arkansas Democrat-Gazette (Little Rock, AR)
Page: 7G
Copyright: 2014 Arkansas Democrat-Gazette, Inc.
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Author: David Pierson, Los Angeles Times

FROM BOOMING MARIJUANA, OTHER BUSINESSES BRANCH

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, Calif., 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 such as 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 a year ago,
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 cofounder 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.

Justin Hartfield's website, Weedmaps, 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 is a review website similar to Yelp but for pot
dispensaries. It grossed about $25 million in revenue last year.
Dispensaries post their menu of marijuana plants and prices for a
monthly fee of $420.

"Any time you're literally touching marijuana, you're subject to a
different set of laws," said Hartfield. "We don't touch the product
itself, and that's how we're able to get a bank account."

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 twistoff 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."  
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MAP posted-by: Jo-D