Joint Ventures

Starting a pot business? These companies want to help.

lexa Divett is getting a contact high.

Divett runs Maya Media Collective, a Northeast Portland company that is part of the commercial frenzy surrounding the legalization of marijuana in Oregon. 

But Divett's company doesn't grow, process, sell—or even touch—the reefer. Her firm creates brands, logos and ads for dispensaries.

"I'm a far better marketer," she says, "than I am a botanist."

When voters passed Measure 91 in November, they created a new market for recreational weed that could exceed $219 million a year, an Oregon State University study has projected.

Much of that business remains on the horizon. Recreational weed becomes legal in July, but the state's first retail stores won't open until the fall of 2016—nearly two years after voters approved the system.

But a second weed economy is already thriving. It's businesses from banking to computer software to security systems that service weed's growers and sellers.

"I've never seen anything like this in my lifetime," says Erika Yoshida Watson, 34, a real-estate broker who last year formed a company to broker the sale of warehouses for indoor pot farms. "It's a trickle-down economic effect from marijuana. I don't know if you can measure it. But it's enormous."

These support businesses share few of the risks from selling a drug still banned by the federal government. They remain largely untouched by the laws being crafted in the Oregon Legislature and the rules assembled by the Oregon Liquor Control Commission.

They have other advantages, too: They aren't subject to punishment from the federal tax code, which prohibits weed merchants from deducting ordinary business costs—like payroll and car mileage.

"The beauty of these ancillary businesses, from a tax perspective, is they don't come anywhere close to touching the plant," says Matt Goldberg, a Lake Oswego lawyer advising marijuana businesses. "It's an ability to participate in a huge growth industry while sidestepping some of the problems."

For these companies, the legal-weed bonanza has already begun.

In the following pages, you'll meet the entrepreneurs selling cameras, bank accounts and land to weed's legal dealers.

"We have an opportunity to shape an industry," Divett says, "help our clients play with the big boys, and make some money."

The Security

One year later, he was robbed again. Thieves propped a ladder against the side of his warehouse, drilled a peephole in a boarded-up window, and kept watch over his plants for two months, waiting until the buds blossomed to break in and steal the harvest.

"I was like, 'This is a freaking nightmare,'" Pool recalls. "We were getting attacked from all sides. You go to bed every night wondering: What time is it going to be tonight?"

The third time Pool was hit, he called Noah Stokes.

Stokes, 31, is the founder and CEO of OmniGuard, a security company headquartered near the Lake Oswego Walmart. Pool's call in 2013 was the first Stokes received from a weed grower.

Demand for Stokes' weed security systems grew so quickly, he formed a second company late last year: CannaGuard. He says it now accounts for 40 percent of his business.

Uniformed in black polo shirts and riding in black vans, his 19 employees install high-tech security systems at grow houses and dispensaries.

"I've never met anybody who grows marijuana who's not been robbed," Stokes says. "Not just robbed once, but robbed multiple times."

Marijuana growers—even those operating in the legalized medical market—have been loath to call the cops after a break-in, and banks' refusal to take weed money has left millions of dollars of cash sitting in safes, protected by little more than baseball bats.

Legalization has opened the door to more formal protection. In Washington, growers are hiring ex-military guards to escort weed from farms to stores. That service hasn't yet arrived in Oregon.

But CannaGuard's offerings include laser sensors across windows triggering alarms that sound like barking dogs, alerts that signal growers every time someone walks into the quarantine room where the weed is drying, and phone apps that let dispensary owners view live 2-megapixel camera feeds showing the activity on their sales floor.

CannaGuard charges dispensaries $8,000 to $15,000 to install a security system. Outfitting a Washington recreational grow house starts at $20,000 and tops out at $125,000.

Stokes already has more than 200 customers in Oregon and Washington. State laws help: Oregon's medical program says growers can't carry firearms, and it mandates "a video surveillance system and alarm system that are all operational, and installation of a safe."

Alex Pavich installed 22 cameras from CannaGuard in his Northeast Sandy Boulevard dispensary, Collective Awakenings. 

"I don't know of another industry that has such stringent requirements on protecting your own merchandise," Pavich says. "But it makes the public feel better."

Stokes says the biggest threat his weed clients face is from their own workers. Growers report they're most often robbed by contractors installing HVAC or electrical systems, or jeopardized by employees telling friends about their location.

"Our cannabis customers want to know how they can protect themselves against people who know everything about their operation," Stokes says. "We have ways."

The Software

Justin Dufour figures many of his clients are going to be stoned when they use his computer software.

So on Friday afternoons a few times a year, he invites them to the Vancouver, Wash., offices of Viridian Sciences and suggests they blaze up and take the programs for a test drive.

"We let 'em get high as shit and set 'em on the software," Dufour says. "If they can't use it, we redesign it."

Dufour's business partner, Andrew Pickett, is more circumspect about this practice. "Everything we do is legal," he says.

Viridian Sciences sells business-management and inventory-control software for weed growers, processors and stores. The software, which ranges from $299 to $200,000 a month, provides the digital backbone for pot sellers to meet state requirements that they track every marijuana plant from the day it's planted to the moment a nugget is sold.

Viridian illustrates the increasing intersection between tech and pot. Many of the biggest national investors in legal marijuana are venture capitalists who struck it rich in Silicon Valley—including PayPal co-founder Peter Thiel, who has placed millions in weed equity funds.

In Portland, mobile-app CEO Scott Kveton announced in January he was seeking investment opportunities in legal weed. (Kveton resigned from his push-notification company, Urban Airship, last year after an ex-girlfriend accused him of sexual assault.)

"Oregon has a reputation as a premier producing state," Kveton wrote in a blog post. "I'll be damned if we're going to let this massive market pass us by like tech did in the '90s."

On Vancouver's sleepy Main Street, Viridian's Dufour and Pickett have landed $500,000 in venture capital and 40 clients in seven states. They're angling for what could be the biggest government contract in Oregon weed: the deal to program the state's own seed-to-sale tracking system, which monitors legal buds to keep them from being sold on the black market. (The Washington contract was worth $1.1 million.)

"Absolutely we'll be applying" in Oregon, says Pickett, an Oregon State University grad.

Dufour and Pickett, who both bear a strong resemblance to Seth Rogen—beard, bulk, chuckle—worked for Beaverton's Orchestra Software, which designed an inventory software to track beer for craft brewers.

Their new headquarters looks like any software startup—except for the engineer vaping at his desk, and a Frisbee holding loose bits of reefer. The office is decorated with giant wooden cutouts from a "Weed and Wieners" party Viridian held in the parking lot when Washington's recreational weed shops opened last summer. One cutout features Uncle Sam lighting up a bong.

"I love programming," Pickett says. "I love weed. What can I say? They go great together."

The Bank

Jef Baker can hold his nose for new clients.

"We get cash that has a strong aroma," says the CEO of MBank. "It's been sitting in a safe with the product. We just accept that. It goes with the territory."

Last fall, Baker took MBank where no other bank in Oregon has dared go: It's openly offering accounts to marijuana growers and sellers. It now boasts 200 pot-business clients.

Baker sits in his corner office on the third floor of MBank's headquarters on Southeast Stark Street, with a bird's-eye view of I-205 and a Motel 6. The bank moved its offices here from Gresham three years ago, as it reeled from the collapse of its real-estate loans and laid off 75 of its 120 employees.

"Our bank got in a lot of trouble," Baker says. "We were on death's doorstep."

The ruddy, 43-year-old Baker was promoted to CEO in 2010. MBank, which shortened its name from Merchants Bank, remains a petite financial institution, with $165 million in assets. (OnPoint Community Credit Union, by comparison, has $3 billion in assets.)

In February 2014, Baker listened to a federal bank regulator declare that the U.S. government "would not object" to banks taking medical-weed growers as clients.

He found an untapped market: medical farmers and dispensaries operating under Oregon law, but keeping millions of dollars in safes, or hoping banks wouldn't ask about the scent of their deposits.

"These poor people can't have basic checking accounts," he says. "I think we can identify with the struggle—long odds, hard work."

Not everyone finds Baker's offer generous. MBank charges pot clients a variety of fees, starting with a base charge of $5 for every $1,000 of a pot client's revenue.

MBank charges up to $700 a month for an armored car service to transport cash from farm to teller. It charges $250 for background checks to assure its clients don't sell to the black market.

"I think their fees are exploitative, frankly," says Leland Berger, a lawyer with Oregon CannaBusiness Compliance Counsel. "While I appreciate their courage in stepping forward, I think they're being overly greedy."

Baker has heard the gripe. "We're not embarrassed by our fees," he says. "Big picture, we've lost money on this endeavor, and I don't know if we're breaking even, even today."

In January, MBank tried to expand its checking-account service to Colorado weed sellers—and was sent packing by the Federal Deposit Insurance Corporation, according to The Denver Post.

Baker won't say if the FDIC warned MBank against moving pot money across state lines. "We work closely with regulators on all issues," he says, and declines further comment.

But he is aware MBank risks a federal crackdown if political winds shift. His colleagues running other banks tell him he's crazy.

"I think people are rooting for us, at some level," Baker says. "But I clearly get they're not willing to put their bank in that position. I'm just young and dumb enough not to know better."

The Brokerage

Erika Yoshida Watson eyeballs a blue-painted tin warehouse on a back road at the city limits of Portland. Machinery whirs inside.

"It's got some good bones," she says. "It'll work well."

The workers inside the warehouse don't know the building is about to become an indoor pot farm. But Watson has already made all the arrangements.

Last month, Watson's brokerage, Expanse Commercial Real Estate, negotiated the sale of this warehouse to a Texas investor who wanted a commercial property he could rent to a weed grower. Buyers from Colorado, Florida and Chicago have also contacted Watson about sites.

"I get emails daily from people saying they have highly qualified investors," she says. "It's a sexy industry for them to be in right now. Everybody wants to find a way to be involved in it, whether they were before or not."

These out-of-state land speculators have driven Portland's industrial lease rates for pot tenants to as high as $1 a square foot—more than double what renting a commercial space cost a year ago.

“I heard of it happening in Colorado,” Watson says, “but it’s still shocking.” 

Last year, Watson founded Expanse Commercial Real Estate as the first Oregon brokerage dealing primarily in weed properties. Yet its website never mentions marijuana.

"Our team stays alert of the ever changing regulatory environment and areas of opportunity in a tight real estate market," it says, "in order to provide exceptional service to our clients."

Watson, the daughter of Troutdale teriyaki-sauce mogul Junki Yoshida, saw the land rush coming. Her husband, Sam Watson, founded medical-pot dispensary GreenSky Collective in 2013 on North Interstate Avenue, after months of searching for a property.

Most of the weed produced in Portland is grown indoors. A large-scale indoor grow needs a warehouse with secure entrances and few windows, a functioning HVAC system to keep the temperature around 80 degrees, and electrical wiring that can handle the powerful lights that will shine on the plants.

State law says the building also has to be located at least 1,000 feet from a school.

"It's like [playing] Battleship," Erika Yoshida Watson says. "There are a lot of schools. You'd be shocked."

She isn't conflicted about facilitating a land crunch, or driving up the prices for pot entrepreneurs.

"I don't quite see it that way," she says. "They're able to get professional representation for real-estate transactions, instead of doing it in a basement. I think it's a win-win."

The Fertilizer

The headquarters of West Coast Horticulture is located more than five miles from its listed address, a post-office box on Southeast Hawthorne Boulevard.

The company is housed in an industrial park along the Columbia River Slough. West Coast's owner, Charles Goldwasser, doesn't allow visitors past the narrow front lobby. Inside the warehouse he mixes some of the best marijuana fertilizer in Oregon.

The bottles of West Coast Horticulture fertilizer—its only product—feature wildflowers, mint leaves and blueberries. There's nothing in the company's 16-page catalog that hints at weed—even though Goldwasser's clients are almost exclusively pot growers.

"We don't advertise," Goldwasser says. "They find us. We don't let anyone in the back to see what we're making, or try to steal it. We're kind of into secrecy."

His caution is well-founded. For decades, law enforcement agencies have hunted for weed growers by targeting garden stores.

In 1999, a Multnomah County judge ruled the Portland Police Bureau's Marijuana Task Force had illegally tapped the phones of Southeast Portland indoor growing store American Agriculture in an effort to track down its customers.

But Goldwasser says his secrecy is as much about competitors. Last month's CannaCon in Seattle—the nation's largest marijuana trade show—included more than a dozen fertilizer companies, with Australian giant Dutch Master Nutrients the show's title sponsor.

"It's as competitive as any other multibillion-dollar industry," Goldwasser says. "Everybody has their secret formula, and nobody wants to disclose how much money they're making."

Goldwasser, a 42-year-old Portland State University dropout, founded West Coast Horticulture in 2010. He started working on his fertilizer blend while employed at an herbal naturopath.

He won't say how long it took him to perfect the recipe. "It's expensive and time-consuming," he says. "Let's just say that."

His flagship product, Organic and Natural Bloom 2-2-4, is brewed in 5,000-gallon steel tanks. A dark brown liquid that smells like a blend of stout and soy sauce, it feeds plants potassium and nitrogen.

As states across the West legalize weed, Goldwasser has been taking his jugs of fertilizer to trade shows and holding events at garden stores. Sales have doubled each of the last four years, but Goldwasser has no plans for a higher profile.

"We've been having rapid growth," he says. "Eventually, I'm sure it will hit a wall, just like the tulip crash in Holland. First, they were valuable—and then they became worthless."

The Marketing

When Alexa Divett saw Wieden+Kennedy designers freelancing logos for weed startups, she knew it was time to change her brand.

Divett's Maya Media Collective is the most prominent Portland firm providing weed businesses with logos and ad campaigns. She founded the company in 2013 as Canna Marketing and Design—but has decided the word "Canna" is played out in Oregon.

"Cannabis is moving from this B.C. world of naked women with weed all over them," Divett says, sipping an iced coffee in her Woodlawn neighborhood. "In order to be taken seriously, you have to be serious."

Raised in suburban Connecticut, Divett is a 37-year-old Southern Oregon University grad with intense gray eyes and a manner that suggests a New Age career counselor. She talks about medical-marijuana purveyors as "a family"—one she's part of, having grown medicinal-weed plants for the past eight years.

This month, she's publishing an e-book, Marijuana Millions, that offers weed dispensaries advice on how to corner market share. It repeatedly quotes Yoda—and makes a blunt pitch for money.

"For each dollar that comes in the door," it says, "a quarter should be set aside for your marketing budget with the plan to grow that number as your revenue grows."

Divett's advice for weed shops? Picture your ideal customer. Build your business around that customer. Then create a brand—a logo, an ad campaign and mass emails—aimed at getting that person in your store.

Maya Media Collective has 20 clients. Divett instructed the Pure Green dispensary on Northeast Sandy Boulevard to target women and older patients. Divett's business partner, Jessica Pierron, designed a print campaign for True North Extracts, a Portland company selling highly potent cannabis oil. The ads, emblazoned "Live Your Truth," show hikers on an elevated wooden train trestle deep in the Cascadian forest.

"They want to advocate their product for people who are super-sick and people who are going snowboarding," Divett says. "Not everybody who sees that ad is going to walk 10 miles on a railroad track. But live your truth."

Weed advertising has its limitations. It's impossible to get a federal trademark for a banned drug. Social-media sites like Facebook won't accept pot ads. And state lawmakers are pushing for tight restrictions on recreational ganja ads, to keep weed from being marketed to kids.

But Divett's biggest worry is the arrival of big marijuana investors. She talks about protecting local market share in almost spiritual terms.

"Of course I want to make money," she says. "I can't live on nothing. But there's an opportunity to help the people who risked their lives for this plant—to give them a foothold so they can compete on the national stage.” 

WWeek 2015

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