Wall Street Sees Opportunity in Marijuana

Mar 24, 2013

Amid the whir of fans and the glow of soft white light, work­ers tended to bright green seedlings sprout­ing in a giant green­house. Located about an hour’s drive from Man­hat­tan in the hills of north­west­ern New Jer­sey, the facil­ity pro­duces basil, chives, oregano and other herbs that are sold in gro­cery stores around New York City. But if Ken Van­de­Vrede has his way the facil­ity will one day be grow­ing a much more valu­able plant: mar­i­juana. Van­de­Vrede is chief oper­at­ing offi­cer at Terra Tech, a hydro­ponic equip­ment maker based in Irvine. The small com­pany wants to dou­ble the five-acre New Jer­sey green­house oper­a­tion. The aim is one day to sup­ply the explod­ing U.S. med­ical mar­i­juana trade and to pre­pare in the event that recre­ational mar­i­juana ever becomes legal nation­wide. “We can scale this thing very, very quickly,” said Van­de­Vrede, clad in blue jeans and a pumpkin-colored sweater as he sur­veyed his indoor fields of pro­duce and flow­ers. “When hemp and cannabis become legal, we’re ready to rock and roll.” To do it, Terra Tech needs to raise $2 mil­lion. And like a num­ber of small busi­nesses in the bur­geon­ing U.S. cannabis indus­try, it’s try­ing to enlist Wall Street’s help. Busi­ness own­ers have been pitch­ing their ideas to poten­tial investors, com­ing to New York in some cases to meet with would-be financiers. Wall Street has good rea­son to smell poten­tial prof­its. Wash­ing­ton, D.C., and 18 states, includ­ing Cal­i­for­nia, have already legal­ized med­ical mar­i­juana; there are for­mal mea­sures pend­ing in 10 addi­tional states, accord­ing to the National Cannabis Indus­try Assn. Col­orado and Wash­ing­ton legal­ized recre­ational mar­i­juana use in Novem­ber. In addi­tion, a mea­sure allow­ing “adult use” of pot has been pro­posed in Mary­land, accord­ing to the association’s tally. Var­i­ous bills to legal­ize mar­i­juana and hemp have been pro­posed in Con­gress too. Although pot remains con­tra­band under fed­eral law, some entre­pre­neurs see mar­i­juana head­ing down the same path as Pro­hi­bi­tion, which banned the man­u­fac­ture, trans­porta­tion and sale of alco­hol from 1920 until it was repealed in 1933. “More and more peo­ple see the inevitabil­ity,” said Bren­dan Kennedy, chief exec­u­tive of the Seat­tle pri­vate equity firm Pri­va­teer Hold­ings, which tar­gets cannabis-focused start-ups. “They see that the Berlin Wall of cannabis pro­hi­bi­tion is going to come down.” Pri­va­teer is rais­ing $7 mil­lion to acquire small com­pa­nies that have a hand in the trade but don’t grow or dis­trib­ute mar­i­juana. Its first acqui­si­tion: Leafly, a Yelp-style online rat­ing site in Seat­tle for dis­pen­saries and vary­ing strains of mar­i­juana. With pot still fed­er­ally out­lawed, oth­ers are mak­ing sim­i­lar bets — fund­ing firms that sup­ply equip­ment or ancil­lary ser­vices while steer­ing clear of mar­i­juana farm­ing and sales. Take Lazarus Invest­ment Part­ners, a $60-million hedge fund in Den­ver, for exam­ple. One of Lazarus’ invest­ments is in AeroGrow Inter­na­tional Inc., a maker of hydro­ponic kitchen appli­ances geared toward grow­ing herbs, let­tuce and toma­toes. Lazarus, which owns 15% of AeroGrow’s shares, has sug­gested that the com­pany tweak its prod­ucts to accom­mo­date taller plants, includ­ing mar­i­juana, said Justin Borus, the fund’s man­ag­ing part­ner. “We want to be sell­ing the blue­jeans to the gold min­ers,” Borus said. “We don’t want to take a bet on which state is going to get legal­ized and which dis­pen­sary is going to suc­ceed, or [which] cannabis grow­ers are going to be suc­cess­ful. We want to just make a bet on over­all legal­iza­tion.” In Cal­i­for­nia, Med­Box, a West Hol­ly­wood maker of auto­mated dis­pens­ing machines for doc­tors’ offices, phar­ma­cies and pot dis­pen­saries, is on the hunt for fund­ing. Vin­cent Mehdizadeh, MedBox’s founder, said the com­pany is actively explor­ing rais­ing $20 mil­lion in equity to boost staffing and fund research and devel­op­ment, acqui­si­tions and mar­ket­ing. Mehdizadeh said he’s seen a “major spike” in inter­est from poten­tial financiers look­ing to invest in the small com­pany since Col­orado and Wash­ing­ton legal­ized recre­ational pot use last year. “Everybody’s loos­en­ing up a lot because they real­ize the momen­tum has shifted and the finan­cial world is going to have to make room for this indus­try,” he said. “Wall Street and invest­ment banks are going to have to come along for the ride, even­tu­ally.” Derek Peter­son, pres­i­dent and chief exec­u­tive of Terra Tech, is work­ing to get his company’s shares listed on a stock exchange by the end of the year. The com­pany may try for NYSE MKT, which was for­merly known as the Amer­i­can Stock Exchange and is geared toward smaller com­pa­nies, or per­haps the Nas­daq Stock Mar­ket, he said. “The stodgier Wall Street types are start­ing to real­ize there’s money to be made here,” said Peter­son, who worked in wealth man­age­ment at Wachovia Secu­ri­ties and Mor­gan Stan­ley Smith Bar­ney. The com­pany has taken steps to get the word out to investors. It tapped Mid­town Part­ners, a small New York bou­tique invest­ment bank, to help it explore financ­ing options as it planned the New Jer­sey green­house expan­sion. Terra Tech is merg­ing with the farm’s owner, NB Plants, and retail gar­den­ing cen­ter and nurs­ery. Both are owned by VandeVrede’s fam­ily. Ini­tially, the vast major­ity of Terra Tech’s rev­enue will come from cul­ti­vat­ing fresh herbs and flow­ers from the New Jer­sey farm, with the rest com­ing from equip­ment sales. The idea is to first feed urban con­sumers’ grow­ing appetite for pesticide-free pro­duce, then add pot or hemp when the legal cli­mate is right. “There is this huge demand for organic food,” said Prakash Mandgi, Mid­town Part­ners’ direc­tor of invest­ment bank­ing. “Mar­i­juana cul­ti­va­tion, in my opin­ion, is a poten­tial dri­ver in the future, but it’s so tied to gov­ern­ment rule and reg­u­la­tions…. Fed­er­ally it’s ille­gal.” Esti­mates for the mar­i­juana industry’s size range widely, since much of the trade remains on the black mar­ket. Bloomberg Indus­tries recently pegged it at $35 bil­lion to $45 bil­lion. Still, Wall Street is by no means open­ing the flood­gates of cap­i­tal. Com­pa­nies in this space are still quite tiny, not to men­tion risky, com­pared with large cor­po­ra­tions trad­ing on the New York Stock Exchange or the Nas­daq. More­over, Wall Street firms face a sig­nif­i­cant dis­in­cen­tive to invest­ing in the indus­try: fed­eral law. Grow­ing and dis­trib­ut­ing mar­i­juana can still lead to raids by fed­eral agents — not to men­tion prison time and huge fines. Major banks have come under intense scrutiny by the fed­eral gov­ern­ment in recent years for vio­lat­ing laws aimed at pre­vent­ing money-laundering. The British bank­ing giant HSBC paid $1.9 bil­lion to end a U.S. inves­ti­ga­tion into its role pro­cess­ing cash for drug car­tels and cus­tomers in rogue nations. Mar­i­juana dis­pen­sary own­ers have com­plained of dif­fi­culty open­ing bank accounts, forc­ing them to oper­ate in cash only. “This is messy,” said Dan Rich­man, a for­mer fed­eral pros­e­cu­tor who han­dled nar­cotics cases and now teaches at Colum­bia Law School in New York. “This might be com­plex polit­i­cally. It’s not com­plex as a mat­ter of fed­eral crim­i­nal law.” Investors in busi­nesses involved in grow­ing or dis­trib­ut­ing cannabis could face civil for­fei­ture actions to seize their invest­ments or other assets, Rich­man said. “I would think the prospec­tus would have to say: ‘The gov­ern­ment might come and take all of your money and pos­si­bly go after you,’” Rich­man said. Fed­eral law may not deter all investors. After all, the gov­ern­ment can choose what laws to strictly enforce, and it’s unclear how the fed­eral gov­ern­ment will ulti­mately treat legal­ized recre­ational pot in Col­orado and Wash­ing­ton. Alan Valdes, a floor trader on the New York Stock Exchange, expects some of Wall Street’s more adven­tur­ous investors to put up money for a project he’s involved with called Diego Pel­licer Inc. The busi­ness idea is to open a dozen Starbucks-like high-end shops for pot in Col­orado and Wash­ing­ton. Valdes said he and his part­ners might begin tap­ping investors — wealthy indi­vid­u­als, family-run funds — later this year. “These are more mav­er­icks — these are gun­slingers,” he said of poten­tial investors. “The big houses are off the table right now.” Source: Los Ange­les Times (CA) Author: Andrew Tan­gel, Los Ange­les Times Pub­lished: March 23, 2013 Copy­right: 2013 Los Ange­les Times Con­tact: letters@​latimes.​com Web­site: http://​www​.latimes​.com/

f9f825909fstreet.jpg 150x100 Wall Street Sees Opportunity in Marijuana

Read more:
Wall Street Sees Oppor­tu­nity in Marijuana

Related Posts

Share This

Leave a Comment