Economy

High times for West Coast 'cannabusiness'

Marijuana trade conference outside Seattle highlights booming growth in products made from increasingly legal drug

AUBURN, Wash. — Steve DeAngelo, a California businessman, had a clear message for the crowd of fellow marijuana entrepreneurs gathered at a racetrack outside Seattle.

Up to 700 of them had come together this week for a convention to network, workshop and talk about the current state of America's "cannabusiness," and DeAngelo was triumphant.

"We've just begun to win," he told the rapt crowd of those working in America's now booming market for a plant whose use was illegal for decades and associated more with students, hippies and stoners than business plans, bank loans and branding.

It is hard to argue with DeAngelo's prognosis. The National Marijuana Business Conference & Expo was completely sold out. Medical marijuana is now legal in 20 states and the District of Columbia, and an entire industry has sprung up to supply and support patients in those regions.

Now, with Washington state and Colorado poised to sell legal marijuana to adult recreational users in 2014, the opportunity for business growth is akin to the California gold rush, advocates say. More than $1.4 billion of legal marijuana will be sold this year in the U.S. — with predictions of $2.3 billion next year. Yet those numbers don't even include the business-to-business industries that were gathered at the conference.

"In one year, cannabis has gone from alleys and illicit sales to become the fastest-growing industry in the nation," DeAngelo said.

'Magnifying glass on us'

DeAngelo, a pioneer and national leader in the industry, whose Harborside Health Centers in California have influenced cannabusiness worldwide, preached a business model of squeaky-clean practices, ethical responsibility, political involvement and community building. He suggested that marijuana owners live their lives as if they could be on the front page of their local newspaper. "We are going to have a magnifying glass on us for the foreseeable future," he said.

The conference sessions echoed that sentiment, with speakers touching on regulation and legislation, building relationships with lawmakers, responsible business practices and avoiding raids, audits and injunctions. In addition to big-picture topics facing the industry, instructional sessions on running or selling to dispensaries rounded out the schedule.

The possibility to establish marijuana businesses’ legitimacy has attracted a variety of seemingly buttoned-up industries that attendees said were largely absent from the inaugural event in Colorado last year. CannaBusiness Media, the organization hosting the event, said this year's conference is double the size of last year's, and it expects the gathering to double again for next year's event, to be held in America’s glitzy capital of the convention circuit: Las Vegas.

Marijuana
Marijuana laws have been liberalized in many states.
David McNew/Getty Images

The expo floor resembled a melting pot of above-ground business far from the illicit roots of the marijuana industry. Accountants jockeyed for position between inventory tracking systems, container manufacturers and companies that produce software for encrypting and storing patient data at clinics.

MJ Freeway, marketed as "business solutions from seed to sale," offered a suite of tracking software for marijuana producers, processors and product manufacturers, as well as dispensaries and retailers. Unlike some attendees who have adapted existing businesses to work for the marijuana market, MJ Freeway created its products specifically for the industry.

Amy Poinsett, MJ Freeway’s chief executive, said she and her co-founder, Jessica Billingsley, saw a space in the industry for inventory control and point-of-sale systems. Neither previously worked with cannabis; Poinsett had a Web development business, and Billingsley had an IT business. The duo formed a new company to tap into the booming marijuana industry and help people struggling with its plethora of red tape.

"I really believe in cannabis as a medicine," said Poinsett. "There is a need to bring technology to meet the highly regulated requirements of this business. Most people in this business have not been in a highly regulated industry before."

Billingsley said their biggest challenge has been keeping up with the regulatory requirements for each state. She said the industry is seeing a controlled expansion while states are added to the legalization roster. "It's very good for people to see the industry being run conservatively and aboveboard," she said.

The attendees appeared to have taken this suggestion to heart. The vast majority of those milling around the expo were in suits or casual business attire. There was little sign of any tie-dyed, counterculture feel. Also, most attendees were male and white.

It's very good for people to see the industry being run conservatively and aboveboard.

"We're one of the few women-owned businesses in this industry," said Poinsett, explaining her theory that "women are more risk-averse and this industry has come from a black market background." But she said more professional women are joining in as they see a stable regulatory model.

Risk-averse customers are also expected to join in as legal recreational use expands and retail locations open. As the industry moves mainstream, the demands from consumers have grown and will continue to grow, according to DeAngelo. He said customers now want childproof containers, quality and safety control, and clear labeling of potency from brands they can trust.

Budding branding

Mike Mead of Roastar out of Wausau, Wis., has experienced a boon from this move toward sleeker marketing. Roastar, a custom printer that produces packaging for coffee companies, has expanded its business to include marijuana packaging. "Having a fully custom-printed package can give you a brand presence and expand on the attributes of a given strain to distinguish your product versus what your competitor is selling," said Mead, using the sort of corporate marketing-speak that few would ever have associated with the business of growing and selling marijuana.

Mead said branding is vital, and drew parallels between the marijuana market and small to medium-size coffee roasters, as well as wine producers. He said many bottles of wine are purchased by people simply because they like the aesthetics of the label or recognize a brand.

But before the marijuana brands of the future can be built, entrepreneurs need to find funding, and this is still difficult. Chris Walsh, editor of Medical Marijuana Business Daily, said one of the greatest challenges for the industry is finding banks that will do business. "You'll notice there are no banks on the exhibition floor," Walsh said.

Luckily for attendees eager to find investors, Walsh was only partially right — representatives from a single Canadian bank were bombarded with queries on the expo floor. Billed as Canada’s leading merchant bank focusing exclusively on medical marijuana, PharmaCan Capital invests in young companies that have shown promise and profitability in the legal marijuana market worldwide.

Paul Rosen, the chief executive of PharmaCan, said that while there’s an appetite in the investment community to enter this space and seek return, a lot of people are still skittish about being publicly associated with any legally run company that has anything to do with marijuana.

Rosen knows that firsthand. Also the chief executive of an architectural services company, he admitted he was initially worried that customers of that firm might react negatively if they found out he was running a merchant bank in the marijuana industry.

He made the decision to keep a very low profile for the first year, out of concern that people would misconstrue what he was doing and punish him economically in his other pursuits. But now, he said, times have changed.

"I no longer tolerate that belief," said Rosen. "That's based on cowardice and fear. I'm very proud of what we're trying to do as a company, which is to improve lives. As idealistic as it might be, we're trying to participate in the delivery of what we think is an essential medicine for people in need."

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