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Brendan Kennedy and Michael Blue are nice boys. Really. They're bankers. Yale MBA classmates. Wearers of ties.
And, if luck and changing laws cooperate, they'll be drug barons of a certain kind.
Kennedy, 40, and Blue, 34, are in the vanguard springing up to seize the market for legal marijuana, which is accelerating with last fall's legalization of most personal pot consumption in Colorado and Washington state. They're running a Seattle private-equity fund, Privateer Holdings, designed to buy up the smaller marijuana-related businesses to create one big fat one.
After Washington and Colorado, the pot business is, if not mainstream, at least ready to push toward it. Advocates hope to legalize personal use in another 14 states by 2017, mostly among the 16 states besides Washington and Colorado where medical pot is legal (it's also legal in Washington, D.C.). Industry estimates say today's $1.5 billion legal market could quadruple by 2018.
The public is trending toward legalization. In a Pew Research Center poll, a majority of Americans (52 percent) favored legalization, the first time that threshold has been reached since polling on the issue began in 1969.
Business 'roll up'
What's striking is how conventional many of the business people's backgrounds – and their plans – increasingly are. Instead of backing marijuana dispensaries, investors such as Privateer and San Francisco-based ArcView Group are rushing to find consulting firms, software companies and insurance agencies to serve the new market. Even Privateer's strategy of merging small companies to form a big one is familiar: In traditional buyout shops, it's called a "roll-up."
Just don't say that word to Kennedy, unless you want him to blush. Scratch the term "growing the business" – he catches that one, correcting his wording to "expand." And forget weed, ganja or pot. He uses the scientific term, cannabis. And the cannabis business is good, he said.
Just like Silicon Valley entrepreneurs, start-up pot investors such as Kennedy, Blue and ArcView Chief Executive Officer Troy Dayton – whose company runs an angel-investor network matching companies with rich activists – talk about how big and fragmented the market is. They also talk about how the relative handful of legal businesses out there lack the leadership and tools they need to grow the industry. That leaves the field open for people who can bring capital and experience, they say.
Huge market
That part is true. The best way to estimate the potential size of the legal market for cannabis begins with the illegal market – which is somewhere north of $18 billion a year in pot Americans consume already, said Harvard economist Jeffrey Miron. The trade journal Medical Marijuana Business Daily says the $1.5 billion legal market could reach $6 billion by 2018.
The challenges are myriad. Some are specific to selling a product still illegal in most states. But others are very ordinary, thanks partly to the business' Bohemian roots.
"It's not an industry loaded with operating talent," said Josh Rosen, a former Credit Suisse stock analyst who runs Phoenix-based MC Advisors, which backs renewable-energy companies and is experimenting with pot. "But the economics are very similar to other businesses. You can run a Harvard Business School analysis."
Increasingly, the cultural overlap between the pot business and just plain business is occurring because they're attracting the same people.
Upscale shops planned
Adam Wiggins, a member of Dayton's investor network, sold software-as-a-service company Heroku to Salesforce.com for $250 million. Alan Valdes, chairman of Seattle-based Diego Pellicer – which plans 24 upscale marijuana shops as the anchor of what he hopes will become a Harley-Davidson-like lifestyle brand – is director of stock-exchange-floor operations for DME Securities. He appears sometimes on CNBC, talking about stocks. Kennedy, meanwhile, came from Silicon Valley Bank.
"The industry has grown up a lot since we launched in 2011," said Chris Walsh, editor of Medical Marijuana Business Daily. "It was the activists and hippies. We're seeing more grown-ups over the past two years, and accelerating in the last six months."
Even so, selling pot is a federal crime.
Many investors, including Privateer, plan to cut their risk by not buying and selling marijuana itself.
Purchased Leafly website
Privateer's first buy was Leafly, a Yelp-like website and mobile app that reviews 500-plus strains of cannabis, luring 2.3 million monthly visitors.
The people at the most legal risk, Kennedy and Blue reason, are marijuana dispensary owners, because the federal government could raid the stores and confiscate the investment.
For Amy Poinsett and Jessica Billingsley, who run Denver-based MJ Freeway, helping store owners keep track of valuable product from field through the cash register is a valid software market: They sell to 400 legal stores in the 16 medical-marijuana states, making their company profitable.
Nothing about the rapid growth of marijuana markets, or even the hands-off-the-pot business strategy, is an automatic winner.
Clearly, the feds could cripple the business. Even the strategy of profiting from marijuana without touching it could run afoul of money-laundering laws, if those services are bought with drug proceeds, said UCLA professor Mark A.R. Kleiman, who is advising Washington's liquor board on regulating legal pot stores.
There's also a good chance that a legal pot market won't expand consumption as much as entrepreneurs think, Miron said.
"To the extent that there's money to be made, a lot of it is already being made," by illegal operations, Miron said. "The notion that there will be new wealth is exaggerated."
That uncertainty doesn't bother those lining up for a green rush.
The marijuana business is packed with people who aren't much on conventional opinion, and pot smokers are used to legal risk, Rosen said.
Wiggins said the open-source software industry that made him rich "used to be a long-haired hippie business, too." Risk means less competition, because the weak-kneed won't jump in, Rosen said. "The extra layer of risk is where the opportunity comes from," he said.
News Hawk- Truth Seeker 420 MAGAZINE ®
Source: azcentral.com
Author: Tim Mullaney
Website: azcentral.com and The Arizona Republic: Phoenix and Arizona news
And, if luck and changing laws cooperate, they'll be drug barons of a certain kind.
Kennedy, 40, and Blue, 34, are in the vanguard springing up to seize the market for legal marijuana, which is accelerating with last fall's legalization of most personal pot consumption in Colorado and Washington state. They're running a Seattle private-equity fund, Privateer Holdings, designed to buy up the smaller marijuana-related businesses to create one big fat one.
After Washington and Colorado, the pot business is, if not mainstream, at least ready to push toward it. Advocates hope to legalize personal use in another 14 states by 2017, mostly among the 16 states besides Washington and Colorado where medical pot is legal (it's also legal in Washington, D.C.). Industry estimates say today's $1.5 billion legal market could quadruple by 2018.
The public is trending toward legalization. In a Pew Research Center poll, a majority of Americans (52 percent) favored legalization, the first time that threshold has been reached since polling on the issue began in 1969.
Business 'roll up'
What's striking is how conventional many of the business people's backgrounds – and their plans – increasingly are. Instead of backing marijuana dispensaries, investors such as Privateer and San Francisco-based ArcView Group are rushing to find consulting firms, software companies and insurance agencies to serve the new market. Even Privateer's strategy of merging small companies to form a big one is familiar: In traditional buyout shops, it's called a "roll-up."
Just don't say that word to Kennedy, unless you want him to blush. Scratch the term "growing the business" – he catches that one, correcting his wording to "expand." And forget weed, ganja or pot. He uses the scientific term, cannabis. And the cannabis business is good, he said.
Just like Silicon Valley entrepreneurs, start-up pot investors such as Kennedy, Blue and ArcView Chief Executive Officer Troy Dayton – whose company runs an angel-investor network matching companies with rich activists – talk about how big and fragmented the market is. They also talk about how the relative handful of legal businesses out there lack the leadership and tools they need to grow the industry. That leaves the field open for people who can bring capital and experience, they say.
Huge market
That part is true. The best way to estimate the potential size of the legal market for cannabis begins with the illegal market – which is somewhere north of $18 billion a year in pot Americans consume already, said Harvard economist Jeffrey Miron. The trade journal Medical Marijuana Business Daily says the $1.5 billion legal market could reach $6 billion by 2018.
The challenges are myriad. Some are specific to selling a product still illegal in most states. But others are very ordinary, thanks partly to the business' Bohemian roots.
"It's not an industry loaded with operating talent," said Josh Rosen, a former Credit Suisse stock analyst who runs Phoenix-based MC Advisors, which backs renewable-energy companies and is experimenting with pot. "But the economics are very similar to other businesses. You can run a Harvard Business School analysis."
Increasingly, the cultural overlap between the pot business and just plain business is occurring because they're attracting the same people.
Upscale shops planned
Adam Wiggins, a member of Dayton's investor network, sold software-as-a-service company Heroku to Salesforce.com for $250 million. Alan Valdes, chairman of Seattle-based Diego Pellicer – which plans 24 upscale marijuana shops as the anchor of what he hopes will become a Harley-Davidson-like lifestyle brand – is director of stock-exchange-floor operations for DME Securities. He appears sometimes on CNBC, talking about stocks. Kennedy, meanwhile, came from Silicon Valley Bank.
"The industry has grown up a lot since we launched in 2011," said Chris Walsh, editor of Medical Marijuana Business Daily. "It was the activists and hippies. We're seeing more grown-ups over the past two years, and accelerating in the last six months."
Even so, selling pot is a federal crime.
Many investors, including Privateer, plan to cut their risk by not buying and selling marijuana itself.
Purchased Leafly website
Privateer's first buy was Leafly, a Yelp-like website and mobile app that reviews 500-plus strains of cannabis, luring 2.3 million monthly visitors.
The people at the most legal risk, Kennedy and Blue reason, are marijuana dispensary owners, because the federal government could raid the stores and confiscate the investment.
For Amy Poinsett and Jessica Billingsley, who run Denver-based MJ Freeway, helping store owners keep track of valuable product from field through the cash register is a valid software market: They sell to 400 legal stores in the 16 medical-marijuana states, making their company profitable.
Nothing about the rapid growth of marijuana markets, or even the hands-off-the-pot business strategy, is an automatic winner.
Clearly, the feds could cripple the business. Even the strategy of profiting from marijuana without touching it could run afoul of money-laundering laws, if those services are bought with drug proceeds, said UCLA professor Mark A.R. Kleiman, who is advising Washington's liquor board on regulating legal pot stores.
There's also a good chance that a legal pot market won't expand consumption as much as entrepreneurs think, Miron said.
"To the extent that there's money to be made, a lot of it is already being made," by illegal operations, Miron said. "The notion that there will be new wealth is exaggerated."
That uncertainty doesn't bother those lining up for a green rush.
The marijuana business is packed with people who aren't much on conventional opinion, and pot smokers are used to legal risk, Rosen said.
Wiggins said the open-source software industry that made him rich "used to be a long-haired hippie business, too." Risk means less competition, because the weak-kneed won't jump in, Rosen said. "The extra layer of risk is where the opportunity comes from," he said.
News Hawk- Truth Seeker 420 MAGAZINE ®
Source: azcentral.com
Author: Tim Mullaney
Website: azcentral.com and The Arizona Republic: Phoenix and Arizona news
