EDITOR’S NOTE: This is the second in an occasional series of articles on Year One of recreational pot sales in Colorado told through the lens of one business, Medicine Man in northeast Denver.
Sitting at a conference table in his accountant’s office, Andy Williams has a number in mind: $11.5 million.
That, he says, is what it would take for him to sell his stake in the marijuana business he and his brother started from nothing.
Williams says he would be happy to walk away from Medicine Man if it meant lifetime financial security and a chance to pursue his next dream: starting a drum company.
Pete Williams chats with his brother Andy, president of Medicine Man, at their office in Denver. (Hyoung Chang, The Denver Post)
This mid-February meeting was a strategy session for the family behind Medicine Man, an opportunity to take stock and define goals six weeks after the first retail recreational marijuana sales in Colorado.
One chair was conspicuously empty. The other primary owner — Andy’s younger brother, Pete — was unable to attend.
He was with a film crew shooting footage for a proposed reality show starring Medicine Man, helping orchestrate scenes including one in which he walks in on a joint-rolling contest and feigns surprise.
There are other, more complicated reasons behind Pete’s absence.
The family bonds that hold Medicine Man together and make it successful can also be strained, almost to the point of snapping.
The area that should be the living room and dining room in Pete Williams’ house has been cleared out for sword-fighting.
Pete Williams practices sword fighting in his house in Westminster. (Hyoung Chang, The Denver Post)
Not fencing, mind you. That is a sport that involves rules.
This is what Pete calls “practical sword-fighting … learning to deflect things coming at you and stabbing at the right moment.” Helmets, metal swords, heavy cloth jackets and gloves are at the ready.
The sword-fighting is a release and it’s fun, but it is also part of Pete’s belief system. He says he’s “a little bit of a prepper,” meaning he is taking steps to protect himself, family and friends in the event of society collapsing onto itself.
In the basement of his Westminster home, where he learned to grow marijuana, are 55-gallon water drums, 300 pounds of salt, body armor, crossbows, eight cases of toilet paper and freeze-dried food.
Pete Williams, 43, is the mad-scientist grower behind Medicine Man, a high-school dropout who likes to stage stoner salons by the living room fireplace with his posse, dreaming up the next big thing while smoking one Marlboro Light after another.
He describes himself as someone who gets along with almost everyone, gives a lot of his money away and compulsively tells the truth. He says he earned the equivalent of a college degree listening to books on tape — from the Bible to “Moby Dick” — while delivering pizzas or driving railroad parts and beauty supplies all over the West.
“I always try to think best case and not dwell on what could happen,” Pete says. “I think that helps things go right more often than wrong.”
His free-spiritedness can clash with relatives who work at Medicine Man. That especially applies to his play-it-safe older sister, Sally Vander Veer. To a lesser degree it’s true with Andy, whose past as a corporate project manager slightly tempered his attraction to risk.
Case in point: the reality show. Pete’s most recent obsession.
With marijuana legalization putting Colorado in the spotlight, multiple reality show producers have approached Medicine Man.
“It’s invaluable advertising,” Pete says. “My whole goal was to make the Medicine Man name the top name, like a Pepsi or Coke of marijuana. The TV show is a good springboard for that.”
His siblings view it differently.
“We have worked so hard on building a reputation as a serious business,” Andy says. “I think TV shows are there to build you up and then tear you down. That’s what they thrive on.”
Pete acknowledges the risks. And the family learned of them through an earlier brush with reality show realities.
Last year, a video clip for a would-be Medicine Man TV program showed Pete’s daughter, Kala, saying she’s smoked since she was 13. The footage wound up in an anti-marijuana campaign.
It was not the kind of exposure Medicine Man was after.
What happened was this: Pete used to keep his stash in a locked box hidden in the garage. Kala found it and pried it open with pliers.
The second time she did it, her father caught her.
“There was lots of yelling, grounding, and distrust issues for a while,” says Kala, 24, who works as a receptionist at Medicine Man. “He takes trust very seriously and I broke his trust. He wasn’t cool with me smoking. And I was stealing from someone who had given me so much.”
She did not stop smoking weed, she said. She found other ways.
Despite being burned before, Medicine Man reached an agreement with a producer of the Fox show “24” to put together a “sizzle reel,” a short clip to shop the concept to networks.
The caveat that satisfied the skeptical Andy and Sally: Medicine Man had final editing say on the promo. A few scenes were removed as a result, but the 5-minute reel still did not ease Sally’s concerns.
In it, Medicine Man employees take turns naming marijuana strains after themselves. Pete stages a sword fight in a grow room with his 22-year-old son, Ryan, who is wearing a large costume panda head he wears out to clubs. Ryan suffered a broken tooth in the altercation.
“It’s reminiscent of nothing we do at Medicine Man,” says Sally, who started working as controller last year. “Here we are trying to legitimize a business, say it’s not a bunch of stoners, and this comes along and shows everyone stoned all the time? It’s not the truth. My brother, he doesn’t understand business. He thinks we’re going to sell a billion dollars in T-shirts because of a reality show.”
These sharp differences help explain why Pete didn’t attend the February strategy meeting. He says his presence would have resulted in a family fight he didn’t want to have.
“I don’t think she should have been at that meeting,” he says of Sally. “She is family, but she hasn’t been there since the beginning. Andy and I know what risks can be taken better than she does.”
Kala Williams says she wishes her father’s ideas for the business were taken more seriously.
“My dad knows the community better because we are part of the community — the stoner community,” she says.
By several measures, Colorado’s great marijuana experiment is being very good to the Williams family.
Medicine Man earned $4.4 million in revenue last year when it sold only medical marijuana, Andy Williams says. That figure would have been closer to $5 million, he says, but the business plan called for intentionally selling less to stockpile for recreational sales on Jan. 1.
In January alone, Medicine Man brought in $1 million, and then $750,000 each in February and March, Andy says. He projects revenues of between $10 million and $12 million in 2014.
That does not mean the owners — Andy and Pete, who each own 40 percent, and their mother, who controls the remaining 20 percent but is not heavily involved in decision-making — are striking it rich.
Like many new business owners, the Williams say they are reinvesting, putting their own earnings and investors’ money into an ongoing $2.6 million expansion to double the grow space and add a retail shop modeled after an Apple store.
The last few weeks have brought other opportunities, including starting a long-planned business consulting and working with other companies seeking business licenses in other states that have recently opened the gates to medical marijuana sales.
The spinoff company is called Medicine Man Technologies.
This is Andy’s project, his reality show.
The business is selling not just experience in growing and selling weed but also hope — the idea that by putting Medicine Man’s credentials on a license application, it will be a difference-maker in states that are restricting the number of licenses.
Andy says he is talking to one group in Illinois that is promising him a seat on the board and an ownership stake. That wouldn’t be possible in Colorado, where owners must have at least two years of Colorado residency.
The unexpected happened, too.
One day in early January in the Medicine Man parking lot, a man walked up to Pete, shared some of his business background and expressed interest in getting involved in the Colorado marijuana industry, according to Pete.
The businessman was Robert Ehrlich, an ex-commodities trader who founded Robert’s American Gourmet Food, manufacturer of Pirate Brands snacks. The company was purchased last year for about $195 million in cash, and Ehrlich moved on to other ventures.
At first, Pete says he told Ehrlich there weren’t any Medicine Man shares available. But as he got to thinking about the disagreements within his family about the direction of the company, he began to see Ehrlich as a potential ally and a business partner.
For Pete, the future of Medicine Man hinges not just on exposure from the reality show but on a whole package of aggressive moves.
He wants to manufacture edible marijuana products, a market segment that has proven lucrative. He also wants to open social clubs where people can hang out and smoke weed, a challenge given that state law prohibits pot smoking in most venues.
And he envisions a theme park called New Amsterdam, a marijuana Disneyland for adults.
His brother is more interested in getting the consulting and licensing company off the ground, completing the building expansion and breaking ground on a greenhouse grow, considered to be the next frontier for marijuana production in Colorado.
Pete also strongly supports branching into greenhouses. Sally is more reluctant.
The conversation that followed Pete’s parking lot introduction to the creator of Pirate Booty went something like this:
“I don’t want you to be offended,” Pete said, “but would you sell out?”
“Yeah,” replied Andy. “For the right number, I’ll sell out.”
The number in Andy Williams’ head started becoming real to him.
He valued the company at $28.8 million, a figure he reached by estimating earnings for this year and multiplying that by six.
If Andy’s share was worth about $11.5 million, selling out would give him enough money to live off the interest and leave the rest to his children, who are 3 and 9, Pete noted.
Andy was tired and worn down. He and his wife are going through a divorce and his health was poor. Andy says he suffered blackouts and was hospitalized three times in recent weeks, the result of low blood oxygen and an elevated heart rate. He has since improved.
“I think illness has a lot to do with the spirit,” he says. “It just manifests itself somehow. I was down for a while. The divorce. I got sick. I was working my ass off and I just did not feel good.”
Andy says he is proud of what Medicine Man has become and enjoys his work, but it is not what defines him. He feels pulled to new challenges, always has, and began to plan for the drum company.
“There is a little bit of vanity in me,” he says. “I want to be known as one of the pioneers in this industry. And if I got out now, it might not be written that way. If I stayed in, maybe I would.”
A conference call was arranged between prospective buyer and seller.
From the beginning, Andy says he was skeptical about the deal because of Colorado’s two-year residency requirements for ownership.
Brian Vicente, a Denver lawyer who co-authored Amendment 64, said his firm has helped structure several deals for legitimate out-of-state investment, including loans and convertible notes that transfer ownership once residency is established. Colorado law, he notes, prevents out-of-state residents from owning an equity stake, but not from investing.
Vicente estimates that more than one-third and perhaps closer to half of Colorado marijuana businesses have out-of-state investors.
The conference call did not go well.
In Pete’s view, Andy was too aggressive, bordering on belligerent, essentially saying, “Here is my offer, take it or leave it.”
“He was stern when he didn’t need to be stern,” Pete says. “Andy was a jerk in the meeting and I think that turned them off.”
Within a few days, the deal had fallen through..
The Williams say they are not sure exactly why. Andy says Ehrlich “didn’t blink” at the asking price, but he didn’t make an offer, either.
A publicist for Ehrlich said he was out of the country and unavailable to comment.
Andy says he understands where Pete is coming from, but doesn’t think his tone had anything to do with what happened.
“My brother thinks I’m a tyrant,” Andy says. “But when it comes to business, it’s about numbers. It doesn’t matter if I was a jerk or not a jerk.”
The Williams siblings agreed in advance that if the deal did not happen, they would put their differences behind them and move on for the well-being of Medicine Man and the family invested in it.
For Andy, that means putting his heart back into building the Costco of weed, which was the plan all along.
For Pete, it means hoping the reality show materializes and putting off, at least for now, some of his grander visions.
For Sally, it means continuing to watch her brothers closely.
“I wrangle my brothers on a daily basis,” she says. “They are both looking at shiny objects all the time and I am trying to have them focus on what needs to be done day-to-day.”
Pete concedes that he can be too trusting of others and that Andy can be a good check on behavior that may hurt him or the business.
But he also thinks he knows better than his brother that standard business decisions don’t always work when the business is marijuana.
“We have a really good family, where you can argue, but you can let it go, too,” Pete says. “Very rarely will we come to a point where we disagree so much that there is not a compromise in the middle.
“We’re usually on the same main road. Every once in a while, we want to take different branches.”
Eric Gorski: 303-954-1971, firstname.lastname@example.org or twitter.com/egorski
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