Drug money: The dosh in dope

The US's legal marijuana industry is creating an excitement among investors and start-ups not seen since the first dotcom boom. Could the UK be next?

by Oliver Bennett
Last Updated: 31 Mar 2016

A 'bartender' is talking to a customer - but he's not serving drinks. For this particular assistant is at Medicine Man, the biggest cannabis dispensary in Denver, Colorado, where an ordinary retail scene is made extraordinary by the wares - unmistakable packs of cannabis, both for medical and recreational use.

The booming dispensary is part of the US legal marijuana industry, now undergoing a vertiginous spike that is being called the 'green rush'.

'When we sold only medical cannabis, we were getting 100 people in a day,' says Elan Nelson, head of business development at Medicine Man. 'Since January, we've been able to sell recreational marijuana and it has shot up to 300 a day.' No wonder cannabis is the talk of America's business community and British cannabis advocates are looking closely at developments. There's hope in dope.

The seeds for the green rush were planted when medical marijuana was legalised more than a decade ago (medical use is now legal in 21 US states). Then began the slow tilt towards legalisation for recreational use, and despite cannabis still being illegal at federal level, it was legalised in Colorado in 2012, then Washington state.

Enormous excitement has ensued. So confident are people in the sector that the High Times Growth Fund, a private equity fund related to High Times magazine, took its pitch to the Global AgInvesting conference at New York's Waldorf Astoria hotel.

This June, in Denver, the National Cannabis Industry Association (NCIA) holds its first conference. But don't go expecting to be passed a joint. Attendees are more likely to look like chino-clad techies than the Furry Freak Brothers, although they will be buoyed by a shared, sometimes evangelical belief in a great new 'impact' industry.

'The current feeling is a bit like the dotcom or the green-tech booms,' says Troy Dayton, co-founder and chief executive of cannabis investment company the ArcView Group, 'only it also brings freedom and saves money in criminalisation. This industry is going to make the world a safer place.' It'll also create a lot of work in post-recession America, he adds.

He is working on an employment report and estimates there are already 'tens of thousands' of new jobs. Take Medicine Man, which started over four years ago with four people. 'Now, we have 40 employees and we're looking at 70 by the end of the year,' says Nelson.

A fundraiser, Dayton set up ArcView in 2010 to link investors with the new cannabis businesses, such as Greengro Technologies and Advanced Cannabis Solutions. 'I realised this is an industry that if treated responsibly, would be profitable,' he said. 'People thought I was crazy. I thought I was crazy.'

Then, in October 2012, 'The phone started ringing. Investors came to the table. It started to happen.' ArcView is now an index of the green rush. 'Last year, we had 40 investors. Now we have 200. There's so much exuberance.'

In the past year, it has gained $10m for a dozen companies. Dayton says that British investors and fund managers have been in touch, and that the industry is sparking up a new generation. As well as the march of medical marijuana, other US states are likely to allow recreational use, with Oregon, Alaska and Massachusetts at various stages on the way to legalisation.

The 111 million Americans who have used cannabis have excited business people in the US, who have (as they say) 'done the math'. ArcView has predicted a legal market worth $2.34bn this year, rising to $10.2bn by 2018 and some, like Isaac Deitrich of MassRoots, a social network for cannabis users funded via ArcView, thinks that figure is an underestimate.

Sorting the merchandise at Medicine Man

All this activity is exciting the UK's cannabis-watchers: after all, we have a potentially huge legal cannabis market, and when the US sneezes, we catch cold. There's already a UK medical-cannabis success story in the form of biotech company GW Pharmaceuticals, founded in 1998 by Dr Geoffrey Guy and Dr Brian Whittle to develop 'cannabinoid' medicines: namely Sativex for the treatment of illnesses including multiple sclerosis, and Epidiolex, which treats epilepsy.

GW Pharma, which is listed on Aim in London as well as on Nasdaq, also betrays the lingering sensitivities of the sector. Its spokesman, Mark Rogerson, is cautious about being misrepresented.

'We're very keen not to be portrayed as a "weedstock",' he says, using green-rush lingo. 'We're in the pharmaceutical business. The reason we were licensed (back in 1998) is that we put clear blue water between us and recreational use.'

When GW Pharma began trading in the early 2000s, some in the medical profession didn't like it at all. 'But opinions have changed,' says Rogerson.

'They can now see the benefits.' So GW Pharma grows its own in climate-controlled, strictly audited, high-tech glasshouses 'at an undisclosed location in the south of England' and, although it remains the only such firm in the UK, Rogerson says that it would welcome competition. 'This plant has unlimited potential. Within the plant are 100 cannabinoids. We use 20 of them. It will grow.'

The US's cannabis industry is the weed's epicentre. 'Everything about this industry is good news,' says Isaac Deitrich, an ex-political campaigner, who sees increasing bipartisan support in the US. 'For example, I'm Republican, pro-small government, and think people should be allowed to do what they want with their bodies. Even the governor of Texas, the ultimate red (conservative) state, is interested. It's not just 'blue' (liberal) states any more.'

And to profits you can add savings. Economist Jeffrey Miron has suggested that $13.7bn a year will arise from legalisation: $6bn in new tax revenues and $7.7bn from reduced costs relating to criminality and enforcement.

But to the growing cohort of pot pioneers, the US is merely the start. 'We're concentrating on global strategy and global brands,' says Brendan Kennedy, CEO of Privateer Holdings, the cannabis industry's 'first private equity firm'. 'We're focusing on many places, including Israel, the Czech Republic, Spain, the Netherlands and Jamaica,' he says.

What about Britain? 'There's quite a lot going on in the UK, which has a thriving seed industry,' adds Kennedy. 'I've met several seed companies there.' He won't name them, but suffice it to say the UK is something of a seed giant.

I call Attitude of Ipswich, 'the world's largest cannabis seeds superstore', to find out more about its scale. It's nervous about interviews, but, clearly, the firm represents a thriving subculture of cannabis seeds. 'The UK even supplies the Netherlands,' says one British cannabis advocate. 'There's considerable expertise here.'

An indicator of possible demand in the UK is also given by the so-called 'legal high' market, currently being quantified by the Legal High National Online Survey, which was launched in March. It's such a big industry that Home Office minister Norman Baker has said that UK producers are in a 'race with chemists' with China and India.

Moreover, there's the illegal cannabis market itself, supported by tens of thousands of illegal growing rooms that produce 80% of domestic consumption. Clear, one of the UK groups aiming to change the law, estimates that this market is worth £6bn a year and that if legalised, the UK could get a net gain of £9.3bn a year from the proceeds.

There's already a legal cannabis market of sorts in Spain, where users sell via clubs. 'They're "not for profits", which is the way they get around it,' says a spokesman for the UK-based Beckley Foundation, which does research into the therapeutic potential of drugs.

There are glimmers of this model in Italy and in France, where the Socialist politician Daniel Vaillant has even proposed that the country look at starting a state cannabis monopoly.

Far-fetched? Well, Uruguay is of particular interest, as it has legalised cannabis under national laws. And Brendan Kennedy has just been in Spain, working on Leafly.com, a sharing site for cannabis connoisseurs.

Kennedy, an MBA from Yale Management School, is typical of the new cannabis industrialists. He hopes to raise $50m this year and wants to normalise cannabis. 'Our goal is to help bring on the end of prohibition and the problems caused by it,' he says.

Under the auspices of a Canadian operation called Tilray, he's just opened a $10m medical 'Cannabis Facility' in British Columbia (the vast majority of growing is inside). 'It's 70,000sq ft and secure, like the inside of a bank or a prison,' says Kennedy. Within, the crop isn't given pesticides and is harvested by hand. Does it have to be hidden? 'No,' says Kennedy. 'There are signs.'

Nor are the new cannabis workers necessarily counter-culture, 'deadhead' types.

Elan Nelson says of the intake at Medicine Man: 'They're horticultural graduates, tech people, MBAs, all kinds of skills. We don't even know or care if they use cannabis or not.'

For Charles Ramsey, CEO of software company Agrisoft, the first approved software for the industry, 'My biggest surprise has been that the people getting into the industry are not stoners and Cheech and Chong types.' True, a touch of experience with the weed can help, particularly for counter clerks.

Medicine Man's 'bartenders' offer tips such as telling people not to eat too much. 'You ingest a bit, nothing happens, eat the rest and suddenly you're too high,' says Nelson. 'It's a common problem.'

There are constraints such as age limits and, even in those legalised states, cannabis isn't allowed to be publicly smoked. And while there are no shops or cafes yet, when they do happen, they're unlikely to echo Amsterdam's seedy 'coffee shops'.

Kristopher Krane of Arizona-based 4Front Advisors, which sets people up with high-end marijuana dispensaries and offers services such as management training and performance audits, says that cannabis is being repositioned for a new gentrified generation of users.

'These dispensaries are beautiful,' says Krane. 'They're not pot-shops ('head shops') but stores that communities are proud to have around.' Some have an 'old-time apothecary look', while others are 'more like Whole Foods or an Apple Store with natural light and a mixture of classical and new age music.'

Whatever the style, the new cannabis industry largely avoids the hackneyed iconography of Rasta colours, pointy leaves and pictures of nudes chugging bongs. 'We have a cleaner approach for professional people,' says Nelson.

Then again, as Ramsey remarks, 'Marketing isn't really needed. The pent-up demand from ordinary people is incredible.' As it was with alcohol after Prohibition ended in 1933. Dispensaries were relegated to industrial areas, but Krane says they're now moving to 'regular business districts', depending on zoning laws (they're not allowed to be near schools, for example), where they can cater for this new crowd.

'These are not stereotypical users but a middle-class, soccer-mom, attorney sort of crowd,' he says. 'They're a broader customer base who wouldn't use the black market.' Retail assistants have 10 to 15 days' training, 'akin to a pharmacy', and the average spend is a cool $50 to $80: not only on smoke (which is more popular with the older market), but a cornucopia of cookies, pills, tinctures, vapourisers, lozenges and mouth strips.

The new cannabis consumer also wants to know about the supply chain. Ramsey formed Agrisoft just over a year ago.

He says: 'We bought in software writers and coders to learn the industry from the inside out, and last October launched the first software package, called Seed for Sale. We need to adequately trace the product back to the plant, just like beef back to cattle.'

Multiples are being born. Ramsey estimates there are about 500 to 600 dispensing operations, many of them 'mom and pop' companies. 'These are now being bought up and folded into companies of 60 to 100. They're becoming professional global brands that need to be treated in a mainstream way.'

This conceivably could happen with British 'head shops'. And while there's no Starbucks of pot yet, names are beginning to emerge in cannabis dispensaries both medical and recreational: Harborside in Oakland, Sparc in San Francisco, Parc in Phoenix, Good Chemistry in Colorado.

The test is how cannabis dispensaries shift from the medical to recreational sales. 'The markets aren't at odds, but do have a different tax status,' says Todd Harrison, a seasoned observer of the market at business information website Minyanville.

With that level of marketing clout, and international supply chains, cannabis could then start to make inroads elsewhere. As the spokesman for the Beckley Foundation says: 'The global move to regulated cannabis markets is inevitable, and in the UK, the question is if, and how, medical use will transfer onto the recreational use.' His hunch is that it'll come with youthful tolerance. 'In five to 10 years, we'll find a different demographic emerging, which will be more receptive.'

Parc Dispensary, Phoenix

Parc Dispensary, Phoenix

Back in Denver, there are subtle changes. New tourism concerns have cropped up, such as a 'Bud and Breakfast' business and companies such as Colorado Green Tours that show consumers and business people around.

There are restaurants just for people with the munchies, and a lot of new revenue. 'Commercial real estate in Denver is having a boom,' says Nelson. 'We're fourth in the nation for job creation.' But perhaps the biggest change is attitudinal, adds Dietrich, 'Everyone is incredibly friendly in Denver.'

It should be said that not all of America is delighted. One of the green rush's key detractors is Marc Kleiman, professor of public policy at the UCLA School of Public Affairs. 'Commercial interests are being put before the public health,' he rails. It's an industry that harms people, he says, and we should look at the alcohol and tobacco industries to see the future.

'The nightmare is that tobacco companies get involved,' says Kleiman, who also believes that prices will shoot up. 'So currently my tip for doubling your cannabis money is to fold it and put it back in your pocket.'

Indeed, cannabis has been a volatile stock, leading some to talk of a 'bubble'. Todd Harrison says that some stocks have shifted by 50% in a week against a regulatory landscape that continues to frustrate the industry. 'Still, it has exceeded estimates,' says Harrison.

But the single biggest challenge for the green rush is that mainstream banks are still governed by federal laws, so can't legally take cannabis industry money. Consequently there's a lot of cash out there.

Some dispensaries have admitted using armed staff. 'We don't talk about the cash,' says Nelson. 'It's too insecure. We call it a banking crisis. It's not just us. It's our contractors. It makes them insecure too and we're putting them at risk.'

Could the green rush come here? Well, in typical British fashion, a little scepticism seems to be in order.

Sophie Macken, director of the Independent Scientific Committee on Drugs - the organisation associated with Professor David Nutt, the former government adviser - is not impressed by the US model and believes that not only are the tax sums overplayed, but that Colorado's free-market approach isn't good public policy. 'A far better approach to harm reduction is the Uruguayan model, where the government holds the reins,' she says. 'Private companies try and sell as much as possible, which is not conducive to the public good.'

Also, and despite the appointment of Lib Dem MP Norman Baker as Home Office drugs tsar, there are no encouraging signs from the Government. 'We are aware of the actions taken in Washington and Colorado,' says a Home Office spokesperson. 'However, we have no plans to legalise cannabis.'

Howard Marks, the UK's best-known cannabis advocate, is not waiting up. 'No one knows how it's going to play out and I see it going in the right direction,' says the jailbird-turned-writer, 'but in the UK, we've got a while to go. Even in the US, the federal position is still the same. They can confiscate it and that's why I think it's not a great investment option yet. They've got the legal machinery to fuck you up.'

Back in Colorado, Elan Nelson exhibits a moment's frailty. 'We in Colorado are really under the microscope at the moment,' she says. 'Will we succeed or fail?' At the moment the former is looking likely, but the probability is that a lot of green fingers will be burned.


The investor and philanthropist George Soros has come out strongly against global anti-drug policies, claiming they are ineffective and a waste of money. He cites a major report from the London School of Economics, Ending the Drug Wars, published last month, in which no fewer than five Nobel laureate economists call on governments to rethink policies based on prohibition and law enforcement.

At least $1trn has been spent on the war on drugs, which has failed to stop the £300bn-a-year illegal global market that has brought death and suffering to millions. Soros points out that even if a government clamps down on production, criminal activity just moves to nearby countries. The murder rate went up by 20% in Mexico after 2007 once Colombia started taking a tougher line on drugs.

Forty per cent of the nine million people in prison worldwide are there for drug offences. The US has 25% of global prisoners, yet only 5% of world population. Most people in US jails are there for drug or non-violent offences.

Soros has set up needle-exchanges through his Open Society Foundations and advocates harm-reduction approaches to drug use, which, he says, are far more cost-effective.

In 2016 the UN General Assembly will review international policies on drugs.

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