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Marijuana boom spawns ancillary businesses

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By The Los Angeles Times
Saturday, May 17, 2014, 9:00 p.m.
 

Ben Wu took a six-figure pay cut when he left a career in private equity for a shot at the marijuana boom.

Trained to spot small businesses with big potential, he started this year as chief executive of Kush Bottles, a Santa Ana, Calif., company that sells child-resistant plastic cannabis containers.

It took some persuading to get his parents and girlfriend to embrace the move. But Wu insists it was a sound business decision. As the pot industry blossoms, he reasoned, a robust supply chain is needed to help grow, package and market legal marijuana.

“The sky's the limit,” said Wu, 35, a New York University business school graduate and former vice president of Wedbush Capital Partners. “As long as states continue to adopt, we're going to double growth each and every year.”

Container brands such as Kush Bottles are among a slew of ancillary companies joining what many are calling the green rush. Where there's weed, there's a growing need for everything from greenhouses and fertilizer to pipes and vaporizers.

“The annual revenue is easily in the hundreds of millions, and likely much more,” said Chris Walsh, editor of website Marijuana Business Daily.

Demand for pot-related products and services is expected to grow sharply as more states loosen marijuana laws. Twenty-one states and Washington allow the sale of some form of pot.

Entrepreneurs are attracted by the industry's open field, with few established players and many untapped markets. Some say the marijuana boom reminds them of the Gold Rush a century and a half ago.

“We're selling shovels in a gold rush, is all we're doing,” said Rich Nagle, a former electrical engineer who peddles an automated indoor marijuana growing system, designed to be managed remotely with a smartphone.

The federal government classifies marijuana as a Schedule 1 drug, on par with heroin and ecstasy. That means any enterprise that handles pot faces the threat of closure or prosecution, no matter what state laws say. Because it's a cash-only business, companies that sell pot are at higher risk of being robbed or burglarized: Most banks are prohibited from taking deposits from marijuana sellers.

“Any time you're literally touching marijuana, you're subject to a different set of laws,” said Justin Hartfield, founder of Weedmaps, a review website that is similar to Yelp but for pot dispensaries. “We don't touch the product itself, and that's how we're able to get a bank account.”

Hartfield's site is one of the most recognized brands to emerge out of the recent rise of legalized pot. Founded in 2007, shortly after Hartfield received his first medical marijuana card, Weedmaps grossed about $25 million in revenue last year.

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