The Big Business of Marijuana

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On November 2, Californians will vote on Proposition 19, a ballot measure that would legalize marijuana use and cultivation for adults and allow pot to be regulated and taxed. But even before votes are cast, cannabis capitalism is in full swing, as budding entrepreneurs launch businesses on the back of California's "other" Green Revolution.

One such company is weGrow, an Oakland-based garden supply outlet that's nothing less than a superstore of cannabis cultivation. The 15,000-square-foot retail warehouse that some have dubbed "Home De-Pot" sells everything that the aspiring pot grower needs to grow his own medical marijuana (and if Prop 19 passes, up to 25 square feet of marijuana for recreational use). The store specializes in hydroponics, the growing method long favored by discerning cannabis cultivators that raises plants in a water and nutrient solution, without soil. So far, business is blooming; weGrow is on track to gross more than $1 million in its first year of operation.

As California votes on marijuana legalization, the pot economy is already smoking

The Oakland superstore is only the start. weGrow will soon open two additional California stores and has ambitious plans to expand nationally. It already has about 75 weGrow franchise stores under contract (at $25,000 a pop) in Colorado, Michigan and Illinois. It expects to have an additional 65 franchise stores in California.

It's not just hydroponics stores hopping on the boo bandwagon. Jerome Handley, an attorney based in Hayward, California, specializes in what's emerged as an entirely new area of practice, "cannabis business law." Hadley currently handles about 50 clients who run cannabis-related businesses, ranging from medical marijuana growers and dispensaries to paraphernalia makers.

"When the Obama administration came in and the feds backed off closing dispensaries, I suddenly got bombarded with people coming in saying, 'We want to incorporate, we want to pay taxes, we want to make sure our books and records are in order,'" Handley says. "I tell my clients that in California, you may not have to worry about the police anymore, the thing you have to worry about is the IRS."

Other cannabis-related ventures offer business services to medical marijuana dispensaries. Medical Marijuana Inc., based in Mission Viejo, Ca., offers pre-paid debit cards for dispensaries and has plans for a "seed to sale" inventory control tracking system for marijuana.

"Most people think cannabis businesses are just the growers and the dispensaries," says Bruce Perlowin, chairman of Medical Marijuana Inc, and a self-confessed former marijuana smuggler who once spent 9 years in federal prison. "But there's a huge number of peripheral businesses out there. There are the doctors who are making a fortune off of medical marijuana. There are magazines, radio shows, insurance companies, hemp expos and trade shows, hemp clothing. It's exploding."

San Jose-based Northern California Natural Collective even delivers medical marijuana directly to the door of patients, and has made more than 1,000 house calls since the collective opened in April. Scores of other dispensaries offer delivery service, most of them in and around Los Angeles and the Bay Area. If Prop 19 passes, such pot-on-wheels services are likely to become as popular as Domino's. And someone is bound to offer the ultimate delivery service: pot and pizza.

Then there are educational ventures, such as Oaksterdam University, with campuses in Los Angles, the Bay Area and Flint, Michigan. The school teaches students about the business of cannabis with courses such as The Science of Cannabis, Dispensary Operations and Methods of Ingestion: Cooking.

Cannabis-related operations have become considerably less shy about the nature of their business, an attitude very much in evidence at weGrow's hydroponics superstore. Unlike most hydroponics operations, which are conspicuously silent about exactly what their customers are growing, weGrow makes no bones about what everyone's up to.

Visitors to the store are greeted by three clocks: the first two display the time in California and Amsterdam, while the third is set perpetually to 4:20, the universal code for pot smoking. WeGrow hosted a 4/20 festival in April, complete with magicians, artists, food, music, and on-site consumption of cannabis for verified patients in a "vaporizer lounge." Place a phone call to weGrow's store and you'll chill to reggae music on hold. A doctor is on site at the store three days a week to perform evaluations for patients who want a medical marijuana card. In-store displays show real marijuana plants growing in a hydroponics system (sorry, no free samples). It's this no-apologies approach that leads weGrow to call itself "the first honest hydro store."

"We trying to create a brand, not just a store," says weGrow co-founder Derek Peterson. "The majority of hydroponic stores are still hiding in the dark, they don't want to admit that they're cultivating cannabis. Our opinion is that we can educate people without crossing the line."

The weGrow business operation is more spreadsheet than spliff; Peterson spent a decade working on Wall Street as an investment banker. The company's franchising plan borrows from successful businesses like Subway, and the store design looks like something out of Ikea, featuring mock-ups of various rooms in a customer's house set up to grow cannabis. Next year, Peterson plans to take weGrow's distribution company public, first as an over-the-counter stock, then as a NASDAQ listing.

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Tom McNichol, a frequent contributor to TheAtlantic.com, is a San Francisco writer whose work has also appeared in the New Yorker, the New York Times, the Washington Post, and on NPR's "All Things Considered."

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