SEATTLE, Wash. - Washington’s move to legalize marijuana is attracting a whole cast of entrepreneurial characters. Among them, a pair of Yale business school graduates -- one of whom says he’s never smoked pot. So why are they getting into the marijuana business? These MBAs see a once in a lifetime money-making opportunity and a chance to bring respectability to an industry they believe has an image problem.
Brendan Kennedy remembers the moment he decided to get into the pot business. It was May of 2010. He was driving in the Bay Area. On the local public radio station was a debate over Prop 19, a measure to legalize recreational marijuana. Kennedy was a successful investment analyst and had just met that week with a potential client -- a tech firm focused on medical marijuana.
Something clicked. He picked up the phone and dialed his Yale business school buddy Michael Blue -- a private equity guy in Little Rock, Arkansas.
“I called him and told him I need you to quit your job and come join me in the cannabis industry," Kennedy says. "And he was a little bit caught off guard by that call.”
Michael Blue remembers that call well.
“My initial reaction was I was shocked by it.”
Blue says he and Kennedy had talked about a lot of business ideas. But marijuana? Blue had never even smoked weed -- and says he still hasn’t to this day.
“I’d grown up in an incredibly conservative household in the South," Blue explains. "And it just wasn’t something I’d ever given any thought to at all.”
But after some long family conversations, they both quit their jobs. Blue joined Kennedy in Seattle where they founded Privateer Holdings. Today, along with a third partner, they run a successful website for medical marijuana users called Leafly. It’s often described as the Yelp of medical marijuana with user reviews of different strains and info on local dispensaries.
But now that recreational pot use is legal in Washington and Colorado, Privateer Holdings is looking to expand. Kennedy carries with him a PowerPoint presentation that compares cannabis to corn as a cash crop.
“If you go to Lincoln, Nebraska and you look at corn, there’s corn banks and corn insurance and agricultural supply houses and corn associations and high fructose corn syrup and there’s hundreds of sub-industries around corn and all of those opportunities will exist in the cannabis industry.”
It’s exactly those kinds of ancillary services that Kennedy wants to target in the cannabis market.
“Companies that are in advertising and security and staffing and software and professional services and equipment.”
Not to mention consulting, franchising, horticultural supplies.
For the past year, Kennedy and his partners have crisscrossed the country and the globe making the pitch to would-be investors. To date, they have lined up nearly $7 million for an initial stock offering. That’s chump change in the world of private equity. Even so, Kennedy thinks it’s enough to start to build some mainstream brands that don’t conjure images of stoners or hippies or hip-hop artists.
“Every brand doesn’t need to focus on the Grateful Dead or Snoop Dog or Willie Nelson," Kennedy says. "It just doesn’t need to be that way.”
He gives the example of medical marijuana. The typical marketing ploy is to use a scantily-clad nurse to beckon patients. By contrast Kennedy’s website Leafly borrows from the Periodic Table of Elements.
Kennedy and his partners are viewed as a major player by people like Alison Holcomb. She led the campaign to legalize recreational pot in Washington. She’s also Drug Policy Director for the ACLU of Washington.
“I think what they’re thinking of is something that is national in scale really completely revolutionizing what the marijuana market in the United States looks like," Holcomb says.
Case-in-point. Kennedy recently submitted a memo to the Washington Liquor Control Board -- the agency writing the rules to implement the state’s new pot law. In his memo, Kennedy urges state regulators not to limit the size of marijuana grow operations in Washington. He makes the case that large marijuana farms are easier to secure and can generate economies of scale that drive down the legal price of pot.
Holcomb wrote her own letter to the Liquor Control Board warning of “Big Marijuana” interests entering the market.
“Large industries that have large overhead and are interested in maximizing their profits are going to target their advertising in ways to promote marijuana use, not simply meet current demand where it currently exists.”
Holcomb is especially concerned about advertising aimed at young people. Kennedy says that’s not his focus. He’s targeting what he calls the connoisseur recreational user and chronically ill patients who use marijuana as medicine.
It’s not only about attracting a new brand of customer, but a more professional workforce.
“Part of how you win is by attracting smart MBA students from Carnegie Mellon or Wharton or Harvard into this space and we’re starting to see it,” Kennedy says.
“So you are corrupting the youth,” I say.
“Ya," he responds. "No comment there.”
Kennedy says over the past three months, Privateer Holdings has received more than 100 resumes from what he calls blue chip MBA students who want a job or a summer internship.
On the Web:
Privateer Holdings - official site