Since the legalization of marijuana in two US states in January, entrepreneurs and investors have been seeing green. Observers believe the industry will grow rapidly and may even rival the Dot.Com boom of the 1990s.
There are many ways to get high: John and Jane knew that even before traveling to Denver, Colorado. Yet neither was prepared for the vast diversity of offerings they were confronted with when they arrived.
At the 3D Cannabis Center, they found flavored pot catering to every taste — mints, gummy bears, sour fruits and even truffles and pralines. “We got Swiss style yesterday,” a salesman says, pitching a dark chocolate. The selection also includes varieties like Cookies & Cream or tangerine-chocolate. All, of course, are enhanced with cannabis.
“They’re all gonna either be 80 milligrams or 40 milligrams of THC,” the salesman behind the counter explains. THC is the abbreviation of tetrahydrocannabinol, the psychoactive agent in cannabis.
A short time later, John, an engineer, sniffs the musty-sweet smell of one of the numerous varieties. “Awesome,” he says, savoring the moment. Back at home, the only option for buying pot is from dealers in shady parts of town. Now, for the first time, he and his wife, a receptionist, are standing in a bright, cheerful establishment not unlike a grocery store with its wooden floor and sales counters. They have no idea where to begin.
Should they go for “Silverback Gorilla,” which grows in the soil and smells earthy? Or perhaps “Death Star,” which in the words of the salesman is “the sky”? It’s the product of 10 years of cultivation.
In a country better known for the draconian penal measures it applies to drug-related crimes, an unlikely revolution is currently taking shape in the United States. Marijuana has already been approved for medicinal purposes in more than 20 states. In many places, even people with something as minor as a bad headache or mild depression have little trouble getting a prescription.
Following voter referendums, the states of Washington and Colorado fully legalized marijuana on Jan. 1. The decisions triggered a mass wave of tourism to the states by people like John and Jane.
Marijuana entrepreneurs like Toni Fox, the proprietor of 3D, are doing booming business as a result. The 42-year-old says business was so brisk at the start and supplies so limited that she was only able to open on the weekends. New marijuana cultivators are cropping up all over the state to meet the enormous demand. In some instances, landlords are charging two to four times market rates for rents on buildings large enough for cultivating pot.
In other parts of the country, even where marijuana hasn’t been legalized yet, food plants are popping up in the middle of nowhere as companies prepare to cater to the market. Tech start-ups are offering apps for consumers and technicians are developing diverse vaporizers — essentially e-cigarettes for marijuana that can be purchased as single-use devices or even as expensive design objects.
Financial investors are also starting to raise money to enter the giant market at the earliest stage possible. Analysts say there is a potential market for cannabis that could reach $110 billion (€81 billion), four times the revenues generated each year by the cigarette industry.
Comparisons are being made to the Dot.Com era, to the 19th century gold rush and even to the end of prohibition in the 1930s, which saw massive growth in the alcohol industry. And everyone is trying to get into the game — idealists as well as tough-as-nails business realists, charlatans, geniuses and nut jobs.
With her red jacket and pink pleated dress, Fox isn’t the kind of woman one might presume to be part of the pot-smoking scene. She started her business after her brother was sent to jail to serve a 10-year sentence for selling marijuana to friends. The draconian punishment inspired Fox to become a self-described “cannabis activist”.
A mother of two children, she attended protests and even founded her own business, which initially was only able to sell marijuana for medicinal purposes. She also backed the lobbying group Moms for Marijuana.
Like many other members of the movement for legalization, Fox is convinced that cannabis is one of the best medicines to help treat conditions like cancer, epilepsy or Alzheimer’s disease — and that it is definitely prefarable to alcohol.
Sitting on the beige sofa in her waiting room, it’s difficult to tell if her glassy eyes are the product of cannabis or exhaustion. Since the full legalization of pot in Colorado, she’s hardly had any time off. “On the first of January, people waited five hours to get in,” she says. The popularity of the business translated into earnings during the first three months of this year that were greater than those of the past three years combined.
Unleashing a Collective Need
The recent legislation appears to have unleashed a collective need in the city for pot. Many products are soldout and pot-smoking has become so socially acceptable that even the cash-strapped local symphony orchestra recently joined forces with a marijuana company to conduct a “Classically Cannabis: The High Note Series” benefit concert. During the intermission to the invite-only event, men and women in evening dress could be seen lighting up joints on the building’s patio and producing thick clouds of smoke.
State officials recently announced that revenues in the industry have increased by 60 percent since January. They estimate that taxes and fees imposed by the state will generate up to $134 million within a year. The state only earns around $40 million on duties levied on alcohol sales.
“I call it the marijuana Monopoly game,” says investor KC Stark, speaking in a raspy voice in a dark hall. A few companies have been invited to the site to participate in a “Cannabis Summit”. It’s only one of many pot conventions that can be visited in the city. Right now, it’s “money chasing marijuana chasing money chasing marijuana,” Stark says.
The businessman wears white shoes, jeans and a suit vest over a shirt. He claims he has invested in “dozens” of pot-related firms. He’s also the owner of the Studio A64 club in Colorado Springs, where guests can sing karaoke and also smoke pot, and which Stark wants to grow into a global chain like Starbucks.
For his presentation at the cannabis conference, however, Stark is appearing as the owner of the MMJ Business Academy, where he teaches the basics of the business to entrepreneurs hoping to launch start-ups. Stark says that those who take the right steps have prospects of becoming “bloody rich”.
Wild rumors are circulating about the amounts of money people can earn in the industry. And they focus on entrepreneurs like Tripp Keber, a staunch man with broad shoulders who dons a gray suit.
Keber got into the cannabis business in 2010, in a “wood shed,” he says, laughing heartily. He built his desk using two under-desk cabinets and took the bathroom door off its hinges to serve as a tabletop. Since then, there has been one constant in Keber’s business: growth. During the last 16 months, he has bought shares in more than 20 companies in the cannabis industry. But Dixie Elixirs remains the core of his company. The firm manufactures chocolate pralines, mints and soda with peach, red currant or watermelon flavors. All with different quantities of THC.
He also operates companies like Warehouses All Over the City, a firm that develops software for inventory management control, an equipment company and an import and export business called In Perfect Harmony. It’s named after my daughter’s horse,” he later says.
At the moment, Keber says he’s buying stakes in companies almost monthly. “I have a strong financial team that is helping me,” he says. “They are always like: Stop buying companies,” he says, laughing.
Depriving the Drug Cartels
He says the marijuana industry has created ten thousand jobs and notes that the state is pumping the first $40 million in tax revenues from the sector into schools in the region. “By the way,” he adds, the industry is depriving the drug cartels of a billions dollars this year alone. “Look at Mexico,” he says. “Eighty-thousand people have been murdered in six years in the country.”
Now that people can by marijuana legally, Dixie’s revenues have grown by almost a factor of 10 within a year. “We probably have close to a million dollars in backlogs,” he says. In order to meet the exploding demand, Keber is currently converting an old industrial bakery into a production facility for his edibles. In the middle of the construction site, you can already start to see the beginnings of what will ultimately be a fully automated bottling facility for his cannabis drinks. Currently, the bottles are still being filled by hand.
By the end of the year, Keber estimates that a ton of cannabis food products will be shipped from the site each month, double the current production. Keber says he has already invested “millions and millions” in his small empire. “I have said publicly that this is not a poor man’s business.”
Pot Still a No-Go for Financial Industry
This is partly due to the fact that it’s still difficult to secure financing in the industry. Until recently, federal law in the United States prohibited banks from even opening accounts for marijuana-related businesses. Even today, many financial institutions, lending organizations and hedge funds avoid involvement in the industry out of concern for their image.
Many companies are still cash only, says former concert manager Steve DeAngelo. An armored van pulls up once a week to transport money at his Harborside Health Center in California, which has annual turnover of around $25 million. The van is loaded with the company’s tax payments, which are then delivered to the local tax office. It’s not very efficient. “City treasurers have to sit there and count and count for hours,” DeAngelo says.
In order to circumvent the wrangling with banks that has inhibited many start-up companies, DeAngelo formed the investor network ArcView together with a partner. Earlier this week, it held one of several annual conferences in Denver that seeks to unite investors with young creative types with expensive business ideas.
DeAngelo himself is fairly old school. As a teenager, he attended demonstrations supporting the legalization of pot. With his thin plaits and extravagant hat, DeAngelo looks a bit like his hero, Quanah Parker, one of the last Comanche Indian chiefs of the 19th century. Parker was known as a warrior who waged war against the white man, but later did brisk business with them.
For his part DeAngelo, himself once an outsider, today also enjoys a “very nice upper middle class salary,” by his own account. Still, he remains a man of conviction. He views marijuana as “a wellness product” that expands his “spirituality,” his capacity for “patience, his ability to enjoy a wonderful meal, the sounds of a piece of music or your sense of libido.” Indeed, he considers the industrialized distribution of drugs as a pure, dull intoxicant to be a nightmare.
But with his idealism, DeAngelo is part of a generation that might soon die out, because more and more people are getting into the business for one simple reason: economics.
Take the example of Tom Bollich, who made his money in Silicon Valley as a co-founder of the online gaming company Zynga, which eventually raised $10 billion in its IPO. The 41-year-old isn’t a big pot fan. “I’m more of a beer drinker,” he says. But when he started looking for “the next big thing,” he stumbled upon the cannabis industry.
He invested a considerable amount of his money in Surna, a company that develops air-conditioning systems for pot growing. Bollich wants to develop the company into the marijuana cultivation industry’s answer to General Electric. Bollich says matter of factly that the industry needs people like him. “We need real companies,” he says.
Professional investors like Boston’s Dutchess Capital also want to get into the lucrative business. The company recently invested in the development of the Massroots smart phone app, a social network for cannabis fans similar to Instagram. Dutchess partner Douglas Leighton says the firm has also invested money in a company that specializes in cannabis patches.
Leighton has a long history in investing, having served in the 1990s as president of an investment banking firm. He’s witnessed a number of investment fads over the years, but even he finds the rapid growth of the marijuana industry to be highly unusual. He believes the market will grow in value to $10 to $12 billion a year in the next five years. “That’s 1,000 percent growth compared to now,” he says.
Investors like Leighton are hopeful that the US federal government will soon move to legalize cannabis at the national level. President Barack Obama himself has even stated that he considers marijuana to be less dangerous that alcohol.
That, Leighton predicts, is when the real money will start to flow, with “pharmaceutical, alcohol and tobacco giants” all seeking a piece of the pie. If developments do head in the direction the industry’s pioneers envision, it’s possible that some start-ups will soon have valuations in the billions, just as they did at the pinnacle of the Dot.Com boom in the 1990s.
For 3D owner Fox, however, that’s too long to wait. She’s already had enough of the hustle and bustle in Denver and hopes to sell her business this summer. She says she invested $500,000 to get the company up and running. She says she’s been offered $10 million to sell.