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Green Grows OC Pot Sector

The Green Rush has hit Orange County.

Several local companies, from packaging makers to grow-kit specialists, are aiming to cash in on the recreational and medicinal marijuana market that’s booming across the country despite a hazy regulatory environment.

Irvine-based Weedmaps Media Inc. blazed a trail six years ago as California cities were already flooded with dispensaries offering everything from pot-infused chocolates to high-grade strains. Voters approved Proposition 215 in 1996, allowing patients with a doctor’s recommendation to possess and cultivate marijuana for medical use. It was later expanded to protect cooperative and collective distribution.

Weedmaps was the Yelp for medical marijuana card holders, where users could find local outlets and post reviews.

“I knew this was going to be a big thing,” said founder Justin Hartfield, who’s had a medical card since 2007. “Right away, it took off.”

Providence, R.I.-based industry tracker Marijuana Business Daily forecasts U.S. retail cannabis will hit $8 billion by 2018, up from an estimated $2.2 billion this year.

San Francisco-based Archview Group said in a market report last year that cannabis sales in California were at $1 billion and growing.

Yet regulatory hurdles remain. The financial industry has yet to establish banking regulations for the sector because marijuana is still illegal under federal law. It’s classified as a Schedule 1 drug along with ecstasy, LSD and heroin, all deemed to have no approved medical use.

Even so, the Weedmaps site generated 5,000 visitors in its first month and has since grown exponentially.

Now about 4 million users access weedmaps.com monthly, a number that’s projected to rise with recent legalization in Washington and Colorado, and with several other states expected to follow suit in the next few years.

The company, which recently moved into a 22,000-square-foot headquarters near the Irvine Spectrum, said it expects to top $30 million in revenue this year. It hasn’t been funded but changed hands in early 2013 when Lake Forest-based Internet and app marketer SearchCore Inc. sold the site and subsidiaries SafeAccessMD and MMJMenu.com for more than $11 million to undisclosed investors as it mapped a new strategy for less-controversial markets, including recreational sports, manufactured homes and tattoos.

Subsidiaries

SafeAccessMD is a software product designed for doctors who prescribe medical marijuana. It provides electronic medical records and appointment scheduling, among other applications, and complies with federal regulations to protect patients’ healthcare data, according to the company.

MMJMenu.com offers inventory control and tracking, patient information, and online ordering to medical marijuana dispensary operators.

Weedmaps employs more than 70 workers in California and a new office in Denver, where its parent company, Ghost Group, is based. The parent added some legitimacy to its shadowy name in March when it hired Dr. Bonni Goldstein, former chief resident of Children’s Hospital Los Angeles, as medical director. She’s known as a proponent of medical marijuana.

Nearly all of Weedmaps’ sales are generated through dispensary and delivery service listing fees, which start at about $300 per month. It will soon offer space on its website and smartphone apps for ancillary businesses, such as head shops, hydroponics stores, e-cigarette retailers and pot-friendly outlets in Colorado.

The company had enlisted more than 2,400 paid customers, Hartfield told the Business Journal in an interview earlier this year.

Bottling It

Kush Bottles Inc. is shipping more than 4,000 boxes of its child-safe plastic bottles per month from warehouses at its Santa Ana headquarters, in Denver and outside Seattle.

The company, established in 2010, relies on an Erie, Penn., manufacturer to churn out its product, which can hold as little as a gram to as much as a half ounce of buds. It sells bottles to dispensaries in 20 states and Washington, D.C., and said it expects a big sales jump as a result of Washington state opening its first dispensaries last month.

“We know we’ll have some difficulties in meeting demand,” said Chief Executive Ben Wu, who left white-collar jobs in the finance industry to lead the company, much to the chagrin of his mother.

He said she changed her mind after watching news reels commending the affects of Charlotte’s Web, a cannabinoid strain that’s been linked to seizure mitigation in children without producing mind-altering effects.

Kush Bottles is in a prime position to zoom well past its “seven-figure” annual revenue as a handful of other states, including Oregon, Alaska, Maine and Massachusetts, weigh legalization for recreational use.

Indeed, the grass is looking greener on that side of the debate, especially with California and New York expected to eventually approve recreational use, possibly as soon as the next general election in two years.

“As long as the regulatory environment stays positive, there’s no reason we shouldn’t double revenue every single year,” Wu said.

Trading

The marijuana industry, despite the murky legal climate, is picking up steam on Wall Street, with several OC companies traded on smaller exchanges.

Shares of Irvine-based Terra Tech Corp. are up 483% in the past year to a market value of about $56 million.

The company, which makes indoor gardening equipment and hydroponic grow systems through its subsidiaries, raised $3.5 million this month and posted sales of $2.1 million last year.

Shares of Anaheim-based GreenGro Technologies Inc., another hydroponic and aquaponic systems designer and seller, have jumped 471% in the past year, and its market value is about $23 million. The company, traded under the symbol GRNH on the Pink Sheets, is scheduled to acquire a Denver hydroponics retailer this month for an undisclosed sum.

It projects the acquisition will add more than $500,000 in sales as Greengro starts producing revenue, according to regulatory filings.

Roll-up strategies are gaining popularity as holding companies look to enter the industry.

Evergreen Agra Inc. in Irvine is planning to acquire a hemp-infused liquor producer, brick-and-mortar or online hydro-stores, a nutrient line to develop and grow cannabis strains, and a lab that tests potency, pesticides and contaminants, according to a recent regulatory filing.

The company’s ticker symbol is EGRN on the over-the-counter bulletin board.

The Marijuana Index, established last year, allows investors to gauge registered securities involved in the marijuana, cannabis and hemp sector and may eventually pave the way for future funds, exchange-traded funds or investment pools in public markets.

Changing views on marijuana in the U.S. are also prompting companies to seek public funding as institutional investors largely remain on the sidelines due to the uncertain regulatory environment.

Irvine-based Cabinet Grow, which operates a showroom and hydro shop near John Wayne Airport, is seeking to raise $2 million for expansion, sales and marketing, hiring and general working capital, according to a regulatory filing last month.

The company makes cabinet-based horticultural systems and sells grow kits for consumers.

The industry faces legitimate concerns over its fly-by-night reputation, but Wu said the perception of unmotivated stoners doesn’t reflect most of the executives he encounters at conventions, lobbying events and seminars.

“I think there’s a stereotype about the people in the industry, and it’s not all true,” said Wu, formerly an investment banker at Bear Stearns and a private equity specialist at Wedbush Capital Partners. “It’s a brand-new industry, and everybody wants in.”

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