Tech Backers See Colo. as ‘Silicon Valley of Weed’

BOULDER – Tom Bollich sees similarities between the marijuana business and the tech sector in which he saw extraordinary success.

Bollich, co-founder of Zynga Inc. (Nasdaq: ZNGA), the San Francisco-based online gaming company that developed the popular franchise FarmVille, has entered Colorado’s fledging legal marijuana industry as chief executive of Surna Inc. (OTCQB: SRNA) in Boulder. With plans to acquire additional cannabis technology platforms in the future through Surna, which he founded in August, Bollich knows he came to the right place.

“This is the Silicon Valley of weed,” he said.

Surna’s first acquisition is Boulder-based Hydro Innovations, which makes cooling equipment for indoor marijuana cultivation facilities. Marijuana retail stores in Colorado must grow a portion of the marijuana they sell, according to Colorado law.

Surna’s acquisition of Hydro Innovations is expected to close during the second quarter, although terms of the deal have not been disclosed. Surna shares were trading at $3.21 last week. The company’s market capitalization is almost $300 million.

Bollich, wearing a dark plaid blazer at a table next to a large aquarium in a Boulder office building, invokes gold-rush metaphors when talking about the burgeoning marijuana business in Colorado. Surna will supply the picks and shovels to mine – well, grow – marijuana.

Surna is one of a number of startups that have emerged since Colorado voters legalized recreational marijuana sales in November 2012. Marijuana has brought business opportunities to Colorado beyond marijuana stores themselves, including in the technology, construction trades and legal work, said Mike Elliot, executive director of the Denver-based Marijuana Industry Group, which represents more than 50 Colorado marijuana businesses.

“The marijuana industry touches so many other industries,” said Elliot, noting that his organization has seen overwhelming interest from businesses and investors interested in Colorado’s marijuana industry. “It’s just getting started.”

At Zynga, Bollich was at the center of the birth of the social-media gaming industry. He said the cannabis industry has “the same look and feel” when he started looking at opportunities in the space a year ago.

He explored whether to invest directly in marijuana cultivation but saw challenges in a patchwork of inconsistent laws across states. Bollich decided instead to acquire technology that had applications to a national marijuana market.

Bollich assumes that marijuana eventually will be decriminalized nationwide, but acknowledges that the potential repeal of decriminalization laws represents a risk to his business.

Surna’s technology centers on its customized chiller meant to improve quality and boost yields.

Growing outdoors results in only two harvests a year, while growing indoors can net five harvests, said Brandy Keen, director of operations for Hydro Innovations. Outdoor marijuana growth also can pose security risks for growers.

The chillers also offer an advantage that generally cannot be replicated with air-conditioning: Growers can set their own humidity and temperature using chillers.

“There’s always going to be a demand for indoor-produced, perfect product,” said Keen.

Surna, which employs about 16 people, assembles its chillers at its Boulder headquarters. The chilled water system replaces traditional air-conditioning, which costs more and is less efficient. The chillers, which consist of compressors and air handlers, offset the heat from lights used to grow marijuana.

The industry would welcome higher yields as it has struggled to keep up with demand for marijuana. The supply shortage has contributed to higher legal marijuana prices and lower black-market prices.

The chillers cost about $1,300 per ton installed, with popular capacities of 80 to 400 tons. At that range, the systems can cost from $104,000 to $520,000. Chillers in that capacity range could serve grow facilities of from 150 to 800 lights. Growers typically use four to eight plants per light.

The chillers circulate cool water throughout a facility through a series of pipes instead of cooling the air like a traditional air-conditioning unit.

Keen said the chiller’s inventor, her husband Stephen Keen, tested the technology to grow palm trees in a Texas garage.

The company since has sold multiple units across North America, with its largest customers in Canada.

Surna representatives expect the legal marijuana market in the United States to amount to billions of dollars once it replaces the black market.

“How many distilleries do you think are running in the mountains right now?” Bollich said. “When’s the last time you bought moonshine from one of those? That’s what’s going to happen.”

Steve Lynn can be reached at slynn@bizwestmedia.com and 303-630-1968 or 970-232-3147. Follow Lynn on Twitter at @SteveLynnBW.

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