Pubdate: Wed, 19 Nov 2014
Source: Baltimore Sun (MD)
Copyright: 2014 The Baltimore Sun Company
Contact:  http://www.baltimoresun.com/
Details: http://www.mapinc.org/media/37
Author: Evan Halper, Tribune Newspapers
Page: 14

POT VENTURE CAPITALISTS SEE GREEN

Legalization Opens Paths for Investors

HENDERSON, Nev. - The frenzy in the cavernous Green Valley Resort 
ballroom might have passed for any conference of entrepreneurs 
pitching their business plans to poker-faced angel investors - until 
an organizer took the podium for a public service announcement.

Please stop smoking weed out by the parking lot, he implored. Hotel 
security did not approve.

The gathering this month of several hundred Wall Street types, tech 
industry disrupters, agricultural enthusiasts and assorted others 
shrugged and went back to the business at hand: leveraging the 
legalization of marijuana into a windfall.

The pot business is exploding, leaving the devotees and Deadheads who 
have toiled in it since states started to legalize marijuana for 
medical use nearly 20 years ago now competing in a radically 
different business culture.

The rapid spread of laws permitting recreational pot is enticing 
hedge fund managers, venture capitalists, software developers and 
many others to get in on what inevitably is being touted as a green 
rush. They are particularly motivated after Oregon, Alaska and the 
District of Columbia this month joined Colorado and Washington state 
in legalizing recreational pot, with California and others girding to 
follow in 2016.

"There is a massive potential," Emily Paxhia, who co-owns one of the 
new pot hedge funds, Poseidon Asset Management, told the gathering. 
"It is untapped. It is just sitting there below the surface, and it 
is ready to come above ground."

The inventiveness of the new entrepreneurs was on full display here 
at the conference organized by ArcView, a San Francisco firm that 
helps deep-pocketed investors find promising cannabis startups.

Several entrepreneurs armed with PowerPoints and swag to distribute 
had gotten i nvolved only months ago. They included data wizards who 
talked of "disrupting" the industry with apps that would make 
ordering God's Gift or Fogg Kush to be delivered at home as 
hassle-free as buying dinner on GrubHub, the online food delivery service.

A former NASA scientist hawked next-generation grow technology. Plans 
for a cannabis soda were unveiled, as were plans to open "the 
nation's first private membership (country) club to support the 
cannabis lifestyle."

Hallway chatter was rich with talk of convertible notes, rates of 
return, incubators and other investor jargon. By late afternoon, 
everyone stopped working for a group yoga stretch.

"It is important we acknowledge the relentless work we have been 
putting our bodies and our minds through," said Jessica Dugan, who 
led the activity. "In order to maintain our sector's growth, it is 
important to have some kind of mindfulness practice."

But it was all business when pot market analyst Patrick Rea unveiled 
the first "seed stage mentorship driven accelerator" for new 
cannabis-related firms.

Those who cared to fund the Boulder, Colo.-based effort were promised 
a stake in each of the dozen or so startups it guides through a 
three-month boot camp and infuses with $20,000 cash.

"We will surround them with mentors, pressure test their business 
plans and help them get their financials in order," Rea said.

With all the regulatory and political uncertainty around marijuana, 
it is one of the riskier sectors in which to launch a company.

But you wouldn't know that talking to John Strickler, a longtime 
management consultant in established industries who decided three 
months ago to move his career to cannabis. Now he works for Ebbu, a 
Denver startup seeking to parse the chemical components of pot with 
unprecedented precision.

"What we are trying to do is create different feelings depending on 
what mood you want to be in and how you want to feel," he said. "We 
have an 'energy,' a 'create,' a 'bliss,' a 'chill' and one other one. 
What was it? Oh yes, 'giggle.' How could I forget 'giggle'?"

During the conference, entrepreneurs buzzed from table to table in 
several rounds of "speed dating" with some 200 members in the ArcView 
network, each of whompledges to invest at least $50,000 in the pot startups.

Most stuck around for a few days to attend the colossal Marijuana 
Business Conference & Expo in nearby Las Vegas, where 142 companies 
promoting products ranging from Peanut Budda Buddha cannabis candy 
bars to FunkSac child-resistant pot pouches tried to lure business. 
More than 3,000 people came. Last year's conference had just 700 attendees.

But not everyone is on board. Pot critics say the thirst for high 
returns has the marijuana industry starting to resemble Big Tobacco, 
with profit hungry companies using the kind of marketing and sales 
tactics that entice children and glamorize drug use.

Regulators are also concerned. In Washington state, officials banned 
nonresidents from investing in pot businesses - though some have 
already found workarounds.

There was no shortage of ambition at the conference. There was, 
though, a scarcity of diversity.

Social justice activists bemoan that after decades in which 
minorities were jailed at astoundingly lopsided rates for using and 
selling pot, all the money to be made now that it is increasingly 
legal seems to be headed toward affluent whites.

"There are no Hispanics here," said investor Silvia Orizaba, a rare 
exception. "It's all whites. So I have to invest with the whites."

Orizaba, a Chicagoan who says she has invested nearly $5 million into 
cannabis-related companies since 2008, is seeking to draw more 
Hispanics into the business through a nonprofit that she runs.

"This industry has gotten so far," she said. "But we need to get 
minorities involved to move further."

ArcView's founders, whose involvement in the cannabis business 
predates the days when there was big money to be made, are struggling 
to keep the new players focused on the political and social concerns 
that drove legalization and spawned the industry.

They implored investors to pledge big donations to advocacy groups 
who gave presentations at the conference. The response, however, was 
fairly muted.

So by late afternoon, ArcView co-founder Troy Dayton tried a more 
direct appeal. Help these groups with their political campaigns, he 
said, and maybe next time you come to Nevada you won't have to worry 
about being arrested for lighting up in the hotel parking lot.

Said Dayton: "That is a another reason to make sure you donate to legalization."
- ---
MAP posted-by: Jay Bergstrom