Pubdate: Wed, 20 Aug 2014
Source: SF Weekly (CA)
Copyright: 2014 Village Voice Media
Author: Chris Roberts

Clean Money Is Falling All Over Itself to Invest in California's
Marijuana Industry. the Problem Is Figuring Out Where.


Unlike cigarettes, marijuana can be legally bought out of a vending

Behind the counter at a San Jose-area dispensary sits a $25,000,
climate-controlled, heavily-armored box, the lone unit that West
Hollywood-based startup Medbox has sold in the Bay Area.

Buying weed the same way you buy a bag of chips hasn't quite taken off
(that could also be why 35-year-old company founder Vincent Mehdizadeh
now markets the machine as "an inventory control system"). But for a
moment, a weed vending machine looked just as smart - that is,
insanely lucrative - as sending messages that disappear on delivery.

For four years after the company's founding, Medbox wasn't going
anywhere. Its stock traded on the same exchange you find penny stocks
for $2 to $3 a share. Then a funny thing happened: Colorado and
Washington legalized marijuana in November 2012.

Medbox rocketed from $2 to $205 by Nov. 15, a little over a week after
the election. The crash was just as fast - it dropped to $20 the next
day and is now, almost two years later, trading at $11.23 - but this
is not a parable about tech or weed bubbles.

There is a flood of capital that's itching to invest in the cannabis
industry. And this money is clean, coming from investors who know an
emerging market when they see one - such as the 38 million
Californians who, all bettors say, will be enjoying a legal adult
marijuana market in 2016.

"We're in another green rush," a marijuana attorney told me recently.
He's busier than ever. And as with every rush, there are losers and
winners - and suckers and hucksters. There's a fortune to be made out
there - but how?

With his friendly round face and sharp eyes, Troy Dayton has the look
of a born salesman. And he is - though the product he's pushing sells

Dayton is CEO of ArcView Group, a hub of marijuana companies looking
for funders and the accredited investors looking for marijuana
companies to fund. On a recent evening, Dayton met me in the startup
space on Eleventh Street from which he manages the 300 investors who,
so far, have sunk $12 million into 17 firms. This shared-workspace
arrangement is likely to be temporary.

"There are entire floors on Wall Street evaluating this industry right
now," says Dayton, fresh from Martha's Vineyard, where he'd addressed
a meeting of "family offices" - managers who oversee investments for
wealthy families. This old money is interested in weed. And unlike
earlier weed rushes, these investors are no half-interested gawkers:
They're educated, he says, and want to invest.

But right now, options are limited. You can't directly invest in a
marijuana grow or buy into a cannabis dispensary. There are two
reasons why: enormous risk (federal law enforcement raids, sure, but
also the lack of a way to legally bank. Marijuana-affiliated business
in California are either cash-only or deal with financial institutions
on the down-low) and California law requires operations that directly
handle marijuana to be nonprofit collectives or cooperatives.

Capital has to take a back door. Investors can float weed sellers
high-interest short-term loans, the only way a dispensary can fund
rapid growth. Or they find an ancillary industry, a firm that provides
products to marijuana holders. A Colorado-company that markets bags
initially designed for dog shit is a perfect example.

The bags hold in odor, which makes them perfect for weed. Rebranded
"FunkSac," the company plans to reap $2 million in revenue (in half a
year), has been contacted by dispensaries in 17 states, and received a
writeup in The New York Times.

The best way in may be through something proprietary and professional
that can easily be ported to other states. A branded edible, for
example - or tech.

The key is just finding the right company. Most efforts, Dayton says,
are either legends in the weed game who have no idea how to run a
business, or business types clueless about cannabis.

Veterans of Silicon Valley are already sinking tech capital into the
weed game. Eaze, a marijuana-delivery app that promises to send a bag
your way in as little as 10 minutes, is the idea of Keith McCarty, an
early Yammer employee (and a likely millionaire several dozen times
over after Microsoft bought his company for $1.2 billion in 2012).

Eaze is only in S.F. for now, but since it's an app, it can easily be
ported to to Denver or Seattle - or New York City or Chicago, once
those medical markets come online.

All of this, however, is foreplay, jockeying for position before the
real start. California's medical cannabis market is already worth $1
billion or more. Taxing and regulating that beast could bring in $400
million in state tax revenue, state bean-counters say. After
legalization, the market could be worth $2.6 billion, if Colorado's
example is any indication.

California has seen several green rushes before. But people see more
potential now than ever. Now, there's even money in dog-shit bags. 
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MAP posted-by: Jo-D