Tuesday, January 12, 2010

Pot business is expanding

(CNNMoney.com) -- Entrepreneur John Lee thinks the pot business is ready
for its own Amazon.com.

The numbers back him up. Marijuana is California's biggest cash crop,
generating sales estimated at $14 billion a year. Thanks to the state's
increasingly liberal medical marijuana laws, more of that money than
ever before is being spent legally.

Which leaves sellers with new challenges: Taxes. Invoices. Supply chain
management. Regulatory compliance.

Enter PlainView Systems, a four-month-old Sonoma startup that aims to
bring sophisticated business management tools to an industry that has
only recently begun operating like one. "It's a business where everyone
is very, very paranoid," Lee says.

PlainView's "compassionate care marketplace" is a business-to-business
exchange for licensed providers of medical marijuana and their patients.
Participants can band together to form growing collectives -- a legal
requirement for those that want to sell pot -- and cut deals with other
members to buy and sell their inventory. The system also helps users
sellers keep their records in order, generating invoices, sales reports
and tax paperwork.

Evan, who asked that his last name not be used, is one of the site's
early clients. Now 23, he's been growing cannabis and supplying it to a
dispensary since he was 18 -- when it became legal for him to do so, he
is very careful to say. He uses PlainView to invoice his buyers and
order seeds and fertilizer for his crop.

"I'm just a small-time grower," Evan says. "Anytime I have extra, I can
sell it to [a dispensary] for $2,000 to $4,000."

Actually, even the word "selling" is a legal no-no with the dispensary
that Evan works with. "They're 'reimbursing you for your time,' that's
how they like you to say it," he says.

That semantic footsie is a sign of how California is approaching its
controversial crawl toward de facto pot legalization: By burying it in
red tape. Local municipalities have drawn up a thicket of regulations
specifying how, and how much, cannabis each individual merchant can
grow, transport and sell. For Lee, that blizzard of bureaucracy is a
business opportunity. It means sellers will need help keeping their
paperwork straight.

"Just in the state of California alone, according to my calculations,
medical cannabis is a $200 million market," Lee estimates. "As that
market grows, we want to have a small but significant part of."

But the formerly underground industry isn't exactly scrambling to shape
up and fly straight. Four California dispensaries didn't return calls
and e-mails seeking comment on PlainView Systems' business model.

"A lot of them are still on the edge of the law and may not want the
publicity," theorizes Andy Cookston, who owns Cannabis Medical, a clinic
in Denver that grows and dispenses its own marijuana on the premises and
dispense it.

Cookston says that he appreciates Lee's "idealism." If PlanView Systems
does ultimately help growers and dispensaries operate within the law,
"I'm all for that," he says. "His business makes great sense."

Lee never expected to work in the drug trade. A lifelong IT
professional, he held an executive position at media software maker Real
Networks before losing his job to a layoff in February. Soon after,
Lee's brother saw a news story on CNBC about California's growing
medical cannabis industry and called up to suggest it as a career
option. "And I thought, 'OK, I'll go take a look,'" Lee says.

He didn't want to start a dispensary and knew cannabis farming wasn't in
his future. But his quarter-century of experience in technology seemed
like a useful fit for the fast-growing cannabis field.

Fourteen states have legalized some form of medical marijuana, and new
signs of acceptance turn up almost daily. The American Medical
Association recently softened its stance on the drug, recommending that
some federal controls on it be relaxed, and the Obama administration
reversed a Bush era policy and said it would stop federally prosecuting
medical marijuana users and suppliers who comply with their state laws.
Every step creates more potential clients for PlainView.

Lee still gets the jokes from friends -- "So, you're a pot dealer now?"

"Not exactly," he responds. "I don't touch any of the material. I'm not
part of the transaction."

But if all goes as planned, he intends to be part of a multi-million
dollar solution.

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