Pubdate: Sat, 15 Mar 2014
Source: Wall Street Journal (US)
Copyright: 2014 Dow Jones & Company, Inc.
Contact:  http://www.wsj.com/
Details: http://www.mapinc.org/media/487
Author: Bari Weiss

THE SATURDAY INTERVIEW

Justin Hartfield, the Weedmaps.com founder, on his plans to legalize
the drug nationwide and become the Philip Morris of pot.

Newport Beach, Calif.

Justin Hartfield is high.

"I've been high since I'm 13," the 30-year old marijuana entrepreneur
says as he sips an iced tea at the Pelican Hill Resort, a tony spot
overlooking the Pacific where he plays golf twice a week. But don't
mistake this onetime high-school pot dealer with a libertarian streak
for your run-of-the-mill stoner. His aim is to become the Philip
Morris of the American marijuana industry.

"Prohibition is about to pop. And the people that were here before, if
they're positioned intelligently, will reap a profit. I think we're
positioned really well," Mr. Hartfield says.

In the 1920s and early 1930s, risk-takers who invested in alcohol
while it was still underground hit the jackpot when it was legalized.
Joseph Kennedy secured "medicinal liquor" permits during Prohibition
and in the months before the anti-alcohol law was repealed in 1933 he
secured the exclusive import rights to popular liquor brands like
Dewar's whisky and Gordon's gin.

As states legalize marijuana, Mr. Hartfield is executing an
Internet-age version of that strategy: He's building and investing in
some of the country's leading marijuana-technology companies. He wants
to do everything from providing pot-quality evaluations for the
cannabis connoisseur to, eventually, selling the plant itself.
"Marijuana is not going to be profitable to make in the long term,
it's going to be a dollar a gram. And so someone . . . needs to step
in and make it profitable to grow," he says. "I'm the best guy to do
it."

It's easy to see why he's optimistic. Twenty states and the District
of Columbia have passed laws legalizing marijuana for medical use, and
14 more, including Florida, are considering it. This year, the voters
of Oregon and Alaska could join Washington and Colorado in making
recreational pot legal. Cash-hungry legislators pricked up their ears
recently when Colorado announced that it had collected $2 million in
taxes and fees in January--the first month of legal sales, when only a
handful of stores had opened--and expects to bring in tens of millions
annually. "The culture war is not over," Mr. Hartfield says, "but it's
in the final rounds."

He's betting on it. And he has situated himself in the sweet spot of
the conflicting legal regimes hanging over this rapidly expanding gray
market.

Federalism has allowed him to take advantage of the pot market in
states where the drug is legal for medical or recreational use.
Meantime, the fact that the drug remains federally illegal--classified
as a Schedule 1 narcotic along with cocaine and heroin--has kept legal
supplies low and thus prices and demand up. The federal ban has also
made serious institutional investors, major banks and credit-card
companies shun the industry. At least for now.

"It's just going to be me. Philip Morris is not going to move in until
it's 100% legal for them to do so," says Mr. Hartfield. "By that time,
they're going to buy me and then do it. And they're going to do it
right because I'm going to be the one leading the charge."

Mr. Hartfield has long had an anti-establishment bent, starting the
summer before high school when he joined a group of hackers who called
themselves #714, for an Orange County area code. At coffee shops and
Denny's, the more seasoned guys taught him system administration and
how to build and hack websites.

It was 1998, the height of the dot-com bubble, so the older hackers
had "huge disposable incomes" from their programming gigs even though
they were seniors in high school. "Weed was everywhere," Mr. Hartfield
recalls, "but it was never considered a drug."

He graduated from the University of California, Irvine, with a
computer science degree in 21/2 years, and promptly got a highly paid
programming job. At 21 he quit to become his own boss and embarked on
a string of failed businesses, including "Zen Presence," a self-help
e-book series that never got beyond a few dozen subscribers, and "The
Ultimate Guide to Picking Up Women on Facebook," an e-book that
Facebook quickly scuttled.

By summer 2007, he had maxed-out two credit cards and shared a house
with four other people when he got a medical-marijuana card, claiming
insomnia and anxiety. That day, he went to his first dispensary. "I
couldn't believe it," he recalls. "This guy's selling straight-up jars
of weed in the Valley. It was shocking to me. So I went home and put
up a website: Weedmaps.com."

At the time, there was little online about where to find pot
dispensaries, and Mr. Hartfield saw an opening. Weedmaps would be the
Yelp of the medical-marijuana businesses--a site where
medical-marijuana users in California could find doctors and
dispensaries, rate them, read reviews and message one another.

Traffic took off. For a year, Mr. Hartfield went "door to door to
every single dispensary in California," he says, offering a free
listing on Weedmaps.com. By 2010, he started charging; today prices
for listings start at $295 a month.

Last year, the site made more than $25 million. There are 4,121
businesses representing every state with some form of legalization on
the site, and Mr. Hartfield employs more than 60 people. Weedmaps is
no longer the only game in town--the website Leafly is a fierce
competitor--but it has name recognition and four million visitors a
month.

Weedmaps' success has allowed Mr. Hartfield to invest in start-up
marijuana ventures through Ghost Group, the operating company that
oversees his businesses. Ghost Group is "focusing on technology,
software, hardware," which, like Weedmaps, are entirely legal since
they don't "touch the sun," in other words, the pot plant. Yet they
are all areas of the industry that will be significant if marijuana
becomes a legal, regulated product like alcohol.

"I'm just doing everything I can in this industry legally that isn't
going to throw me in jail," he says.

The ancillary business that Mr. Hartfield gets the most excited about
is testing. Marijuana, once it's sold like a regular product, will
require a "nutritional food equivalent" so users can know the potency
and purity of the drug--how much tetrahydrocannabinol, or THC, a
particular strain has, for example--before they take it.

This market is worth "billions," he insists. "And it's perma because
every batch needs to be tested." Compared with wine, "this is even
more micro because there's a crop every four months and not every two
years." Users--or at least the discerning ones--will want this
information. His dispensary customers "know that if they have more
strains, they get more patients, simple as that," he adds.

Through a deal with SC Labs, Weedmaps tests "more marijuana than
anyone in the world," Mr. Hartfield says, a claim that's impossible to
verify. He says the company evaluates 3,500 products monthly, charging
dispensaries between $40 and $80 per test.

What about a smoker on the go? No problem, says Mr. Hartfield--a
gadget is being developed that attaches to a smartphone and tests the
weed. He is "in discussions" with the developer of this "portable
laboratory."

Then there are the "thousands" of URLs Mr. Hartfield has snapped up
over the years, most notably, marijuana.com, for which he spent $4.2
million in November 2011.

"If there's full legalization you're going to have an option: You can
walk into the store or you can buy it from us. We'll deliver it to you
within 24 hours. That's why we have marijuana.com. We want to go
direct to consumer like wine.com. We love that model," he says. "If we
regulate marijuana like alcohol we can ship it to people under the
same rules and regulations that already exist to allow wineries and
distributors to do that."

It's quite a vision--one Mr. Hartfield is confident he'll realize in
the next decade. But right now, the dream of Whole Foods or Wal-Mart
carrying premium bud next to the Bud Light feels a long way off,
considering the do-it-yourself quality of the marijuana industry
today, where windowless home offices are turned into "grow rooms" and
even high-end dispensaries offer a menu of strains that go by names
like Dr. Kevorkian, Cookie Monster and Green Crack.

The people I met who are involved in the California weed industry
emphasized marijuana's healthful benefits. A young couple passing
around their homegrown weed asked, "Will you be medicating with us?"
(I wouldn't be.) But not one person I met with a medical-marijuana
card was actually sick. It took me $150 and under an hour to get a
card from a physician in Venice, even after admitting I was just in
town for a visit. (My malady? Stressful deadlines.)

Though Mr. Hartfield naturally falls into the same tropes, using
"marijuana" and "medicine" interchangeably, when I challenge him on
it, he admits that the system is a "farce," while insisting that the
drug itself, especially certain extracts, definitely has medicinal
qualities. Having seen the relief it gave a relative dying from
cancer--without the nodding-off effect of painkillers like
OxyContin--I don't disagree.

Ultimately, though, for Mr. Hartfield and others in the industry,
getting medical marijuana to truly ill people is a big first step
toward full legalization. "I care about the least amount of people
suffering under prohibition," he says, referring to the hundreds of
thousands of people who've been incarcerated for pot-related crimes,
"and secondarily the most amount of money I can make. So if medical
marijuana as a stopgap for a couple of years is necessary before the
people of a certain state . . . are ready to accept marijuana, fine.
I'm a total pragmatist."

Thus when Mr. Hartfield criticizes New York Gov. Andrew Cuomo's
proposal to legalize medical marijuana because it would strictly
regulate the drug "like plutonium," I can't help but hear: A more lax
law would lead to more pot users. And that would be great for his
bottom line.

To this, Mr. Hartfield would say: So what? "This is America, right?
We're still allowed to have for-profit business and people are still
allowed to make choices for themselves. And we know that prohibition
doesn't work from alcohol," he says.

"It's not a bad thing if people smoke pot to get high," he says,
making the case that smoking a joint is a better option than drinking
a six-pack. "We're not stopping human beings from using drugs . . . so
let's let them use the best one, the safest one available."

But "safest" is a sketchy claim, especially given how little research
has actually been done into pot's effects, particularly on the
developing brain. One widely cited 2012 study, published in the
Proceedings of the National Academy of Sciences, showed teenagers in
New Zealand who smoked marijuana heavily experienced an IQ drop of up
to eight points.

Mr. Hartfield argues that these susceptible teenagers will have a much
harder time getting marijuana if it is legalized and regulated. "When
marijuana goes off the black market, it will only be available in the
public market and in the stores like alcohol is. No one's making
moonshine," he says.

Fair enough on the moonshine point. But go to any high-school party
and the claim that liquor is hard for 16-year-olds to get their hands
on falls apart. It seems like a case of basic economics: If pot is
legal, the price will plummet and usage will go up, including among
underage teens who will get it illegally.

Another unknown: the black market. If the price of legal weed is
jacked up by taxes--Denver's tax, for example, is 25%--it's easy to
imagine a black market offering better deals. Mr. Hartfield is
skeptical. "There's such an appeal to buy something even at a 25% tax
that it's going to discourage most of the black market," he says. Drug
dealers will exist, but "people are going to choose the
convenience."

Last year, Weedmaps spent $1 million on lobbyists and charitable
contributions to political causes to promote these points and others.
Mr. Hartfield is contemplating a campaign to persuade prominent CEOs
and celebrities to come out of the smoke-filled closet about their pot
use. "What happened with gay marriage is going to happen with
marijuana," Mr. Hartfield says. "Give me 24 months."

Ms. Weiss is an associate editorial features editor at the
Journal.
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