It was 9:40 on Saturday morning, visiting cars had filled up the parking lot of Huy Fong Foods, Inc. in Irwindale, California. Several golf cars worked continuously to pick up people from their parking spot and drop them at the entrance of the magnificent factory.

“Good morning, please register here and wear the cap,” a staff handed a red disposable bouffant cap to every visitor in line, wrapped in which are a Tour Guide, a ticket for Sriracha flavor ice cream and a ticket for a 9-once bottle of Sriracha Hot Chili Sauce and a free T-shirt.

Every Saturday since August 22nd, Huy Fong Foods, Inc. expects over 1000 visitors to the Open House event. On September 27th, there were over 1,500 people flooded to the factory. “We didn’t have so many visitors even at the first Open House,” said David Tran, the CEO and Founder of Huy Fong. From 10 a.m. till afternoon, the 70-year-old millionaire would wait outside the entrance to greet every visitor with smile and make pose for photos.

David used to be very cautious about the secrecy of his processing lines, but now visitors can see the whole procedure of making the iconic Sriracha hot chili sauce. From chili grinding, ingredients mixing, to bottle making, filling and the eventual packaging, visitors can not only stand by the processing line to take selfies, but also talk to the workers and get to know more about the procedure.

The tour is free, but it brings extra revenue to the company. When all the visitors had left, David got reported that for September 27th they earned over 6,000 dollars for selling souvenirs in their gift shop, the Rooster Room.  Neither for branding nor for higher sales, David confessed opening the door to public is his “last resort to run the business” at current location.

Started in 1980, Huy Fong Foods, Inc. has been making hot sauce for 33 years. Their signature product, Sriracha hot chili sauce, was named as the “ingredient of the year” by Bon Appetit magazine in 2010 and has a huge foodie fan base nationally and internationally. But the company was not known by many people. In February, 2013, Huy Fong moved to a 650,000 square-foot brand new factory in Irwindale, hoping to begin a new page of business. But later that year, the Irwindale city filed a lawsuit against Huy Fong Foods, Inc. claiming strong odors emit from the factory have affecting residents’ lives and threatening to close the factory.

In an email from Irwindale Council Member H Manuel Ortiz sent to other council members on Oct 10,2013, Ortiz writes: “I just received notice that the ordr at this place is very strong. We must proceed with SHUT DOWN immediately. Remember they have another 10 to 12 weeks of full operation, how can the affected residents put up with this health problem.”

David recalled that among the 60 to 70 complaints, several indicate residents can smell the spicy order on Sunday morning, when his factory is not working at all. A little bird told David that someone was shooting pepper guns in front of some residents’ home and try to put the blame on Huy Fong.

The Irwindale city used to greet Huy Fong with warm welcome event, being considered as an example of business-friendly government by California Community Redevelopment Association and the Los Angeles Business Journal. But several months later, the government tried hard to shut down his factory without any sound proof that the odor comes from Huy Fong. What’s worse, David said the city also delayed the license for his new factory with no reasonable explanations.

In April 2014, Irwindale City Council voted unanimously to declare the spicy smell of Sriracha hot sauce production a public nuisance. At the public hearing, David was so furious that he shot at the city council members with his poor English that ” You have no brains. Your noses have problems,” he recalled. But eventually David cooperatively worked with South Coast Air Quality Management District to improve the placement and effectiveness of odor control filters.

The city holding its right to install the improved equipment itself if the order issue didn’t get better within 90 days, for David, is a dormant volcano, which can erupt at any time especially during the chili grinding season during June to November. “If they wait to install the equipment until the harvest season, I have to stop all my operations and the pepper will be wasted. I will go bankrupt,” David said.

David is highly suspicious that some scheme may be behind the whole dispute. Concluding from the sudden turn of city government’s attitude and all the troubles he has faced in the recent two years, he said maybe Sriracha’s growing demand has threatened other big companies’ market share, so they want to take me down and take away my business.

“(Huy Fong) is my second wife, my lover. I can’t love it enough. How can I share it to others?” said David. To save his business, David finally decided to open the door to public, and prove that “no tear gas” is produced in his factory.

David sent 30 VIP invitation to Irwindale city to invite all the complaints to his factory and check the odor themselves. But none of them had showed up so far. Oppositely, until September 27th, there has been over 10,000 people outside Irwindale, the city with around 1,400 residents, attended the Open House and their feedback were all positive.

“My business runs smoothly for 33 years, but last year it had a lot of problems. I got great pressure,” the usually calm and smiling businessman sighed while confessing his true feelings.

During the past 33 years, David worked hard to improve the quality of his products while keeping the price low. When he started the business, a 28-ounce bottle of Sriracha was sold at $2, but now it’s $1.75.

But the dispute ironically brought Huy Fong Foods, Inc. into the spotlight. The demand for Sriracha increased drastically. David said last year the sales of his products increased for 20% and it continues to grow.

Sitting in a modest dining room of a cozy house suburban in Irvine, California, Michael Kwok looked worried while typing his personal information to book a ticket from Los Angeles to Guangzhou, China.

This 67-year-old emigrated from Hong Kong to the United States four decades ago. This time his visiting China, however, was not a simple homecoming. He was going to take care of the business he has been developing for three years: helping the wealthy Chinese people to obtain permanent U.S. residency.

Kwok’s business went well for the past three years. Bad news came the August 2014: the U.S. Department of State shut down the access for Chinese to apply the permanent residency through making investment. Terrified and flurried, Kwok’s potential customers urged him to go China to work on a strategy.

“I don’t worry about losing new customers; there are always rich people who want the U.S. Green Cards,” said Kwok. “The thing I worry about is I don’t know what time the application will re-open and when I can get my business back going.”

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The Employment-Based Fifth preference, also known as EB-5, is the way Kwok helps his rich Chinese customers get U.S. green cards. It is a federal program that allows foreigners to speed through the complicated immigration process, for a price. With an investment of $500,000 in a U.S.-based enterprise that creates at least 10 jobs in a rural area or a community with a high unemployment rate, applicants are eligible to get special visas that put them on a faster track to becoming permanent residents of the States.

The EB-5 visa remains a niche program within the U.S’s massive immigration system: only about 10,000 visas are issues annually. But applications have significantly increased since 2006 as financial challenged towns and organizations have begun to aggressively promote different programs to attract wealthy foreigners.

China, as the fastest developing capital source, featured with a skyrocketed number as EB-5 applicants. According to the statistics from the U.S. Department of State, as of fiscal year 2012, the number of Mainland born Chinese EB-5 applicants was 6,124, making nearly 80 percent of the total.

The investment doesn’t make the tedious application process easier. A large number of applications and the confusions of applying create the demand for the specialized agents. Kwok, as many others who see the advantages of the EB-5 application business, jumps in with full service provided. Agents work with immigration attorneys, local realtors and even travel agencies to make an easier process for their clients. The charge for this service is not small: agent usually takes about an extra 10 percent of the investment, roughly $50,000, as a service fee.

In the niche yet profitable business, Kwok has found his competing strategy. This retired businessman has more than 30 years’ of experience dealing with U.S. – China tile trade; and he has the list of the rich names in the towns of Guangdong Province of China. Each year, he dealt with an average of 20 clients.

More and more people heard about Kwok from friends and join in the EB-5 applications; nevertheless, the amount of visas being issued stays the same. The Mainland Chinese application number increased so dramatically that on August 24, 2014, the U.S. Dept. of State blocked any addition Chinese from applying EB-5 visas for the reminder of the fiscal year 2014; this is the first time ever in EB-5’s 24-year history.

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Launched in 1990, EB-5 is designed as a way to boost the economy and create job opportunities. In 2002, the EB-5 Regional Center Program came up. The regional centers are designed be boost the local economy by partially or completely using the EB-5 investors’ money.

Starting with only a handful in 2003, the number of Regional Centers grew to approximately 30 as of January 2009. As of Oct. 2014, there are 768 designated regional centers, with California ranking the No.1 with 146 projects existing, according to the data from U.S. citizenship and Immigration Service.

The EB-5 money has sponsored projects across California. In Pomona, EB-5 funds are here you need a past tense verb used to build the Ranch Plaza, a 350,000 square feet of retail space and 350,000 square feet of office space. In San Bernardino, the city is tapping EB-5 funds to redevelop its downtown theater district. The new construction around L.A. Live, the Marriot Courtyard and Residence Inn, were also partially sponsored by the EB-5 funds.

The success of EB-5 regional centers is not only relying on the investment; the local economy plays a bigger role. Sometimes even worse, some poorly designed centers will fail and be kicked out from the EB-5 programs, with no green cards and no investment return for the investors. The regional centers in El Monte, California was expelled from the U.S. Immigration Service list in 2010 because it was not able to provide the kind of economy development the center was certified to do at the beginning.

Nevertheless, the risk of the project failure will always remain. According to USCIS, 42 percent of past investors received permanent visas. As Bloomberg reported, fewer than 10 percent of EB-5 pools seeking money today may succeed in getting participants both green cards and their cash back.

Alejandro Mayorkas, director of USCIS, said to Bloomberg that: “Our approval of a particular petition doesn’t mean that their investment is a good one; we don’t really get into the business models.”

On the other hand, some EB-5 applicants even don’t know what kind of EB-5 regional centers they are directly involved; they will let a company to take care of their investment. The 45-year-old Mr. Hu, one of the Kwok’s clients who lives in Arcadia, California with his family now, was been told that a company named OMB Regional Center LLC was taking care of the his $500,000 EB-5 investment. He never knew the OMB was actually based in Chicago, Illinois, and neither did he know where his EB-5 investment money went.

“I don’t speak English, so it is really a challenge for me to step out of the Asian community in the U.S.” Hu said in Chinese. “My agent Mr. Kwok told me the money is safe and I trust him.”

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For Kwok, EB-5 investors are different. They are not the old kind of Chinese immigrants who get help from their family members and stuck in Chinatown.

“Some of my clients bought some small pieces of lands to build houses and make money. Some of them just don’t want to do anything,” he continued, describing his clients: “they just stay in California and enjoy life.”

A latest research conducted by Hurun Research Center pointed out that 64 percent of the Chinese millionaires have been migrated or preparing to change nationalities to other countries. The United States has been the most popular immigration destination over the past 5 years.

At the first day of October 2014, a new 10,000 quotas for the fiscal year 2015’s EB-5 applications opened. Mainland Chinese were still on the qualified list, with no further restrictions.

Kwok received a phone call from Chongqing, China almost the midnight of the same day: a new client was asking about the new round of EB-5 application and thinking about hiring his as the agent.

For people who apply the U.S. permanent residency under EB-5, the tensions around this niche program will never disappear: the fear of getting involved of fraud; the anxiety of no access to apply; and so forth. But the investment flow and the desire to migrate to the U.S. are hard to stop.

“The government should expand the numbers for application and assist the applicants with a smooth application process,” said Kwok. “No matter what, it is a good thing to the U.S. with more investment coming in and a lower unemployment rate.”

The little teal house in Watts with the front garage and a concrete driveway was foreclosed early in 2013. Over the next year and a half, squatters invaded and wrecked the place. The trash heaped up into tall piles in the living room and hallways.

“It’s a drug house, the weeds are overgrown, it’s blight,” said activist Joanne Kim from the nonprofit Community Coalition, describing this location and the symptoms of others like it, left abandoned for more than a year.

Eventually activists banded to get together to draw the city’s attention and kick out the intruders.

Still, the house remains on L.A.’s foreclosure registry.

“Everyone has to take of their homes,” said Kim. “But the banks are not taking care of these properties.”

That can lead to a number of harmful side effects, like depleted property values, which in turn discourage business and investment. [Read more…]

The north polar view of the world is not a common perspective, most of us may know it from the white on blue flag of the United Nations. However this view of the world may become increasingly common as the effects of climate change on the Arctic Ocean have opened new opportunities for Arctic trade routes. The opening of these trade routes is of particular interest to certain actors and nations and has the potential to change the face of global trade.

 

A dream of the seventeenth century explorer, Henry Hudson, the fabled Northwest Passage over Canada was first navigated in 1906 by the Norwegian Roald Engelbregt Gravning Amundsen, who was also the first explorer to reach the South Pole. The other Arctic Sea route is the Northeast Passage over Russia’s northern coast, more commonly called the Northern Sea Route it is a Russian-legislated shipping lane

Scientists predict ice-free summers by the end of the decade and navigable winters by the mid 21st century. Regardless of how one may feel about environmental politics, the question of the polar caps melting is not one of “if” but “when.”

The Russian Federation has already started developing infrastructure to service the Northern Sea Route. Between 2009-2013 maritime traffic has improved from a handful to several hundred. So far Norway and Russia have been the primary navigators but in the past few years Chinese shipping giant COSCO has turned its eyes northward. Huigen Yang, Director General of the Polar Research Institute of China announced in 2013 that as much as fifteen percent of China’s maritime trade may travel the route by 2020.

The Arctic region is governed by a combination of international agreements such as the UN Convention on the Law of the Seas (UNCLOS) and multilateral governance institution such as the International Maritime Organization (IMO, a UN Agency) and The Arctic Council (AC). The Arctic Council is made up of the eight nations that intersect the Arctic Circle: The United States, Canada, Russia, Norway, Finland, Iceland, Sweden, and Denmark by virtue of Greenland. In the past few years the AC has passed agreements on search and rescue and the IMO is finalizing a shipping ‘polar code‘ that is expected to be in place by 2016.

Most data estimates suggest that roughly 90% of mercantile trade is shipped. For China the potential of arctic routes could represent savings of hundreds of billions of dollars  “Once the new passage is opened, it will change the market pattern of the global shipping industry because it will shorten the maritime distance significantly among the Chinese, European and North American markets,” said Qi Shaobin, a professor at Dalian Maritime University according to China Daily. Not to mention China’s traditional route to European ports passes through pirate infested waters that the Arctic Route would avoid.

Infrastructure is still the key obstacle to the expansion of trans-Arctic trade. So far Russia has been the only player to make significant commitments to development by reopening research stations and arctic ports. Canada has done little aside from accepting a legal framework on paper. Notwithstanding there has been an increase in maritime activity through Canada’s Arctic waters:

At a meeting in Stockholm with USC students in the summer of 2012 Gustaf Lind, the Swedish ambassador to the Arctic Council, accepted the possibility of Arctic Ocean Trade routes but noted “I don’t think we will see much shipping for quite some time.” Mike Keenan, an economist at the Port of Los Angeles, noted “you need long stretches that are regularly free of sea-ice and right now you don’t have that.”

There is an undeniable economic advantage to Arctic Trade Routes to connect not just China to Europe but China to the East Coast of the United States. Currently the typical shipping time from Shanghai to Rotterdam is twenty-five days, from Shanghai to Los Angeles is thirteen days and then seven days by rail to reach New York. Rotterdam to New York is another nine day sail. However a Northern Sea Route to Rotterdam from Shanghai would shorten the journey to ten days making a Sail from Shanghai to New York via Rotterdam last nineteen days. This number could be even shorter without a stopover but it already is faster than the current path from Shanghai to New York taking rail from Los Angeles.

The Port of Los Angeles, which along with the Port of Long Beach is the busiest container port in North America, is currently the fastest way for good from China to reach consumers in most of the United States. It represents a huge economic asset that handles $260 billion of trade throughout the US. According to Keenan “3.6 million jobs throughout the U.S. are related to the port’s activities.”

Whether Arctic Sea Routes posed a challenge to the port’s position seems an unlikely prospect for the port to consider in the near future. In addition to the infrastructure problem Keenan noted that “there’s simply too many variables to make any predictions for the port.” In terms of adapting to a changing trade environment “there’s a limit to what [the port] can do if you have a serious time advantage.” Keenan further noted that “the priority should be to focus on climate change and sea level rise” and pointed to the Port’s respectable environmental record and investment in clean technology.

Perhaps it is too early to quantify the effect of Arctic Sea Routes on global shipping but even if there is a long term threat to the Port of Los Angeles the sheer volume of trade between Asia and Los Angeles accounts for over ninety percent of the port’s volume. Mike Keenan asserted “cargo will always come here.”

 

 

 

Sarkis Ekmekian is a junior at USC, majoring in communication. He’s taking four classes, is the show-runner for Speakers’ Committee, public relations chair at Trojan Pride, and is a campus centre consultant at the Ronald Tutor Campus Centre.

He also is a transfer student.

Ekmekian, one of 1,430 transfer students who enrolled in USC in fall 2013, transferred from Santa Monica College, a top feeder school for USC and University of California. Community college transfer students have a strong presence at USC: 58% of the fall 2013 transfer class were community college students (up from 50% from fall 2012).

Community colleges have many purposes, from allowing students to save money on tuition, to allowing non-traditional students a place to pursue a different career path. The California Community College system is the largest system of not only community colleges but higher education in the nation, with more than 2.1 million students and 112 campuses. According to the California Community Colleges Chancellor’s Office, “70% of state nurses and 80% of firefighters, law enforcement personnel, and emergency medical technicians” are educated at California community colleges.” Furthermore, most California community colleges have agreements with the UC and CSU system in regards to transfer students: 29% of UC and 51% of CSU graduates started at a California community college.

However over the last few years, California Community Colleges, along with the UC and CSU system, have suffered severe funding cuts due to the Great Recession. Funding for California Community Colleges was “cut $1.5 billion between the 2007-08 and 2011-12 academic years”, resulting in about 25% of college courses to be cut.

As a result, there has been a significant decline in both the number of transfer applicants to four-year colleges and enrolment at community colleges in California. UCs received 1,653 fewer transfer applications from community colleges in the fall 2013 year, compared to fall 2011. California Community Colleges Chancellor’s Office also reported that “enrolment [in California community colleges] decreased by more than 585,000 students to 2.3 million in four academic years (from 2008-09 to 2012-13) due to severe budget cuts.”

Budget cuts have also caused the success rate of community colleges slip in recent years. According to an article in the Oakland Tribune, “As unemployment swelled, the system simultaneously saw soaring demand and $1.5 billion in state funding cuts, forcing its colleges to cut back on student services and classes. State universities also accepted fewer transfers during that time, another factor working against students.”

Now, with the economy showing faint signs of improvement, the question becomes whether the economic benefits that community colleges provide is significant enough for the state to reinvest money into the system. The passing of Proposition 30 in 2012 meant that the education sector dodged $6 billion worth of budget cuts. Community colleges were granted $210 million for 2012-13, allowing for the addition of 3300 classes for the Spring 2013 semester, 40000 additional students, and a temporary halt in the increasing tuition rate.

Recently, Gov. Jerry Brown proposed a budget which would increase funding to community colleges by $1 billion. The funding would freeze tuition rates at the current rate of $46 per unit and “allow colleges to increase enrolment by 3 percent. Enrolment has been cut by up to 15 percent since 2010.” According to Brown, the additional funding would allow students to transfer faster by increasing the amount of classes, counsellors and academic resources available to students.

The state certainly believes that there is community colleges provide significant economic benefit to the economy. According to a report conducted by the American Association of Community Colleges, “in 2012 alone, the net total impact of community colleges on the U.S. economy was $809 billion in added income, equal to 5.4 percent of GDP.” Furthermore, “community-college graduates receive nearly $5 in benefits for every dollar they spend on their education.” The average income also steadily increases with the education level, with those with associate degrees earning an average of $10700 more than someone with a high-school diploma.

The proposal for additional funding has been met with approval from community colleges, professors and students who have long suffered from severe underfunding. “We have been underfunded for a really long time compared to K-12 and the UC system,” explained Mary Mazzocco, who is the journalism department chair and advisor for school newspaper ‘The Inquirer’ at Diablo Valley College. “Given how many students we serve, given that we are the gateway for non-traditional college students, and given our role in helping retrain people who lose their jobs… I do feel like that they should at least give us the money to allow us to do the job that they have given us to do. And I feel like they haven’t done that in a really long time.”

Students who manage to transfer to four-year institutions are statistically successful. According to the University of California’s Accountability Report, “transfer students entering UC since 2004 have a 50 to 53 percent two-year graduation rate and an 85 to 86 percent four-year graduation rate.” By comparison, freshmen from the same cohort who enter the UC system have a four-year graduation rate of 60% and a six-year graduation rate of 84%.

 

Rachel Ann Reyes is a student at Diablo Valley College majoring in communication. She has been accepted to UC Davis for fall 2014, and is awaiting responses from UC San Diego and UC Santa Barbara. When she transfers, she will be the first in her family to attend an American university. “I’ve personally really enjoyed being at a community college,” said Reyes. “I think that sometimes community colleges get a bad rep for being almost being a continuation of high school, but I think it’s a great opportunity for people who want to save money. If they are determined enough to go to community college to get their AA degree or transfer, I think it can be a really helpful tool at a great cost.”

However, there are also concerns about the efficiency of community colleges – particularly regarding the students who either take too long or don’t manage to graduate or transfer to a four-year college. In 2009, the average graduation rate from California community colleges was only 25.08% while the transfer rate was an even lower 14.36%. An op-ed in the LA Times also criticized the ineffiency of community colleges and the burden that it places on the economy: “Community colleges are subsidized through direct state and local government appropriations and through student grant programs. Every student who drops out represents an investment loss by the taxpayers in that student’s uncompleted education.” Through further investigation, they found that “of the full-time, degree-seeking students who entered California community colleges in 2007, more than 35,000 had not earned their degrees three years later, and most of them were no longer enrolled in any postsecondary institution.”

The state has attempted to address the low transfer and graduation rates of community college by pushing “state law requiring guaranteed transfer pathways for graduates of the two-year institutions.” Furthermore, new bills would require the CSU system to accept a wider range of transfer degrees when possible, with the transfer pathways focused on “areas of emphasis rather than majors.”

While Mazzocco realizes the importance that community colleges play in transferring students and awarding qualifications, she also worries that the mission of community colleges has taken a turn for the worse. “Historically community colleges were not just for transfer students, but the state has adjusted our mission – we are now supposed to focus on certificates and transferring,” said Mazzocco. “And I don’t agree with that mentality – I think there is an advantage to life-long learning.”

Mazzocco went on to describe the changing environment of community colleges. “There’s a certain amount of worry that the states push for us to become more efficient and to cut classes that are not high demand, and to focus on certain classes that transfer or go towards a degree. For example we’ve added another Mass Communication class because now it’s a part of two or three different majors that transfer. But now I probably have to take feature writing out of the curriculum – not because students don’t enjoy it or because it’s a lousy class, but because it doesn’t fit into the transfer degree that was agreed upon on the state level… and that’s happening with a lot of classes that are good classes. There’s value to be had to be taking them and offering them, but they don’t fit the pattern that’s being established and are being squeezed out.”

From a purely economic point of view, it is evident that it is the state’s best interest to encourage more efficient transferring and graduation rates: “For every $1 California invests in students who graduate from college, the state expects to receive a net return on investment of $4.50.” Furthermore, millennials with a bachelor’s degree or more earn on average $45500 – compared to the average income of $30000 for those with an associate degree.

However, there is still a value in attending community colleges that can’t be quantified for some students. “If I had gone to a UC or university straight out of high school, I wouldn’t know what to do,” admitted Reyes. “I think my three years at DVC (Diablo Valley College) have really helped me discover who I am. I got the opportunity to take different classes in different fields and figure out what I liked and didn’t like at an affordable cost. Through that experience I fell into journalism and communication and that is something I really enjoy – I would have never found that straight of high school. Because of community college I am more prepared, and more willing and motivated to succeed at a university because I know what I want and I can apply myself to that.”

Opportunists taking legal risks to wedge into marijuana business say uncertainty offers a nice middle ground for startups before high rollers come around

Having ditched Morgan Stanley to work in the weed business, Derek Peterson was pretty confident he’d made a good bet when his company ran close to an IPO in 2011.

A year earlier, the former Wall Street banker quit his job and founded GrowOp Technology after he learned a friend’s marijuana dispensary was clearing $18 million a year. California-based GrowOp, which started its business in March 2010, manufactures and sells indoor hydroponic and agricultural equipment to cannabis growers. Peterson reaped $800,000 in revenue in the first nine months. And the business looked so promising that he told Bloomberg his sales goal would be $2.5 million and $5 million to $8 million in the two years to come. He revealed in the same interview that his company was poised to go IPO by the end of 2011.

That IPO plan was never materialized. The startup eventually managed to go public through a reverse merger in 2012, but hasn’t been able to secure significant funding until early this year — all because of legal swings.

“Because the federal government has come to be more supportive, and because they are allowing banks to do business with us now, and because they are not cracking down anymore, the industry is allowed to move forward,” says Peterson.

For fear of legal pitfalls, cannabis-related companies have treaded on thin ice for years. Their hands were tied because investors with deep pockets wouldn’t go against federal law to finance weed businesses. Recent passage of recreational use of pot in Washington and Colorado has rejuvenated the market, driving investors’ appetite up. And some pioneering entrepreneurs have learned to sail through the murky legal water.

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Back in 2011, GrowOp’s IPO plan fell short mainly due to an unfriendly political environment. Fifteen states had legalized medical use of cannabis, yet California was cracking down on dispensaries. Worried that the SEC wouldn’t let the IPO come to fruition, Peterson backpedalled. The offering plan had reached its auditing stage.

“Judging from all the pressure that was melting from the federal level, it seemed to us that we might not be able to go public through an IPO, and we don’t want to risk that,” says Peterson.

GrowOp ended up merging with Terra Tech Corp, a listed shell company that does no real business. Peterson and his colleagues took over the management and resumed day-to-day operation. “It’s kind of a back-door channel which goes around the expensive and cumbersome process of going through IPO,” says Peterson. “We think we’ve made a smart decision.”

GrowOp’s story shows how political clout can put off investor sentiment, leaving a dent on startups’ financing ability. But the legal stakes are higher than that. The fact that states and the federal government take opposing stances on weeds has left many investors and entrepreneurs wary about tapping into this niche market. Goldman Sachs and its peers have kept people like Peterson at arm’s length because they could be punished for lending money to cannabis-related companies. Or, if the federal government chooses to come down harder, law enforcement may simply show up at Peterson’s doorsteps and seize all of GrowOp’s assets. For Goldman Sachs, that means loads of money going up in smoke overnight (given that they do care).

Again in 2011, the media touted a “green rush” in the cannabis industry, but the market underwent ups and downs in years followed.

With a net income of $1.2 million in 2010, California-based General Cannabis once sought to raise $10.5 million in an IPO a year later. The technology-based service company with a focus then on the legal pot business was founded as early as in 2003, and began trading some of its stocks on OTC markets in 2010. During its heyday, the company owned seven subsidiaries, including Weedmap.com, an equivalent of Yelp in the world of marijuana dispensaries. It managed 14 medical cannabis clinics in California, and was processing $2,200,000 worth of transactions in March 2011.

But the company sold off its weed business once and for all at the end of 2012 after consecutive slumps in its shares. It also changed company name into SearchCore, Inc. shortly before sales of its pot-related assets.

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Medical marijuana use is already legal in 20 states and the District of Columbia. Recreational use of marijuana was passed in Colorado and Washington in 2012. But under federal law, cannabis has always been treated no different from heroin or cocaine: it is highly addictive and has no medical value, therefore should continue to be banned.

Even in places where medical use of marijuana has been legal at state level, operating costs and rigid regulations make it tough to stay in the business.

In Colorado, legislators have completely freed up weed. The number of medical marijuana businesses there peaked at 1,131 toward the end of 2010 as the drug was being funneled in bulk into the mainstream market from the black one. But the number has dropped to 675 two years later, which equals a more than 40 percent shrink in the industry, says Denver Post. Heavy regulations and police crackdowns have forced a big chunk of practitioners to leave: Stores near schools were forced to close after the state’s U.S. attorney warned that they could be prosecuted if didn’t move. Others collapsed because federal rules denied marijuana businesses of bank loans or common tax deductions.

What adds to the financing hurdle was a big upfront cost that goes into a medical cannabis dispensary even before it opens its door. Jeremy Kelsey, owner of a medical marijuana outlet in Seattle, told NPR that his facility needed bulletproof glass and a 24-hour monitoring system. He spent heavily on ventilation, dehumidifiers, air movers, and air conditioning units — all for producing high-quality cannabis.

Fluctuation in retail price is another vexing problem. Transaction data collected anonymously by priceofweed.com show mixed results of changes in pot prices in the past three years. There have been drops in the prices of high-quality cannabis, whereas price of low-quality breeds has been marked up.

*  *  *

One piece of comforting news for weed growers is that the market is gaining new traction after voters made recreational use of cannabis legal in two pioneering states. Nationwide, new marijuana-related legislation is pending in 17 others. Investors are looking at a market that is expected to reach from $1.5 million to $6 million by 2018.

Washington and Colorado are at the very forefront of this rapid growth. In Colorado, pot storeowners cheered for a total of roughly $5 million in sales revenue during the first week selling recreational weed. The retail price of marijuana there has doubled in that week. Seattle-based Privateer Holdings, an equity firm led by two former Silicon Valley bankers, is buying up warehouses in Washington with the $7 million they’ve raised three years into their weed business. They are confident about bringing in roughly $50 million this year alone.

GrowOp, now a subsidiary of Terra Tech Corp, is acting fast to capitalize on Washington’s marijuana reform. It announced in May last year the opening of a new location in Seattle. It is also vying for permits to open marijuana dispensaries in Nevada in hopes of becoming a cannabis grower itself.

“In controlling the actual product that goes for sale at $3,000 to $7,000 per pound wholesale, there is huge amount of strength being the core cultivator,” says Peterson.

The company has just closed a $6.8 million round of financing with Dominion Capital. It also had another $8 million raised from issuing new shares. “The more healthy the political scene gets for us, the more investors come in, and the easier and cheaper it gets for us to raise money,” says Peterson.

He says current legal environment is in fact helpful for GrowOp to get on track to become the Starbucks of weed.

“If it were fully legalized and there’s no legal risks, the big boys would be getting into it. Fortunately this quasi-legal environment provides enough cover for us that the big people will stay out and give us the ability to build market share and our brand,” he says.

He’s right in a sense that the market is already booming with private investors brimming with confidence. ArcView, a California-based organization that connects investors with entrepreneurs in the cannabis industry, has helped its clients secure 4 million of financing in the past few months. The company nearly went out of business two years ago due to a lack of investor interest.

And the money is not only going into selling pot, it’s been poured into ancillary goods that are being built around it. Colorado’s law requires that pot be sold in child-resistant containers, so Ross Kirsh invented Stink Sack, a startup that sells odor-proof packages for weed. He sold his idea immediately to a group of ArcView investors, and was put on a plane to China with the $150,000 he’s raised right after the meeting.

Earlier this month, the federal government issued guidelines on how banks interested in the cannabis industry may navigate the murky legal waters.

“I think you’re gonna see the smaller and regional banks jump in first. As soon as the big potatoes see there is money to be made there, bigger banks will follow,” says Peterson. 

To view an infographic on marijuana in America, click here; To learn how weed got in the U.S., click here.