Marijuana potentially a billion dollar industry

Published On: Feb 11 2013 07:06:47 PM PST   Updated On: Feb 12 2013 02:53:12 PM PST
Marijuana
SPOKANE, Wash, -

Right after Washington voted to legalize marijuana, entrepreneurs flocked to our state. While pot smokers are happy to light up, businessmen and the state are excited about a different kind of green: Billions of dollars in taxable marijuana sales.

A few blocks from Starbucks headquarters in Seattle, and just south of Safeco Field, there's a store called Greenlink Collective that looks like a sugary shop for adults.

"There are brownies, cookies of all different sizes and shapes ... you've also got cocoa tabs to the right of that, which is in a pill form," owner Jake George said.

Before you start calling him Willy Wonka, Jake George is actually more of a pharmacist.

"It's great for addressing pain, inflammation, headaches," he said, pointing to a certain strain of marijuana.

George started the medical marijuana dispensary after seeking medication on his own. A terrible experience launched an idea and a business.

"That's almost two grams (of cannabis)" George said, weighing the pot about the size of a half dollar in diameter on a scale. "For some people that would last days and others that would be one round of smoking cannabis."

His store, Greenlink Collective, is full of controversial medicine our state will now be the first to produce, sell, and use legally. When selling pot becomes legal the profits could soar sky high.

"People who use cannabis, they're just like you, they're just like me, they're just like your friends and your family," Brendan Kennedy said.

Brendan Kennedy and Michael Blue know how high. They met at Yale business school and have long resumes from investment companies. They've since turned to medical marijuana, as a business, and started the private equity firm Privateer Holdings. It's believed to be first firm of its kind focused solely on cannabis.

"We believe that complete legalization and regulation and taxation across the country is inevitable," Kennedy said. "It's going to happen."

They purchased the company Leafly.com about a year ago. They describe it as a Yelp for medical marijuana, with 3,000 dispensaries around the state and world listed on the site. Patients can log on to find certain strains of the drug, and write reviews on the places they buy it from.

When retail pot stores open, they plan to expand for the recreational user and invest millions in professional mainstream brands.

"It's just like the end of alcohol prohibition. I feel like it's 1995, and I'm telling people there's going to be this thing called the Internet," Kennedy said.

Kennedy and Blue look forward to the switch, and are guarded about how much they could make. The two say they chose Seattle for a specific reason to launch their marijuana marketing business.

"One primary reason is Seattle is a city of pioneers," Blue said. "We've seen that with Jeff Bezos of Amazon, to Bill Gates at Microsoft, and Howard Schultz at Starbucks. What we're doing is no different from what they're doing, or have done."

Legal cannabis is an unprecedented market. Kennedy says medical marijuana is a $1.7 billion industry nationwide, and could grow to $9 billion by 2016. According to Initiative 502, more than 360,000 in Washington are expected to buy pot when stores start selling it.

"It's a $50 billion industry that doesn't have any involvement by any institutional players. There's no Wall Street, there's no banks, no public companies, there's no private equity firms, no venture capital firms. It's a wide-open opportunity," Kennedy said.

"We really thought this is the biggest opportunity we're going to see in our lifetimes," Michael Blue added.

Before they seize that opportunity, they'll need to wait for guidance and regulations from the state. Many of the questions will be up to the Washington State Liquor Control Board to answer and its deadline is December 1.

"I can't remember the last time we launched a business worth billions of dollars," board member Chris Marr said.

Marr is a former Spokane senator and current Liquor Control Board member. He's one of the people tasked with making the rules for an industry more tightly regulated than most. There's also no model from other states or even countries as a guide.

"We're the first endeavor like this in the world, really if you think about it. Amsterdam tolerates marijuana. It's not legally sold in Amsterdam, so this is the first marketplace where that will happen," Marr said.

There's still a lot to be worked out. The Liquor Control Board is holding public forums across the state to hear from people how they think marijuana should be regulated. Some of the questions they've heard are: How will it be grown? What additives can be used to grow marijuana? Can people with marijuana convictions apply for permits to grow it or sell it?

"Do you have closed circuit surveillance? Do you barcode or put chips on each plant? How do you estimate for demand?" Marr said, adding to the list

Barcoding and constant surveillance are already ideas Colorado uses in its medical marijuana grows.

Licenses for growers need to be handed out by August so plants can provide for the Dec. 1 rush. Think about it, the state is worried about having the right amount of pot to meet the demand.

The state will also heavily tax the drug; 25 percent will be taxed to the grower, processor, and retailer. In return, the state could make more than $1.9 billion in revenue over the next five years.

Marr also said cities and counties will have certain discretion in zoning pot shops. The stores have to be 1000 feet away from schools, recreation and transit centers, and libraries. That rules out most of downtown Spokane.

The federal government could still step in and shut down the legalization process, and if it happens, Marr expects to hear that sooner than later. The state has been clear in showing the federal government Washington State is moving forward.

Jake George at Greenlink worries legitimate businesses will suffer because of federal tax regulations, since federally, selling marijuana is still illegal.

"The state wants the money. I have no problem with that, they've been very clear that this is an opportunity to create revenue for the state. But when you can't write off each individual transaction, you can't operate a business," George said.

The business opportunities are endless, but they'll have to wait until the state makes the rules. Chris Marr says they're on track and on pace.

"We're definitely first, and we have one chance to get it right, in a way that will affect federal policy and what happens in other states," Marr said.