BUSINESS

Marijuana Venture Capital Fund Launches As Ganjapreneurs Go Mainstream

06/06/2013 08:34 am ET | Updated Jun 06, 2013

In the latest sign of marijuana’s continued evolution from contraband to legitimate commodity, two California entrepreneurs on Wednesday unveiled an investment fund aimed at providing seed capital to pot-related ventures.

The fund, Emerald Ocean Capital, plans to steer clear of growing operations and retailers, instead investing in business that support those industries, such as online payment processors, security firms and hydroponic equipment manufacturers. The fund will also function as a venture capital incubator, providing office space within an 8,000-square foot Denver facility to select start-up companies.

The fund began raising money in March, according to Justin Hartfield, one of its two general partners. He portrayed American investors as eager to capitalize on a swiftly growing emerging market with improving prospects, and according to the San Francisco Business Times, the fund aims to raise between $10 and $25 million by the end of this year.

“We’re finally at a point where the American public is supporting marijuana legalization and that’s encouraging people to invest,” said Hartfield, an industry veteran who co-counded WeedMaps.com, a California-based startup that identifies and rates medical marijuana dispensaries in various states. “The game has changed in the past six months.”

Much of the momentum comes thanks to the legalization of marijuana in Washington and Colorado. But another driver is the perception that the federal government is inclined to eventually accept the trend, rather than confront states that opt to legalize.

In May, a firm called the ArcView Group also announced plans to support promising marijuana-focused ventures

Emerald Ocean operates like a traditional investment fund, with wealthy people handing over their money to be managed in a bid to exploit the growing embrace of marijuana. But Emerald Ocean and ArcView share some things in common: Both seek to minimize their potential legal troubles by investing only in so-called ancillary businesses, while steering clear of companies that actually touch the cannabis.

This past April 20 -- a holiday celebrated by marijuana users as a day to light up and enjoy the plant's effects -- Hartfield attended the High Times Cannabis Cup, an annual bake-off at which growers compete for the title of best crop. Held inside a smoke-filled convention hall in Denver, the event saw people less attuned to marijuana culture intermingling with a more predictable crowd sporting dreadlocks and tie-dye.

“I was surprised at the number of people who kept asking me how to get into the industry,” Hartfield said. “A 70-year old gentleman came up to me in a suit saying he was from New York and wanted to know about investing.”

The current furor presents a marked contrast to the climate marijuana-related firms faced in just the recent past, when many companies found it difficult to impossible to secure financing. Large investors and banks, scared off by federal prohibition, have been too afraid of potential legal liabilities to back those ventures, Hartfield said.

Now that the dynamic has changed, Emerald Ocean is banking on word-of-mouth alone to fill its coffers.

“The more money and the more people you have invested, the more they tell their friends,” Hartfield said.

Emerald Ocean is also keeping an eye on politics. A portion of the capital in the fund will be used to support a political action committee lobbying for the legalization of marijuana at the federal level.

“The business and the politics are essentially intertwined.” Hartfield said, “Right now the industry exists basically as a loophole in the law. We need federal marijuana legalization as the ultimate goal. Without that, none of this really takes off.”

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