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Marijuana Equipment Start-ups Flourish as Large Rivals Avoid Legal Pitfalls

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03-27-2017

Read the Original Story on USA Today

GREELEY, Colo. – Marijuana’s uncertain legal status across the country has unleashed a network of innovators and entrepreneurs into a space that would ordinarily be filled with name-brand manufacturers, pharmaceutical companies and federally funded research universities.

These small “cannabusinesses” are rushing to fill niches and make money in a field where the drug's illegal status at the federal level has made many start-up basics — from getting a new machine to accessing credit — far more challenging. Colorado, for instance, boasts a cottage industry of innovation because it was one of the first states to legalize recreational cannabis sales to adults, and also has a highly educated, youthful workforce.

Take Greeley, Colo.-based Leaf, for example: A converted garage in this northern Colorado college town has become a de-facto lab for developing the company’s self-contained marijuana-growing “refrigerator.” The $3,000 wifi-enabled cabinet has a webcam so its owner can monitor the growing plants no matter where they are. One of Leaf’s first employees lives in Greeley because he went to college in the area, and the Tel Aviv-based company decided to keep a local presence. Leaf introduced the cabinet earlier this year and has already sold more than 1,000.

“We started small there and then it kept growing, literally and figuratively,” said Leaf CEO Jonathan “Yoni” Ofir.

The innovations aren’t limited to Colorado. More than 1,000 miles west in Orange County, Calif., Danny Davis’ team at Convectium built seven versions of their cannabis-cartridge filling machine in 15 months, starting with cobbled-together technology and ending with a touch screen displays. Now, customers are begging for something even faster than the current $16,000 model. And in a reversal of the usual pattern, Davis’ researchers have been tearing apart Chinese-made vaporizer technology so they adapt it for marijuana use.

“You see innovation coming from the grass-roots level. It’s the thing that begins everything else,” said Davis, a former venture capitalist.

Back in Denver, the marijuana social media platform MassRoots is celebrating having 1 million registered users and being restored to the Google Play store after being banned since November. MassRoots is like Yelp for cannabis, and the company doesn’t even touch pot. But while it’s seeing success in connecting marijuana users, both Apple and Google have thrown up roadblocks. Apple in 2014 booted MassRoots from the App Store, and only allowed it to return by forcing a series of changes that included people never talking about other drugs on the platform. The company’s solution: Every post by those million users has to be reviewed by a MassRoots worker.

“That’s the nature of the marijuana business – facing challenges that no other business has to face,” said CEO Isaac Dietrich.

The lack of large industry players has left room for plenty of snake-oil salesmen and publicity-seekers making outlandish claims about the unique nature of their products. But that vacuum of established research has also opened up a wide, albeit semi-legal, playing field in a new green rush that appears only likely to accelerate as California, Massachusetts, Maine and Nevada, among others, ramp up recreational marijuana sales.

 

Nationwide legalization could dramatically change the playing field, inducing larger manufacturers and banks to market to businesses seen as too risky because pot is still illegal nationally. But with the election of President Donald Trump, whose stance on marijuana is most clear when he points to leaving legal marijuana decisions to states, such a national seal of approval seems far off.

That's allowed a cottage industry of experts, consultants, and equipment manufacturers focused on marijuana to flourish.

In the mountain town of Evergreen, Colo., Jon Cooper’s team of scientists and researchers are trying to isolate the compounds in marijuana so they can provide a more consistent experience. While most people have heard of THC and perhaps the non-psychoactive CBD, Cooper’s team at ebbu have isolated 18 different components of cannabis. They claim their new water-soluble cannabis extract acts more like alcohol: a faster, more consistent “high” that also wears off relatively fast. It’s the kind of research you’d expect to see taking place inside a university lab filled with grad students, or maybe a pharmaceutical factory.

“The big companies, the people you’d expect to be filing the patents, they can’t play right now,” says Cooper, a former business executive with a resume that includes Level 3 and Accenture. “There’s an opportunity for us to make a huge impact.”

A major driver is profit. Today’s patchwork of cannabis marketplaces means small players have an advantage, and bigger companies can’t as easily bring to bear their expertise and capital, leaving room for entrepreneurs selling not just marijuana but the proverbial picks and shovels.

New Frontier Data, a cannabis analytics firm, says the current legal cannabis industry could grow to $8 billion by year's end and reach $16 billion by 2020. Another industry analyst, GreenWave Advisors, says there’s 30 million recreational marijuana users today, spending an average of $1,500 annually. And the potential growth is significant: the Los Angeles area has more than twice as many marijuana customers as the entire state of Colorado.

Industry players say it’s only a matter of time until larger companies figure out how to scale up the techniques and work across state lines. They think national legalization, or at least a formal relaxation of prohibitions, will come eventually. And when that happens, expect pharmaceutical companies, tobacco companies and traditional investors to supercharge what is already a fast-growing industry, richly rewarding entrepreneurs who’ve got intellectual property and processes all dialed in.

“You’ve got a lot of really smart people with a lot of money just waiting to dive in,” Davis said. “Companies that do things the right way will ultimately be gobbled up and build something much bigger than ourselves.”

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