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The Greed Rush: Venture Capital Enters Cannabis 

Wednesday, Apr 20 2016
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While federal law and decades of anti-marijuana propaganda are still scaring away the biggest pools of money — pension funds, endowments, corporate treasuries, and the highest-net-worth types like the Sand Hill Road venture capitalist betting hundreds of millions on Silicon Valley unicorns — the cannabis industry is attracting attention and investment from every other sector of finance in the country.

From Wall Street, from the Valley, from real estate, and from anywhere else money has been made, investors are betting on cannabis. After tech, it's the second great ground-floor business opportunity created in our lifetimes, according to dozens of marijuana businesspeople, attorneys, and investors interviewed by SF Weekly.

At this stage, most investors are choosing to remain private, and most cannabis companies are reluctant to report investment dollar figures. But according to one estimate, private cannabis companies saw over $210 million invested in 2015, according to research firm CB Insights, up from under $100 million the year before. Meanwhile, every market estimate gauging the size of the industry seems to add another figure with each passing year.

"Everybody wants in," says Brendan Hallinan, a San Francisco cannabis business attorney who, in the six years I've known him, has shifted from devoting a portion of his job to cannabis to hiring several other attorneys below him devoted to nothing but. "In another five years," he says, "it's going to be just like anything else."

This means a change in the nature and scope of the cannabis industry that is as significant as anything seen in the past two decades — as well as a near-total disruption of marijuana's current business model, in which a relative handful of licensed dispensaries are able to dictate prices to growers, many of whom employ business models unchanged since total outlaw days. For now. Unless they adapt, California's current cannabis providers could find themselves "selling honey by the side of the road," in the words of one grower currently seeking partners.

Twenty years ago, medical marijuana was a palliative herb grown small-scale in closets and basements by friends who gave it away to the sick and dying, people whom activists religiously referred to as "patients." (Prop. 215, California's first-in-the-nation medical marijuana law, was the Compassionate Use Act, after all.) For growers and caregivers brave enough to become public faces — and to do it entirely legally — it entailed considerable risk without hope of financial reward. Federal agents would — and did — raid grows no bigger than six plants.

After the Legislature finally passed limited cannabis regulation over a decade ago, cannabis became more of a legitimate commodity, sold farmers-market-style out of Mason jars in comfortable, occasionally rundown storefronts that resembled social clubs. These outfits were all required to be nonprofit collectives and cooperatives, under limited and vague state regulations — and they kept their business records on handwritten ledgers, if at all.

Pot was good living for farmers in former logging and fishing towns in rural California, where a pound of average bud provided legally to a dispensary in town could fetch you $3,000 or more — still less than half what the real outlaws making deals to ship pounds east to Chicago and New York City with various criminal organizations could fetch.

Now, there are art-directed, venture-backed brands with international name recognition sold at stores that lifestyle magazines gush over, using state-of-the-art point-of-sales systems — sophistication and innovation that has required capital.

For the past few decades, the semi-legal nature of medical marijuana has been an economic boom to otherwise-desolate rural communities along the US-101 Redwood corridor, towns that economists say are some of the most cash-rich places in the state.

Now the rush to enter the cannabis industry is transforming towns and cities that already enjoy industry.

In Sonoma County, former vineyards are preparing to transition to growing cannabis. In the Mojave Desert, economically depressed towns are replacing aerospace firms with massive growhouses and vape pen cartridge oil processing facilities. Conservative business groups representing real estate interests now seek out cannabis industry figures for meetings. Emeryville may become home to a massive facility for third-party cannabis potency and cleanliness testing, soon to be mandated for the first time under MMRSA.

It remains to be seen exactly what future consumers will want in cannabis — whether it will be vape pens sold in a boutique, artisan flowers via delivery, or packs of cheap pre-rolls bought in gas stations or at 7-Eleven.

But what is clear that the industry is maturing past its outlaw social justice roots, and leaving some of its progenitors out.

In this, there is a brutal irony. For decades, all cannabis producers and sellers wanted was to be treated like any other industry, advocates and farmers said again and again. But every other industry is dominated by big business. Now that big business is here, some of those same people are pining for the bad old days of helicopter raids and black market prices.

"Back in the day, really alls you had to do was have the will to take on the federal government — and that was about it," says Aundre Speciale, a longtime activist with deep hippie roots. In the late 1980s and early '90s, she rode a bus around the country promoting hemp with Jack Herer, an author and agitator revered as a hero of the movement (who today is best remembered as the namesake for a popular strain of sativa).

"That meant a lot of marginalized people were participating," she says. "There were so many risks that the people who were willing to take them were the ones who had nothing to lose... Big business didn't want to touch it."

Speciale now runs dispensaries in Oakland, Berkeley, and Sacramento. She is the kind of person who says things like "love is the best business model" — and means it. Such holdovers from the activist era still doing business in the age of capital-backed cannabis can be counted on one hand. And there are fewer every day.


About The Author

Chris Roberts

Chris Roberts has spent most of his adult life working in San Francisco news media, which is to say he's still a teenager in Middle American years. He has covered marijuana, drug policy, and politics for SF Weekly since 2009.

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