TOPICS > Economy > Making Sen$e

Budding recreational pot industry sparks innovation and investment

June 16, 2014 at 6:30 PM EDT
Recreational marijuana is legal in Colorado and Washington state, and though it’s still illegal under federal law, more states are considering the move, setting the stage for a potential gold rush that could conceivably rival the repeal of prohibition. Economics correspondent Paul Solman talks to entrepreneurs looking to cash in on the cannabis industry.
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GWEN IFILL: With recreational marijuana already legal in Colorado and Washington, and efforts to legalize its use under way in as many as a dozen other states, start-up businesses, and their financial backers, are scrambling to get in on the ground floor of a newly legitimate industry.

Paul Solman recently met up with a few. It’s part of his ongoing reporting Making Sense of financial news.

LESLIE BOCSKOR, Investor: This is a unique moment in history, and these days will never return again.

MAN: This is like the wild West right now, right, unfolding before our eyes.

PAUL SOLMAN: A flock of gung-ho investors who’ve traveled to a hotel north of Boston to hear product pitches in an industry that, until recently, was strictly illicit.

TROY DAYTON, Co-Founder, The Arcview Group: It’s a really, really beautiful scene, to look out and see the people who are shaping the next great American industry, the cannabis industry.

PAUL SOLMAN: Troy Dayton is co-founder of Arcview Investors, which vets and funds canna-biz entrepreneurs. Just a year ago, Dayton noted:

TROY DAYTON: We had 40 people in a conference room. And now we have over 200 people out there today. The last few months, the interest level from investors has been astounding.

PAUL SOLMAN: Presumably, that’s because legal recreational pot is finally here.

MAN: Got some legal weed.

PAUL SOLMAN: Only in Colorado and Washington for now, but, says the Marijuana Policy Project’s Rob Kampia:

ROB KAMPIA, Executive Director, Marijuana Policy Project: We expect to legalize marijuana in Rhode Island and Alaska this year, and we will probably end up with about 12 states over the next four years.

PAUL SOLMAN: This sets the stage for a gold rush that could conceivably rival the repeal of prohibition. In Colorado alone, state officials predict a billion dollars in sales, and over $100 million in tax revenues this very first year, despite the fact that because of federal drug laws, banks and credit card companies are still keeping their distance.

Now, there were no actual product samples at this recent conference outside Boston — Massachusetts allows only medical marijuana — but plenty of buzz nonetheless.

JON COOPER, Co-Founder, Ebbu: Would you like a drink, or perhaps an Ebbu?

PAUL SOLMAN: Jon Cooper and Dooma Wendschuh had an old-fashioned sales pitch for their newfangled product line.

MAN: We’re just months away from being the first cannabis company that can guarantee a specific, consistent response to our products.

MAN: So these would be feelings like energy, or chill, or giggles.

PAUL SOLMAN: Chill as in relaxed, one of five branded highs Ebbu will offer, via five different delivery mechanisms, if and when marijuana is fully legalized.

People here were pitching from the stage, in the hallways, during speed-dating sessions with would-be investors. And the products they were pitching ranged from the most mundane business and financial services to paraphernalia long the sole province of head shops, augmented by high tech.

Jason Levin and Jessica Riley were here with their Spyre, sort of an e-cigar.

Why is it better than a joint, or in this case a blunt?

JASON LEVIN, CEO, UpToke: For one, it’s vaporization, so you’re not taking in carcinogens and you’re not creating any kind of that tar, or residue that’s going to clunk up your lungs and cause you to cough and wheeze.

PAUL SOLMAN: Well, without necessarily buying the health claims, the aim seems straightforward enough: a standardized, regulated product.

Arcview co-founder Steve DeAngelo.

STEVE DEANGELO, Co-Founder, The Arcview Group: Sadly, today, the cannabis consumer in most places around the world is in the same position that the meat consumer was in before Upton Sinclair wrote “The Jungle,” and we had modern sanitary regulations.

PAUL SOLMAN: It’s a problem one significant segment of this budding industry addresses.

NARRATOR: MyDx will empower manufacturers, distributors, regulators and consumers to test the safety and potency of cannabis.

PAUL SOLMAN: Daniel Yazbeck helped invent MyDx, a portable pot analyzer.

MAN: Now, that’s going to vaporize the sample and start sniffing the chemicals, like THC and CBD, which determines how you feel or what ailments you relieve.

PAUL SOLMAN: Pretty much what the Ebbu guys are going for with their branded highs.

JON COOPER: We’re creating a lot of intellectual property associated with how a person actually is experiencing that ratio of cannabinoids and terpenes.

PAUL SOLMAN: Investor Todd Steinberg was impressed.

TODD STEINBERG, Investor: I think what Mondavi did for the wine industry in the United States, a product like this and a company like this could do.

PAUL SOLMAN: Fortunes seemed to beckon to those who place the right bets early enough, just as with computers and the Internet, where investors like these made their own first scores.

MAN: This really does resemble the I.T. industry and the computer industry in the 1980s.

LESLIE BOCSKOR: I was an investment banker who focused exclusively on the Internet and new media in the late ’90s and early — and mid-’90s. And this is a bigger opportunity than that even was.

TOM BOLLICH, CEO, Surna: One of the things I have learned from doing Zynga is that you can tell when something’s like — an industry’s going to be big.

PAUL SOLMAN: Tom Bollich made his millions investing in and helping run the video game titan Zynga.

NARRATOR: Experience a completely new farm filled with all new activities.

PAUL SOLMAN: Who could have dreamed that, at its peak, “FarmVille” would boast 84 million users and spawn a brood of similar digital diversion? So why not invest in his new venture, Surna, which makes energy-efficient climate control systems for indoor cultivation.

TOM BOLLICH: This is the next big industry, so might as well be in it.

PAUL SOLMAN: What do your billionaire entrepreneur high-tech friends think about you in the marijuana industry?

TOM BOLLICH: They think this is the best idea I have ever had.

PAUL SOLMAN: Nate Ames, co-inventor of a machine that distills plant oils, is a good example how far this industry may reach.

MAN: We actually started the business for decaffeinating and then the cannabis industry found us.

PAUL SOLMAN: Their sales have since shot up 10-fold.

So, now were you guys marijuana users in college who thought, hey, we can take this technology we have learned and apply it to something we care about?

MAN: No, sir. In fact, nobody in our company partakes in cannabis use. It’s illegal in our state. We’re from Ohio, so far as I’m concerned, it’s still illegal.

PAUL SOLMAN: Fair to say, though, that most at this conference were as much devotees of the herb as economic opportunists.

STEVE DEANGELO: Oh, well, I have been a cannabis activist and entrepreneur since I was about 15 years old.

PAUL SOLMAN: In addition to co-founding Arcview Investors, Steve DeAngelo is head of the Harborside Health Center in Oakland, the nation’s largest medical marijuana dispensary. For DeAngelo, it all started nearly half-a-century ago, at age 13, when a friend turned him on, and he had what he calls a life-changing spiritual experience.

STEVE DEANGELO: The way that the sunlight filtered through the leaves, and the way that the guppies swam in the water, and the way that the wind blew in my hair, I felt all of these things simultaneously, and felt connected to them in this really profound way that I never had been before.

PAUL SOLMAN: I myself first smoked grass excitedly in my late teens. But I quit a few years later when it began to freak me out. I know others who’ve had much worse reactions.

TROY DAYTON: It’s not a panacea and it’s not harmless. I do think that some people have challenges with it.

PAUL SOLMAN: So, possibly dangerous, says Troy Dayton, but compared to what?

TROY DAYTON: With cannabis, I don’t think we’re going to see even remotely a fraction of the social costs that we see from alcohol. And one of the things I think cannabis is so great for, for so many people, is it gives them a moment to relax and reflect, and to think about what really matters to them.

PAUL SOLMAN: But what if they get too relaxed, asks California Governor Jerry Brown?

GOV. JERRY BROWN, D, Calif.: How many people can get stoned and still have a great state or a great nation? The world’s pretty dangerous, very competitive. I think we need to stay alert, if not 24 hours a day, more than some of the potheads might be able to put together.

PAUL SOLMAN: Of course, most of these folks would disagree.

MAN: Cannabis stimulates my mind.

PAUL SOLMAN: But some seemed to sympathize with Jerry Brown.

Longtime marijuana users?

JESSICA RILEY, UpToke: On and off. Right now, off, because it turns out running a start-up takes a lot of time, and you can’t exactly show up to one of these things stoned.

PAUL SOLMAN: Because, if you do, you might just get weeded out in this new frontier of, to use our last obligatory pot pun, high finance.