California Journal
Robin Abcarian Commentary, news and analysis
California Journal

The inevitable legalization of pot sets off a new California Gold Rush

Robert Gaither is a 39-year-old former salesman, a teddy bear of a guy with a full brown beard that makes him look a little like a mountain man. He does in fact live in the mountains — Lake Arrowhead, to be exact — but right now he is standing in an exhibit space at a downtown San Francisco hotel, showing off his wares at a conference exploring the intersection of cannabis, tech, media and finance.

Gaither is selling an expensive cannabis extraction system created by his wife, Brenna, a biochemist.

They decided at the last minute to attend this gathering, the New West Summit, last Friday and Saturday. And they are glad they came. Over the course of the two days, their booth will generate more than $250,000 in orders.

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I wondered why he wasn’t jumping up and down with excitement. “I’m just tired,” he said. “We are so busy. And we have a 9-month old.”

Here at the New West Summit, everyone seemed busy. Hedge fund managers and venture capitalists mingled with medical cannabis dispensary owners, app developers and all manner of cannabis entrepreneur. Publicists and certified public accountants worked the rooms, looking for new business. The whiff of money was almost as strong as the whiff of cannabis, both of which intensified as the conference unfolded.

The amounts of money are staggering. Troy Dayton of the ArcView Group, which has invested $57 million to date in cannabis businesses, expects industry revenue to leap from $2.7 billion in 2014 to perhaps $11 billion by 2019.

“It’s an underground industry that is finally becoming investable,” said Morgan Paxhia, who, with his sister, Emily, runs Poseidon Asset Management, a firm that invests in cannabis-related businesses.

During a “Shark Tank”-like session, I heard pitches for Evoke, a new kind of vape induction technology invented by a Cambridge physicist; Healthy Headie Lifestyle, a vaporizer and accessories business modeled after Mary Kay (“We bring the store to your door); and Ebbu, a distilled cannabis liquid to be used as a food and drink additive.

Ebbu’s 39-year-old founder, Dooma Wendschuh, who wrote the popular video game “Assassin’s Creed,” has raised $9 million. “We are making the world’s first cannabis distillery,” Wendschuh said. “We are creating a whole new product category that is no more deserving of being called ‘marijuana’ than vodka deserves being called potato juice.”

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For the record

Nov. 29, 1:41 p.m.: In the California Journal column published online Nov. 25 about a San Francisco cannabis conference, the last name of entrepreneur Dooma Wendschuh was misspelled as Weltschuh.

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He told me he had just returned from Albania, where he met with the country’s president to discuss basing a distillery there. Wendschuh was among many people who corrected me when I used the phrase “recreational marijuana.” “We don’t say ‘recreational,’” he said. “We say, ‘adult.’”

The range of cannabis products was impressive. Jane’s Brews are infused coffees. Sensi Chews are cannabis-infused caramels, created by a woman who wanted to help a cancer-stricken family member. Care by Design makes coconut-oil and cannabis sprays to be spritzed under the tongue. Everywhere, some optimistic entrepreneur was saying he or she wants to be the “Uber” of pot, the “Starbucks” of pot, the “Nespresso” of pot.

Gaither, for his part, operates in the “picks and shovels” arena. (“When everyone is looking for gold,” Mark Twain supposedly said of the Gold Rush, “it’s a good time to be in the picks and shovels business.”)

As we spoke, his left hand rested on a glass contraption with tubes and coils that looked as if it came straight out of Dr. Frankenstein’s lab. It was a cold-extraction machine that turns marijuana buds into essential oils that can then be smoked, vaporized or added to food.

Because it produces such a high-quality product, growers are clamoring for the equipment, which can cost up to $50,000, a price tag that includes installation and two days of training.

Gaither’s company, Genius Extraction Technologies, launched on April 20, 2014 (yep, 4/20). Last year, the company had half a million dollars in sales. This year, the Gaithers expect to bring in $3 million. They foresee doubling their revenue every year, except they are having trouble finding and keeping qualified salespeople willing to work under unusual conditions.

For instance, transactions are generally in cash. Folks who sell marijuana for a living can’t use banks, which are federally regulated, because cannabis is illegal under federal law. The IRS does not allow cannabis purveyors to deduct business expenses, since marijuana, preposterously, continues to be classified as a controlled substance, in the same category as heroin and LSD. That will probably change only when Congress stiffens its spine and changes banking laws.

During one panel discussion here, Bernie Sanders’ pollster, Ben Tulchin, predicted that if California can get one cannabis initiative on the ballot in 2016 (rather than multiple competing initiatives), it will probably pass with 55% of the vote.

“The key,” he said, “is voters in the middle. They don’t smoke, they don’t use, they’re worried about kids getting access. They want to treat it like tobacco, with restrictions on how it’s used and where it’s used.”

This year, California finally enacted a regulatory framework for its nearly 20-year-old medical marijuana industry. The laws govern licensing, testing and distribution, and are also expected to provide a basis for the coming era of legalization.

There is no question that era is on the way. I have seen the future, and it is pot.

Twitter: @AbcarianLAT

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