Venture capitalist Steve Berg figured he had an unassailable business model.
Berg's San Francisco firm, the ArcView Group, was pledging to find "angel investors" for startups offering products and services for California's $1.5 billion medical marijuana industry.
But last week, U.S. prosecutors in California announced criminal prosecutions against targeted marijuana dispensaries and threatened landlords with property seizures.
Suddenly, the state's burgeoning medical marijuana sector is dealing with fear and introspection. Industry advocates are calling for increased state regulation, thinking that could weed out bad actors in the trade – and ward off the feds.
The government's action has left politicians, medical marijuana businesses and would-be investors weighing the risks of operating in the industry.
Berg, whose firm is looking to fund companies that provide legal services, sales software, marijuana vaporizers and other items for dispensaries, was a panelist last weekend at a previously scheduled San Francisco forum on "jobs in the legal cannabis industry."
The mood at the event was unexpectedly dour. The day before, California's four U.S. attorneys declared that the state's medical marijuana law had been "hijacked by profiteers" and trumpeted charges against dispensaries and speculators allegedly raking in cash from purportedly nonprofit marijuana stores.
"Is this scaring the (expletive) out of investors?" Berg asked. "The answer is it's not making it any easier."
Assemblyman Tom Ammiano, D-San Francisco, said the federal actions are a signal that California lawmakers must enact state regulations "to provide clear lines" for legal medical marijuana distribution.
He pointed to Colorado, America's second-largest medicinal pot market. Colorado has avoided federal raids while sanctioning for-profit marijuana stores and commercial cultivation with strict oversight, including mandatory video surveillance and state licensing of all marijuana workers.
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