“We are in the right place at the right time,” says Bruce Bedrick, a
44-year-old chiropractor, occasional pot user, and chief executive
officer of
Medbox (MDBX), maker of one of the world’s first marijuana vending machines. “We are planning to literally dominate the industry.”
The two investors Bedrick is addressing at the offices of NewGate
Capital Partners in Winter Park, Fla., smile politely. NewGate partner
Joe Alvarez Jr. says he likes Medbox’s product but has concerns about
the company’s roller coaster stock, which zoomed from about $3 a share
to $215 in November and has recently bounced between $20 and $30.
Alvarez doesn’t use the phrase “pump-and-dump,” but it hangs there like a
cloud of smoke. Either way, Bedrick takes umbrage. “This is all crazy
talk,” he nearly shouts. “Wall Street plays games with our stock all the
time. We’re a retailer’s wet dream. We’re the leading player in an
industry that’s ready to explode.” Alvarez says he meant no offense.
Gregg Segal for Bloomberg Businessweek
Medbox’s
core product resembles a Redbox DVD dispenser, only it’s black,
refrigerated, and armored. Bedrick avoids the term vending machine
because you can’t just saunter up to a Medbox, put in a few bills, and
walk away with a stash of weed. The devices sit behind sales counters at
state-licensed marijuana dispensaries. Biometric technology identifies
the fingerprints of patients carrying state-issued medical marijuana
cards. Clerks hand over plastic vials of cannabis leaf or, depending on
the machine, cannabis-infused brownies, lozenges, or other “medibles.” A
database tracks everything so that patients can’t buy more than their
legal allotment, clerks can’t pilfer the merch, and states can collect
taxes.
It’s a conventional business model—which is the point. Medbox’s
$50,000 machines are intended to allay fears that pot means “druggies
standing on street corners and grabbing little kids and stuffing drugs
down their throats,” Bedrick says. As he sees it, for marijuana to
become as mainstream as Miller Lite it needs to endure the same
PowerPoints and conference calls as other businesses. “If you’re going
to allow people to have marijuana, then let’s organize it, regulate it,
tax it,” Bedrick says. “It has to work for everybody.” He adds, “I’m a
Libra—always seeking balance.”
After the meeting, he steers his rented Chrysler into downtown Winter
Park for lunch. He parks curbside on busy Park Avenue and starts to
strip off his charcoal suit, blue dress shirt, and banana-yellow tie.
Shoppers strolling past don’t seem to notice the hairy-chested man in
boxer shorts jabbering on his phone. Bedrick doesn’t care. He slips into
jeans and a T-shirt. “I’m very thankful for everything that has
happened to me,” he says, “but I never thought I’d be wearing a suit.”
Gregg Segal for Bloomberg BusinessweekBedrick and his 34-year-old partner,
Medbox inventor P. Vincent Mehdizadeh, are two of many entrepreneurs
seeking to cash in on the prospect of legalized marijuana. Eighteen
states and Washington, D.C., have legalized the drug for medicinal
purposes, and others are moving in that direction. Washington State is
writing rules for recreational use; Colorado just passed legislation
regulating retail sales. With a Pew Research Center poll finding broad
support for legalization, entrepreneurs hope the feds will rescind, or
at least not enforce, its decades-old ban on marijuana. The market is
potentially huge: IBISWorld estimates legal sales this year will be
$1.7 billion, rising to $5 billion by 2018. Then there are the picks and
shovels of this gold rush: vaporizers to inhale marijuana, hydroponic
gear to grow it, software to tally taxes, and so on.
Some new shops look as bland as doctors’ offices, with clerks in
white smocks and labeled plastic containers like the ones behind the
counter at
CVS (CVS). Leafly, a sort of
Yelp (YELP)
for dope, wants “no puns, no pictures of pot leaves or giant joints,
none of the negative stereotypes,” says Brendan Kennedy, co-founder and
CEO of Privateer Holdings, a private equity firm that owns Leafly. Only
medibles are visible in Medboxes, not the weed; “You don’t see
pharmacies with Vicodin on display,” Mehdizadeh says. He has no title at
Medbox but helps Bedrick run the business as a consultant.
Bedrick, Mehdizadeh, and other aspiring marijuana moguls are urging
states to levy taxes, set hefty registration fees, and establish
detailed regulations such as mandates for fungus testing. Washington
State estimates marijuana taxes and fees could generate $2 billion in
revenue over five years. “What state … forget it, what country can
afford not to give that a serious look?” says Tripp Keber, managing
director of Dixie Elixirs & Edibles, which sells marijuana-infused
sodas, candies, bath salts, and tinctures.
For now, the feds still loom. Banks shun marijuana businesses. Cities
worried about crime are erecting legal obstacles. Most of the dozen or
so public pot companies, including Cannabis Science and Medical
Marijuana, remain pink sheet stocks, which don’t have to report
financials as fully as companies on major exchanges. Medbox, based in
West Hollywood, Calif., saw its market cap soar to more than $2 billion
in November after the votes in Colorado and Washington. On Nov. 15 the
stock closed at $205 a share; the next day it fell to $20 after Medbox
said the price spike was “not based upon present business economics.” It
blamed the increase on a tiny “float”—publicly available shares—that
meant trades of a few thousand shares could push the price way up or
down. “The key to these investments?” Jay Leno quipped on
The Tonight Show. “Buy low, sell really, really high.”
The company posted 2012 net income of $327,853 on revenue of
$3.5 million. It filed with the Securities and Exchange Commission to
become a company that fully reports its financials, which Bedrick says
will attract blue chip money. “We have the largest market cap because we
have the most professional organization,” he says. “Whether it ends up
that way—well, I’m doing my best.”
Dr. Bruce, as Bedrick calls himself, was
a 10-year-old in suburban Philadelphia when his mother died of breast
cancer. “I remember hearing her screaming at night for her own mother,”
he says. If she’d had marijuana, he says, “her life would have been
different. At least she would have had an appetite.”
Gregg Segal for Bloomberg Businessweek
At
Ithaca College, Bedrick worked for a chiropractor who inspired him to
help people like his mom. He graduated from a chiropractic school in
Oregon and opened a wellness center catering to patients with chronic
and degenerative conditions. He says he couldn’t stomach losing patients
or taking money from the dying. He closed the center and in 2004 opened
a clinic where he put athletes through soft-tissue workouts and advised
them on diet and exercise. Again he had trouble collecting money, this
time from health insurers. “I had to make a change,” he says. “I asked
the muse, ‘Please, please send me somebody.’ ”
A patient told him about marijuana vending machines, which led him to
Mehdizadeh, who managed law firms in Los Angeles and partied with the
Hollywood set. Mehdizadeh opened two L.A. medical marijuana outlets in
2007, one a 24-hour store equipped with an early version of what would
become the Medbox machine. It was neither clerk-operated nor
behind-the-counter; customers swiped a card, matched a fingerprint,
and—voilà!—product. It got him more press than he’d hoped for: In
March 2008 federal agents confiscated the machine. The feds eventually
returned it, but Mehdizadeh sold his pot shops. An Internal Revenue
Service audit concluded he owed about $1 million in back taxes,
interest, and penalties. In 2010 he filed for bankruptcy. “I wanted a
fresh start,” he says.
By then, he’d won a patent for a vending machine that would confirm a
person could legally purchase pot. In Arizona, voters were about to
legalize medical marijuana. Bedrick, who lives in Scottsdale, approached
Mehdizadeh. They hit it off and formed Medbox. When the company went
public in 2011, Bedrick became its CEO. Mehdizadeh says his IRS problems
are almost resolved. An IRS spokesman says the agency can’t comment on
individuals. Mehdizadeh says he learned from his first foray into the
pot industry: “Like in any business, you have to figure out where
society is and craft your project accordingly. Society’s not ready for
24-hour machines.”
Bedrick makes that point repeatedly at a free
seminar in a Boston hotel. Jimmy Cliff thrums from a sound system as
about 90 would-be pot retailers, some in suits, some in jeans and
sneakers, take seats. The reggae fades out. Bedrick fires up his
PowerPoint. “Is everybody here excited?!” he shouts. “Yes,” comes the
halting reply. Audience members are wary of being interviewed. One man
asks, “You don’t work for a federal agency, do you?”
Photograph by Leonard Greco for Bloomberg BusinessweekMedbox CEO Bedrick pitching his dispensing system in Boston
For
90 minutes, Bedrick expounds on Massachusetts’s proposed medical
marijuana regulations. If you want a license to sell reefer, you can’t
have a felony in your past. You need a detailed business plan. You must
show you have $500,000 in cash. State officials will “look up your tush
with a magnifying glass,” he says.
Bouncing around the room, Bedrick looks a little like Jerry Seinfeld
but sounds at times like Rodney Dangerfield. He points at one of two
Medbox units sitting side by side at the front of the room and solemnly
declares, “This is not a vending machine.” The unit next to it is set up
to dispense medibles. Bedrick’s assistant hits a button to vend a fake
sample but the little white bag gets stuck inside. “It’s rare that that
happens,” he says, as the assistant fishes the bag out.
Bedrick finally comes around to the session’s real purpose: winning
over clients for Medbox. For about $200,000, he says, customers can get
all the Medbox equipment, plus help with writing business plans, finding
locations, and acquiring licenses and permits. Clients don’t have to
buy the boxes, but Bedrick argues that regulators will look more kindly
on license applications relying on Medbox gear because it’s designed
specifically to demonstrate compliance with state rules and help
governments figure out how much they’re owed in taxes.
Medbox has sold more than 100 machines to shops owned by physicians,
attorneys, and pharmacists, Bedrick says. It’s also helped businesses in
Arizona win 20 licenses, and it’s working with clients in Connecticut,
Massachusetts, and elsewhere. Other companies offer similar consulting
services, and still others make vending machines for federally approved
drugs. So Medbox has been acquiring and investing in companies that
would help it sell its products to pharmacies, hospitals, prisons, and
nursing homes. It recently bought a stake in a Michigan company that
sells a dispenser for doctors’ offices. “We’ve always thought somebody’s
going to buy us out or we’re going to have to be No. 1,” Bedrick says.
Bedrick is the only guy in a tie sitting around
a big table at a meeting in Boca Raton, Fla. To his right is Herb
Postma, a 67-year-old entrepreneur with reading glasses perched on his
bald head. Postma once ran successful yacht dealerships in Fort
Lauderdale. “I used to sell $7 million to $20 million yachts, on spec,”
he says. Now he runs Vaporfection International, which Medbox is angling
to buy.
Photograph by Gregg Segal for Bloomberg Businessweek
Postma
says he smoked dope in college but raised his kids as an
“anti-pot-smoking father.” He retired in 2001, got bored with golf, and
was looking for new opportunities when his 29-year-old son Jonathan
gingerly broached the idea of marijuana. Soon Dad was all in.
Postma holds up a boxy white device that resembles an oversize iPod.
The viVape 2 vaporizes marijuana so it can be inhaled as warm, odorless
air instead of smoke. Postma tells Bedrick that the $399 device is
perfect for cancer sufferers who’d benefit from marijuana but have
respiratory or digestive problems that keep them from smoking or
ingesting it. He demonstrates how to inhale from a hose attached to a
hole in one end of the vaporizer. Then he inflates a clear vinyl bag
that can supply vapor to patients who can’t easily draw air on their
own. “We’re the new demographic for alternative medicine,” he says. Only
1 percent of marijuana users use a vaporizer, he tells Bedrick, and
every additional percentage point could be worth $500 million.
As with bongs, vaporizers don’t run afoul of federal law as long as
they’re not explicitly marketed for marijuana. Fine print on
Vaporfection’s website says its products are “not intended for medical
purposes or illegal use.” Postma tells Bedrick the pinch of marijuana
used in a single viVape 2 dose “represents 25 percent to 30 percent of
the material in a typical joint. But it gets the same effect of a full
joint, so you’re saving on your material costs as well.” His son chimes
in, saying the device can get people “where they want to be” in
30 seconds or less. His dad pulls out a prototype of a pocket-size model
called a miVape. “This is my martini,” he says, grinning.
“I’m lovestruck,” Bedrick says. But he has questions: Is Vaporfection
locked into its distribution contracts? Who’s pitching vaporizers to
assisted-living facilities? Is someone analyzing customer demographics?
One of Postma’s staffers says 1,000 customers responded to an online
survey. “Awesome,” Bedrick says. “That speaks to a tech-savvy user, not
your average stoner.” He leaves Postma with Medbox’s acquisitions chief
to close the deal.
The next day, Bedrick is looking forward to a workout and an hour or
two at the beach. But the Vaporfection negotiations hit snags, not over
millions of dollars but tens of thousands. Bedrick decides he has to be
there. He climbs into yet another suit and tie. “Bummer,” he says.
“Gotta go to work.”
