Conflicting laws, shady penny stocks, wild health claims cloud market; pot for your privates?

  • Article by: JONATHAN FAHEY , Associated Press
  • Updated: September 4, 2014 - 4:30 PM

NEW YORK — Legal or not, the business of selling weed in the U.S. is as wacky as ever.

The tangle of rules and regulations that govern whether and how it can be grown, bought and sold cause major headaches for marijuana businesses — and enticing opportunities for those who want to exploit it.

At the heart of the complexity lies a basic disagreement. The federal government views marijuana as an illegal narcotic like heroin, with "no currently accepted medical use." But 23 states and Washington, D.C., have legalized pot for medical purposes. In Colorado and Washington State, it can be bought for recreational use, just like alcohol and tobacco.

Laws differ from state to state and sometimes from county to county. A bumper crop of consultants and shady public companies have bloomed, promising to show entrepreneurs and investors how to navigate the twisted way to success and fat profits. Consumers have an array of high-quality, pot-related products to choose from — but they must also discern truth from hope in the many claims about the supposedly wonderful things pot can do.

ENTREPRENEURS

"It's a gray market industry, that's just how it is," says Kayvan Khalatbari, who owns both a marijuana dispensary and a chain of pizza restaurants in Denver.

Khalatbari started his first pizza restaurant with a bank loan. Raising money for a new marijuana-growing facility hasn't been so easy.

Federally-regulated banks are afraid to serve a business the U.S. government considers illegal. Residency restrictions in Colorado prevent raising money from out-of-state investors in exchange for a share of a company — exactly what most investors want.

So, to build his 40,000 square-foot growing facility, Khalatbari teamed with an out-of-state investor who paid for construction while trying to establish residency in Colorado. When that comes through, the investor could get an ownership stake.

Once up and running, entrepreneurs face more twists. Khalatbari kept his bank account in the name of a management company, and he was careful not to pay pot-related vendors out of the account. Still, three successive banks dropped him after learning the management company had ties to pot.

Once open, a business can flourish. Would-be competitors face the same hurdles to getting started, so months, if not years, can pass before they challenge the established business.

Khalatbari's marijuana business boasts a profit margin 60 percent higher than his pizza restaurants. Even after the legal headaches, it's easier to make a profit selling the bud of a plant for $200 an ounce than it is selling a meat lover's pizza (pepperoni, spicy sausage, Canadian bacon and mozzarella) for $19.99.

"It's much higher-risk," he says of the marijuana business. "But the reward is much greater."

CONSULTANTS

"Everyone wants to be in the weed business," says Adam Bierman, managing partner at a marijuana consulting company based in Culver City, California, called the Med Men.

Bierman is one of dozens if not hundreds of consultants feeding off the complexity of the marijuana business and the desire of so many to make it big in pot. Some act as matchmakers, promising to connect investors with entrepreneurs. Others sell help navigating the licensing process, tips on how best to grow marijuana, or advice about how to manage a startup that must operate outside of the banking system.

Bierman had no experience in the business when he started six years ago. Now his firm knows its stuff, he says, but the industry is crawling with people who don't.

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