POT-GROWING SUPPLIERS PLANNING IPOS

In an industrial section of Oakland, former Morgan Stanley investment
banker Derek Peterson hops into a trailer being outfitted with shower
drains, lights and humidifiers, all used for growing marijuana.

"This is one we're finishing up, what we call our bloom room," he
said. Peterson, 36, sells the trailers for $30,000 to $80,000 as
"plug-and-play" facilities for cultivating pot. Customers don't need
to worry about buying hydroponic equipment or even staying on-site -
lighting, temperature, nutrients, water and humidity can be operated
remotely via an iPhone app.

The legalization of medical marijuana - permitted in at least 15
states - has kicked off a booming economy in ancillary goods.
Startups such as Peterson's Grow-Op Technology Ltd. and General
Cannabis Inc. compare the phenomenon to the California Gold Rush,
when the people making the real money were the ones selling pickaxes
and shovels. Both companies are planning initial public offerings,
part of an effort to remove the stigma from what's seen as a
multibillion-dollar industry.

"We're better off by being in the public arena and showing a face of
professionalism," said Jim Pakulis, chief executive officer of
General Cannabis, who says medical marijuana could be a $60 billion
industry nationwide. "The market will just continue to expand."

Growing marijuana violates federal law, and recreational use of the
drug remains illegal at the state level. That puts related businesses
at risk of getting shut down by law enforcement. By focusing on
equipment, services and technology, Pakulis and Peterson aim to
sidestep the legal pitfalls of the trade while reaping the benefits
of its expansion.

Dispensary map

General Cannabis operates several businesses, including WeedMaps.com,
which directs users to more than 800 pot dispensaries nationally; a
company that handles administrative tasks for more than a dozen
medical marijuana clinics in California; and a payment-processing
service for dispensaries.

"We are a technology company with an affinity toward medicinal
cannabis," Pakulis said in an interview.

General Cannabis, in Costa Mesa (Orange County), plans to raise $10.5
million in an IPO, according to documents filed with the Securities
and Exchange Commission on March 1. The company posted net income of
$1.2 million in 2010 on revenue of $7.7 million.

Pakulis, 47, has been involved with managing and consulting startups
in various industries for more than 15 years. The company also
brought on a former Silicon Valley Bank executive in January to lead
its strategic efforts.

Word of mouth

GrowOp's Peterson spent almost a decade managing investment
portfolios before starting his current company. After stints at
Wachovia and Morgan Stanley, where he managed a $100 million fund, he
went out on his own, taking some clients with him. In addition to
GrowOp, he oversees a $48 million portfolio with a partner.

GrowOp sold its first trailer in May, and by the end of the year
posted $800,000 in revenue, Peterson said. It made $250,000 more in
January alone, he said.

The business has mainly grown through word of mouth. Peterson is
producing a catalog, which he expects will generate 90 percent of
sales. It will offer hundreds of products for cultivating pot -
everything from light bulbs and nutrients to something called
"hydroponic grow medium."

Soil of your dreams

"It's pillow stuffing," Peterson said, as he digs his hand through a
box of chunky blocks of white foam material. "But apparently plants
grow phenomenal in it."

Peterson wants to undercut distributors of these products to the
retail hydroponic shops, where growers buy materials for cultivating
plants. Distributors typically mark up their goods 100 percent, he said.

"We can operate a thriving business and do so with 60 to 70 percent
margins," Peterson said.

His goal is sales of $2.5 million this year, then $5 million to $8
million next year. While GrowOp hasn't filed paperwork to go public -
and its revenue is smaller than General Cannabis' - it plans to have
an IPO this year. GrowOp is in the audit stage of its offering plan
and working with Network 1 Financial Securities Inc., Peterson said.

Peterson always wanted to take a company public, though he never
found the right specialty. That changed when he learned how much
medical marijuana growers were making, he said.

"The few dispensaries in my neighborhood - I started talking to them
and found out they were doing $10 million to $14 million in business
a year," Peterson said. "I just started to see the economics."

Medical uses

Marijuana, produced from the cannabis plant, can be smoked or
ingested. Advocates of medical use say marijuana can ease cancer
patients' nausea from chemotherapy, help treat glaucoma, stimulate
AIDS patients' appetites and ease pain for multiple sclerosis sufferers.

While law enforcement has taken a hands-off approach to General
Cannabis and Grow-Op, the federal marijuana ban could mean the
companies are aiding and abetting a crime.

"Under United States federal law, the possession, use, cultivation
and transfer of cannabis is illegal," General Cannabis said in the
"risk factors" portion of its filing. "We provide services to
customers that are engaged in those businesses. As a result, law
enforcement authorities may seek to bring an action or actions against us."

California initiative

California voters approved a ballot initiative in 1996 permitting
people with a doctor's recommendation to possess the drug, though
they rejected a proposition last year that would have legalized it
for recreational purposes. Other states have followed California's
lead with medical-pot laws.

Not everyone thinks the industry is primed for growth. Dale
Gieringer, who runs the California office for the National
Organization for the Reform of Marijuana Laws, said the value of
medical pot has started to fall as more growers add supply to the
market and reduce prices.

"There's a glut on the market, a general retrenchment, and it's not
clear to me how much the market can expand unless laws change," Gieringer said.

In the past few years, prices have dropped by half to $1,800 a pound
for marijuana grown outdoors, he said. Pot grown indoors fetches a
higher price - $3,000 a pound - though it's seeing a decrease as
well, Gieringer said.

Peterson says customers are interested in his trailers and products
for various reasons. One buyer in Colorado uses his to grow mushrooms
for culinary use. Another wanted to get into the business because
making a profit in his other profession as a porn-film director was
getting difficult.

"They see the green rush - and like the Gold Rush back in the day -
are getting picks and shovels," Peterson said.