Pubdate: Mon, 02 Feb 2015
Source: USA Today (US)
Copyright: 2015 USA TODAY, a division of Gannett Co. Inc
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Details: http://www.mapinc.org/media/466
Author: William M. Welch

TECH IS HIGH ON POT SECTOR

Brave, Small Start-Up Investors Move into Market

SAN FRANCISCO - Some Silicon Valley venture capitalists are high on 
the profit potential of pot.

In an ornate ballroom of the posh Fairmont Hotel atop Nob Hill, 
entrepreneurs of the quasilegal marijuana trade sat down for two days 
this week with hightech moguls looking to get in on the ground floor 
of the booming, multibillion-dollar business of selling marijuana in 
states where it is permitted.

"This is the fastest-growing industry in America," says Troy Dayton, 
CEO of ArcView Group, an investor network focused on the cannabis 
business. "Despite all the stigma, people are recognizing this could 
be the next great American industry."

The gathering and locale, under crystal chandeliers, are signs of the 
pot industry's rapid maturation. With institutional investors and big 
corporations scared away by continuing federal prohibitions on 
marijuana, the growing list of states allowing marijuana for medical 
or recreational use has created opportunity for smaller investors 
willing to take the risks of investing in a business whose legality 
is far from settled.

"This is a basement industry looking to put on its big-boy pants," 
says Tom Bollich, CEO of Surna, a Colorado-based company that 
provides climate-control hardware and software for marijuana growers 
as well as management systems to track the product from seed to sale.

Bollich is a past winner in Silicon Valley's start-up business 
culture. In 2007 he co-founded Zynga, which developed Farm

Ville and other games before going public, the lucrative goal of most 
start-ups. He got into the marijuana business two years ago. "I was 
looking for a new industry, frankly, and this started popping up."

It's easy to see why it's an attractive business for those with the 
stomach for risk. A market study released this week by ArcView found 
a 74% increase in U.S. cannabis sales in 2014 over 2013, as Colorado 
and Washington began allowing sales of marijuana for recreational 
use. Alaska and Oregon are to begin legal sales this year, and 23 
states have approved legal medical uses.

It estimated the size of the marijuana market nationally at $2.7 
billion, with almost half of that in California, which passed the 
first legal medical use state law in 1996.

The potential upside is enormous: ArcView President Steve DeAngelo, a 
pioneer in California's medical cannabis movement, estimates it could 
grow to $100 billion to $200 billion a year if national prohibition ends.

Started five years ago, ArcView Group had barely 100 members this 
time last year and now has more than 400 vetted investors looking for 
places to put their money, DeAngelo says. Its investors have put $20 
million into businesses, not counting deals made this week, the group says.

Scores of companies, including Jon Cooper and Dooma Wendschuh, 
founders of cannabis extraction firm Ebbu, competed for one of a 
handful of opportunities to take the ballroom stage and make a 
nine-minute pitch in a setting akin to Shark Tank.

The businesses were a blend of high-tech wheeler-dealers and 
new-fashioned stoners. There were companies offering software 
solutions for dispensaries and growers, online marketplaces for 
wholesale transactions, LED lighting systems for indoor cultivation, 
and companies selling marijuana-infused snacks and medicines, even 
for pets. Growers from Northern California's Emerald Triangle, the 
Napa Valley of marijuana cultivation, sat with Silicon Valley 
veterans and recent business school graduates.

There was even an artisan glass maker, Sasquatch Glass of Seattle, 
whose CEO, Scott Hunter, said he needs $750,000 to increase 
production because he can't meet the high demand for his bongs, or 
elaborate pipes. "We are leaving money on the table," he moaned.

Hanging over the discussions was the prospect of several new state 
battlegrounds in the campaign to make marijuana consumption legal. 
Investors said they were carefully watching California in particular.

"Everybody here thinks there will be federal legalization in five to 
10 years," says Dayton. "This is a chance for small players to get a 
shot at the big market before the big players."
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MAP posted-by: Jay Bergstrom