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Cannabis And Security: The Road Ahead For The Legalization Of Recreational Marijuana

Randy Southerland
Special Assignment Contributor, SourceSecurity.com US Edition
 
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Complex regulations have largely discouraged banks from serving the industry.
The stigma of the cannabis industry still hangs in the balance
Final installment of 4-part series:The legalization of recreational marijuana use in Colorado and Washington, along with it medical use in about 23 other states, has created an industry made up mostly of small mom-and-pop operators. “While the revenues in this industry are big, the number of people involved is pretty small,”said one security industry insider.

That’s about to change as Wall Street and some big money funds have taken notice of the industry’s potential. For example, Tom Bollich, a co-founder of the social gaming company Zynga, became CEO of Surna, which develops climate cooling systems for sale to cannabis-growing facilities and greenhouses.

When Dan Williams, CEO of Canna Security America (CSA) was getting ready to launch an armed security guard company called The Cloverton Group, he sought money to complete Series A financing at Boston’s ArcView Investor Network.

“We’re seeing a lot more third party investor money coming in from accredited investors – millions of dollars,” says Williams. “People say that the cannabis industry is a very big industry and it is in terms of overall revenue and the amount of money coming into it. It’s not big in terms of how many people are involved. From that standpoint, it’s fairly small.”

Cannabis dispensaries and the entire industry is about to get some much needed infusions of venture capital. The result will likely be bigger, better financed chains of stores and growers and more money to pay for security services.

Industry experts also see changes coming as federal authorities pull back from their opposition to marijuana legalization and banks get used to both financing and providing ordinary business services to vendors.

Security providers that entered
the test markets in states like
Colorado and Washington have
also developed a greater
understanding of the particular
needs of the cannabis industry

“Banks are scared of the law as it stands,” says attorney Robert McVay, a partner with the Canna Law Group. “They can bank the industry if they follow certain criteria. The department of treasury has an agency within it that governs anti-money laundering, and they put out some guidance for banks with marijuana customers.”

These complex regulations have largely discouraged banks from serving the industry. As they adapt to the regulatory structure and find ways of generating revenue from customers, they will likely be more willing to offer services.

That will also be good news for security companies. Putting dispensaries on a firmer financial footing means they will be better able to pay the bills.

Security providers that entered the test markets in states like Colorado and Washington have also developed a greater understanding of the particular needs of the industry. They also have mastered the sometimes complex regulations surrounding security created by states.

That experience gives companies a leg up on the growing market as well as companies that have hesitated to jump in, according to Ralston.

A number of security operators have opted out of doing business with dispensaries, even in states that permit medical or recreational use of the drug. Among them is the nation's largest, ADT Security. It announced last year that it won't "sell security services to businesses engaged in the marijuana industry” because it’s still illegal at the federal level.

“ADT is more concerned about their government contracts than picking up this business,” says Roger Ralston, chairman and CEO of DirectView. “Their pulling out creates an opportunity for us.”

Those opportunities are likely to grow along with the industry. As time passes and marijuana in all its forms starts to be viewed more like alcohol, and less an illegal drug, it will be harder for security companies to avoid. [After the recent election, recreational sale of marijuana will become legal in Alaska and Oregon in 2015, and in the District of Columbia (subject to Congressional review).]

See related articles
Part 3: Cannabis and Security: Finding opportunities for dealers amid the growing market for legalised marijuana
Part 2: Cannabis and Security: Technology solutions provide protection for emerging legalised marijuana industry
Part 1: Cannabis and Security: The security challenges of legalised marijuana sales in the United States

Randy Southerland
Special Assignment Contributor, SourceSecurity.com US Edition

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Comment(s)

Vicki Contavespi:
ADT will regret their decision. A lot of money they are leaving on the table.

LarryEditorSourceSecuritycomUS:
Public opinion is a powerful force, so it's understandable that "mainstream" companies might shy away from what appears to be a huge opportunity. Many people still associate marijuana with basement-dwelling stoners and Baby Boomers who just won't let go of the 1960s. But times change, and an opportunity to profit from a nascent market with huge eventual upside doesn't come around that often. Maybe a large company like ADT can afford to pass up such opportunities, but can (or should) smaller integrators do the same?

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