Next Gold Rush: Legal Marijuana Feeds Entrepreneurs’ Dreams
By JACK HEALY and KIRK JOHNSONJULY 18, 2014
DENVER — Like the glint of gold or rumors of oil in ages past, the advent of legal, recreational marijuana is beginning to reshape economies in Colorado and Washington State.
Marijuana is beckoning thousands of entrepreneurs and workers, investors and hucksters from across the country, each looking to cash in on a rapidly changing industry that offers hefty portions of both promise and peril.
At convention centers and in hotel meeting rooms, start-up companies are floating sales pitches for marijuana delivery services or apps to name-tagged investors who sip red wine and munch on hempseed snacks. This year, hundreds of people seeking jobs lined up for blocks in downtown Denver, résumés in hand, for an industry-sponsored marijuana job fair. Some have traveled far, leaving security jobs in Ohio or software jobs in Indiana to move for marijuana, hoping the industry has room for them.
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“It’s the wild, wild West,” said Tom Bollich, who moved from the world of mobile apps in Silicon Valley to become the chief executive of a company based in Boulder, Colo., that builds climate systems for marijuana growers.
With marijuana now legal for medical use in 23 states and Washington, D.C., and full legalization heading to the ballot in Alaska and Oregon, the size of the noncriminal marijuana industry is expected to grow to about $2.6 billion this year from about $1.5 billion last year, according to estimates by the ArcView Group, a marijuana research and investment firm in San Francisco.
Investors in marijuana say there have been as many as 80 marijuana-related companies trading publicly, though federal securities regulators have suspended trading in five of them over the last few months and have warned that some of these new firms might be fraudulent efforts to dupe investors hunting for the next big thing.
In Colorado’s first six months of retail sales, the number of people licensed to work with the plant has grown to 11,289 this month — slightly less than the number of auto mechanics in the state — from about 6,000. (The state points out that not all those people may be actively working in the marijuana industry.) Since the first dozen stores opened in January, Colorado has issued licenses for more than 200 recreational marijuana shops.
Tourists have flocked to those stores, making up 44 percent of the customers at one Denver shop during a sample week this spring, according to the state’s first study of demand for marijuana. Tour companies and marijuana-friendly bed-and-breakfasts have sprung up to serve tourists, too.
In Washington State, where recreational sales kicked off last week, the retail industry is much smaller, with as few as eight stores open so far. But the ambitions are boundless, with more than 300 licenses under state review and an outdoor growing season — perfect for apples, wheat and grapes — that could make Washington a national powerhouse of production if legalization spreads.
Hundreds of other people have found work on the edges of the industry. They sell water systems, soil nutrients, lighting and accounting services, like the 19th-century merchants who profited by selling picks and shovels to gold miners. There are now dozens of marijuana-related mobile apps, marijuana-centric law firms and real estate agents, cannabis security experts (it is a risky, virtually all-cash trade) and marijuana-themed event promoters offering everything from luxury getaways to bus tours. Washington has a rule requiring bar-code tracking of every marijuana plant to ensure that only licensed, Washington-grown marijuana is sold in its stores. It has also created a niche for tech start-ups like Viridian Sciences, a software company aiming to help retailers prove the provenance of their product should a state inspector or customer ask.
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But many have also discovered that selling marijuana, even without the specter of being arrested, carries high costs and no guarantee of success.
A heavily regulated recreational marijuana program in Washington drew more than 7,000 applications, but many of those would-be growers, processors and retailers have struggled from the start. They had to find financial capital that state inspectors would approve and lock in a legal business location. Then, they had to endure months of delays as overwhelmed state workers processed and analyzed an oversubscribed applicant list.
“I’m about fed up,” said Michael McDonald, a 57-year-old home-repair contractor, who has applied for two licenses to grow and process marijuana in Bellingham, in northwestern Washington.
Mr. McDonald said the deck was stacked in favor of richer corporate players. With banks still so leery of lending in the industry, he said, financing choices for smaller entrepreneurs like him are few.
“What’s happening is that the only people who are really going to get licenses are the ones who have somehow hidden their illegal money, or legitimized it, or it’s big business backing it, and that’s not how it was supposed to be,” Mr. McDonald said.
Aaron Varney, 38, who directs a nonprofit medical marijuana cooperative in Seattle, got a 24th-place slot in the state lottery for the 21 retail marijuana locations up for grabs in his city; three people ahead of him would have to wash out of the process for his number to come up. He wants the industry to succeed, he said, but cannot fully silence what he called the selfish voice inside that hopes to get in.
“Real close, but not quite there,” Mr. Varney said of his waiting game.
Despite marijuana’s outlaw reputation and legal status, the industry is growing largely because the Obama administration decided last year not to oppose votes in 2012 in Colorado and Washington that legalized marijuana for personal use and laid the groundwork for statewide sales. But regulators at the Securities and Exchange Commission warned that the loosened laws created new horizons for fraud, as small companies with dubious assets and financial disclosures leapt into the over-the-counter trading market.
The agency’s actions this spring to suspend trading in marijuana-based companies from Colorado, California and Texas were still rippling through Weedstock, an investor conference at the Westin Denver Downtown Hotel. While some growers and sideline businesses are earning enough to even sponsor chamber-music galas, investors said that others were leaping into the market with little more than hype and shaky business plans.
“Ninety percent are either scams or aren’t going to make it,” said Alan Brochstein, a financial analyst who is carving out a niche in the cannabis market.
But many are ready to gamble on marijuana’s success. After a decade in the military and a career working in security, Sy Alli, 53, moved to Colorado to become the director of corporate security for Dixie Brands, a company that makes marijuana-infused drinks and snacks. Zach Marburger, 28, visited in January to ski and check out the early days of legal use of recreational marijuana, and decided to relocate to Denver to develop software to connect customers and retailers.
And a few months ago, a 22-year-old mobile app developer named Isaac Dietrich and a friend were smoking marijuana in a Norfolk, Va., apartment when they realized: There could be money in this. They moved to Colorado, where they are working on an app called MassRoots, which lets marijuana enthusiasts privately post photos on an online platform out of sight of their parents or co-workers. They want it to be the Instagram for marijuana users.
“We thought about relocating to Silicon Valley, but they haven’t backed a single marijuana company,” Mr. Dietrich said. “This is where everything’s happening. We didn’t want to be left out.”
Jack Healy reported from Denver, and Kirk Johnson from Seattle.
A version of this article appears in print on July 19, 2014, on page A1 of the New York edition with the headline: Next Gold Rush: Legal Marijuana Feeds Entrepreneurs’ Dreams. Order Reprints|Today’s Paper|Subscribe