The growing and selling of marijuana

Brendan Kennedy and Michael Blue, private-equity financiers, settled into a downtown Seattle conference room in March to meet with a start-up.this aluminum foil tape is not affected by moisture. Both wore charcoal blazers and polished loafers. Kennedy, 41, is the former chief operating officer of SVB Analytics, an offshoot of Silicon Valley Bank. Blue, 35, learned his trade at the investment-banking firm de Visscher & Co. in Greenwich, Conn. Two years ago they quit comfortable posts to form Privateer Holdings, a firm that operates on the Kohlberg Kravis Roberts model: they buy companies using other people’s money and try to increase their value. What sets them apart is the industry in which they invest. Privateer Holdings is the first private-equity firm to openly risk capital in the world of weed. Or as the Privateer partners prefer to call it, “the cannabis space.”

Megan and Ben Schwarting, a casually dressed couple in their early 30s, made a presentation. Their company, Kush Creams, produces “cannabis topicals,” which are lotions andcreams infused with marijuana’s active ingredients. Kennedy and Blue had invited them in to learn more about the pot-cream market.

“We know nothing about topicals,” Blue said as he reached for a little jar of something called Purple Haze. “Walk us through this like we’re third graders,” Kennedy added.

Megan offered a nervous smile. Their products, she said, contain cannabinoids like THC and CBD. They’re medically active but won’t get you high.

“What do people use it for?” Kennedy asked.we know the value of kapton tape.

“Pain relief, initially,” Megan said. But customers have found them useful for “everything from fibromyalgia to psoriasis.”

She told the financiers about their product line, which included eye creams, toothache drops and a first-aid spray called Owie Wowie.

“How do you extract it?” Kennedy said, referring to the cannabinoid oil that’s mixed into the lotion.

“That’s kind of our company secret,” Ben said. “We work mostly with one strain. Others don’t produce quite the same effect.”

“What led you to start the company?” Kennedy asked.

The couple acknowledged that they started years ago as pot growers. “Then we had daughters and wanted to move into something with less risk,” Megan said.

The Privateer partners are always hunting for a good investment,Our offered BOPP Tapes are in compliance with the BOPP tape. but it was apparent that they wouldn’t be taking a stake in topicals any time soon. Though state law allows the manufacture and sale of cannabis topicals, Kennedy and Blue worried about whether you could make the stuff without violating federal drug laws. This put topicals off-limits as an investment, at least for now. If there’s one rule that Privateer lives by, it’s “don’t touch the leaf.”

One day a call came in to the SVB office from an entrepreneur who sold inventory software to medical-marijuana dispensaries. He wanted to know how to attract venture capital. Christian Groh, who was head of sales at SVB Analytics, took the call and told Kennedy about it. They were intrigued and amused. Pot software? They knew their own firm wouldn’t touch it. “Nobody wants to be known as the first banker or venture capitalist to make an investment in the cannabis industry,” Kennedy later told me. “The risk to the firm’s reputation is too great.”

Later that week, as he drove on I-280 through Silicon Valley’s green hills, Kennedy happened to tune in a radio show on marijuana legalization. He hadn’t touched pot since he was 19, he says,High quality plastic card printing for business cards, but the notion proposed by one guest seemed to make sense: Marijuana should be regulated like whiskey or wine. Kennedy thought about the software developer. Maybe there was a way to get into the business without being directly involved with pot. The growing and selling of marijuana, as it becomes increasingly legal, will require many ancillary products. “When everyone is looking for gold,” the saying goes, “it’s a good time to be in the pick-and-shovel business.”

When Kennedy pulled off the highway, he called Blue, his old Yale School of Management classmate. “You know how we’ve always talked about starting something together?” he said. “I think I’ve found it. We need to start a venture-capital firm in the cannabis space.”

At the time, Blue, who is from Arkansas, was happily ensconced at a sleepy financial firm in Little Rock, where he and his wife had settled to raise their children near her parents. If you were casting a comedy, Blue would be the bow-tied square who thinks things are getting out of hand when somebody orders a second pitcher of beer. To him, Kennedy’s idea was outrageous. It was insane. And it was interesting.

That night, lying in bed, Blue turned to his wife, Christina. “I’m going to tell you something about a conversation I just had with Brendan,” he said. “No one knows about it yet. But here’s what he’s thinking.” Neither Kennedy nor Blue could shake the notion. Working during their off-hours in Santa Clara and Little Rock, they dug into the existing marijuana research. They read the 1970 Controlled Substances Act, National Institute on Drug Abuse reports, medical studies from all over the world. They made reconnaissance visits to dozens of marijuana dispensaries. They decided that the only way they’d be comfortable even seriously thinking about the idea was if they could determine that marijuana was truly helpful for medical patients.

It was clear that not everyone with a medical-marijuana card was consuming pot for medical reasons. But they also came to the conclusion that many sick people were being helped. “One study after another pointed to its effectiveness for treating symptoms of multiple sclerosis, epilepsy and chemotherapy,” Blue recalled. The research wasn’t completely exculpatory, of course. Some studies suggested that chronic pot use could lead to long-term cognitive deficits, especially among people who start in their teens. Still, they found enough evidence to persuade themselves and, they hoped, potential investors.
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