California marijuana market poised to explode
By Patrick May pmay@mercurynews.com
Posted: 08/29/2014 05:51:28 PM PDT0 Comments | Updated: a day ago.
Rudy Ponce, of Oakland, selects and makes a purchase of medical marijuana at Blum Dispensary in Oakland, Calif., on Friday, Aug. 22, 2014. (Dan Honda/Bay Area News Group)
Rudy Ponce, of Oakland, selects and makes a purchase of medical marijuana at Blum Dispensary in Oakland, Calif., on Friday, Aug. 22, 2014. (Dan Honda/Bay Area News Group)
A menu board at Blum Dispensary in Oakland, Calif., is photographed on Friday, Aug. 22, 2014. (Dan Honda/Bay Area News Group)
Lisa West, of Oakland, purchases medical marijuana at Blum Dispensary in Oakland, Calif., on Friday, Aug. 22, 2014. (Dan Honda/Bay Area News Group)
Edible forms of medical-marijuana on display and for sale at Blum Dispensary in Oakland, Calif. photographed on Friday, Aug. 22, 2014. (Dan Honda/Bay Area News Group)
Clients wait in line to buy medical-marijuana at Blum Dispensary in Oakland, Calif., on Friday, Aug. 22, 2014. (Dan Honda/Bay Area News Group)
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Looking around last week at the exhibitor showroom of CannaCon, the huge marijuana-business expo held outside Seattle, Greg James had something of an epiphany: The pot industry in America is growing like, you guessed it, a weed.
"There was everybody from soil companies to grow-light companies to lawyers and security and insurance firms to a TV network doing shows just on marijuana," said James, whose Seattle-based Marijuana Venture newsletter has exploded from eight to 84 glossy pages since it launched in March and is already turning a profit. "I'm not sure how many of them will survive, but it's amazing how fast this thing is moving."
Rudy Ponce, of Oakland, selects and makes a purchase of medical marijuana at Blum Dispensary in Oakland, Calif., on Friday, Aug. 22, 2014. (Dan Honda/Bay
Rudy Ponce, of Oakland, selects and makes a purchase of medical marijuana at Blum Dispensary in Oakland, Calif., on Friday, Aug. 22, 2014. (Dan Honda/Bay Area News Group) ( Dan Honda )
The legal pot business in the United States, including both the newly legalized retail operations in Washington and Colorado and the medical-marijuana use now allowed in California and 22 other states, is expected to grow this year to $2.6 billion from $1.5 billion in 2013, according to the ArcView Group, a San Francisco-based marijuana research and investment firm. In five years, that number could swell to more than $10 billion. And if backers are successful in getting a legalization measure on the 2016 ballot in California, the Golden State, with its already outsize medical-pot market, could soon be entering a Golden Era of commercialized cannabis.
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Although the state in 1996 became the first in the nation to legalize pot for medicinal reasons, California has yet to approve it for the overall adult population, or so-called "adult-use." Despite that, it has the largest pot market in the nation, according to a widely referenced report last year by ArcView.
"California remains the largest state market at $980 million, even without Adult Use regulations," said the report. And "once Adult Use is adopted -- which is likely by 2017 -- the total California market is projected to increase dramatically."
As marijuana use has become more mainstream, a veritable smorgasbord of professionals and young startups has popped up to feed off and support the pot culture. Lawyers, accountants and real-estate brokers are going after pot clients like hogs to truffles. There are security outfits protecting Mendocino County farms and software developers churning out cannabis-news apps and GPS-enabled tools like Weedly to find the nearest pot club. And there are even pot-friendly resorts where the Hollywood set can go to get high in peace, provided they have a prescription.
Pre-rolled medical marijuana is purchased by David Lyons, of Oakland, at Blum Dispensary in Oakland, Calif., on Friday, Aug. 22, 2014. (Dan Honda/Bay Area
Pre-rolled medical marijuana is purchased by David Lyons, of Oakland, at Blum Dispensary in Oakland, Calif., on Friday, Aug. 22, 2014. (Dan Honda/Bay Area News Group) ( Dan Honda )
"I've worked with Cameron Diaz and Justin Timberlake, who can't go to traditional dispensaries, so we have a resort outside Grass Valley as a place for them to get away," says Cheryl Shuman, the self-styled "Martha Stewart of Marijuana" who has delivered her pro-pot mantra to "Good Morning America" and anyone else who'll listen. "We also have mansion parties in L.A. with chefs from five-star restaurants; it's just like wine-tasting dinners, but you pair different strains of cannabis with the food."
Still, the pot business is a long way from maturity, despite the already impressive amount of cash it's generating.
"It's still a sort of fragmented cottage industry, so the laws still have to change and allow for entrepreneurs to push this business forward," says former investment banker Derek Peterson, who co-founded Blum Oakland, a medical cannabis dispensary, in 2012 and has seen 35 percent year-over-year growth. He figures that just a few of the dispensaries in the East Bay do a combined $50 million in revenues each year.
David Hodges, who runs the All American Cannabis Club in San Jose, says that while it's hard to get a solid grasp of the industry's size, he estimates San Jose alone hosts a $60-million-a-year medical-marijuana business and that the black market is three times that, for a combined value of about $240 million in his city alone.
By Peterson's estimate, the overall legal Bay Area pot market is roughly equal in size to Colorado's, which analysts predict will be about $253 million this year.
Even though California's current medical-marijuana industry is riddled with conflicting laws and policies that can differ city by city, with some pot clubs paying taxes and others not, the business is booming with no sign of letting up. Nate Bradley, an ex-cop and executive director of the California Cannabis Industry Association, says an estimated 100,000 Californians already are employed in the industry, either growing pot or servicing suppliers and their customers, a number that would soar with legalization.
"Once the medical-marijuana industry is legalized statewide, and you legitimize the entire production and distribution of medical cannabis," says Bradley, "the business will explode and the state would collect $400 million a year or more in sales taxes."
In the meantime, companies large and small are lining up to grab a piece of the cannabis action. Eaze, a San Francisco startup that fancies itself as "the Uber of medical cannabis delivery," taps into a network of "caregivers" who pick up pot for you at the dispensary and deliver it to your home, sometimes within 10 minutes.
Eddie Bernard runs a pot-focused marketing agency in Southern California that worked with High Times magazine on its first Cannabis Cup competition in America, with awards going to the best pot varieties. He also does "product placement" for the marijuana industry.
"We did an endorsement deal with Snoop Dogg,'' says Bernard, "and for an FX TV show we placed bongs around the house."
Yet even as more and more entrepreneurs jump into the pot business, the path forward is far from clear. Despite strong revenues and taxes already being collected in Washington and Colorado, the industry faces years of political and regulatory challenges. At the top of the list are federal laws declaring the possession, sale and cultivation of pot illegal, leaving states and the federal government in an awkward standoff. Public opinion on legalization is also split. And a sprawling and powerful black market thrives in the shadows, while groups on both sides of the legalization debate bicker among themselves.
Still, many aspiring business owners are convinced that a pot-based gold rush is upon us. To former Intuit engineer Ben Curren, his new San Jose-based tech startup, Green Bits, is at the right place at the right time, offering point-of-sale and inventory management software for the legal pot industry.
"2016 will be the deciding year," says Curren. "But it's amazing how much stuff is happening in this space right now. If the momentum continues, this is going to be really big."
Contact Patrick May at 408-920-5689 or follow him at Twitter.com/patmaymerc.
$1.5 billion
The 2013 legal marijuana industry
$2.6 billion
Projected 2014 legal marijuana industry
$10 billion
Projected 2019 legal marijuana industry
The STARTUPS
Eaze
Billed as the "Uber for weed," and currently available only in San Francisco, the app's users choose from available strains to be delivered to their doorstep.
Weedly
An app that compiles archives and data from WeedMaps -- billed as the "Yelp for weed" -- it uses GPS to find the nearest dispensaries along with relevant reviews.
Green Bits
An attractive point-of-sale system designed specifically for dispensaries, it allows the businesses to conduct all transactions from its iPad app.
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