In a warehouse near the banks of San Francisco Bay, thousands of marijuana plants sit under LED lights. The humidity is so high in one of the finishing rooms, filled with vertical shelves packed with mini marijuana plants, that a light rain falls from the tall ceiling.

Dark Heart Nursery is one of the largest nurseries in the area, and it supplies big dispensaries with high-grade marijuana plants of popular strains like Alien OG, Blue Dream, Gorilla Glue #4, and Sunset Sherbet. It was founded in 2007 by Dan Grace and longtime partner Sara Ubelhart. The company, which brings in $5 million to $10 million in annual sales, doesn't sell weed ready to smoke. Grace and Ubelhart sell clones, which are clippings from mother plants, a high-quality plant that will continuously produce potent buds if put into a vegetative state. The company sells clones to dispensaries so patients can buy the mini mother plants and grow their own marijuana at home.

In an industry packed with cultivators selling smokable buds, Grace and Ubelhart have found a niche by supplying dispensaries and patients with a source of reliable genetics (strains of cannabis). Every dispensary needs a reliable source of stock genetics, just as a liquor store needs a source of quality, name-brand alcohol, and Dark Heart Nursery continuously cultivates new and popular strains. (Midnight Farms and Native Medicinals also sell clones.)

Heidi Zwack, a manager at Harborside, a dispensary that has a clone bar, says Dark Heart clones are so popular that people sleep in their cars overnight near the dispensary to be the first on line to get a new strain the next day. "We bring in new clones every Tuesday and Saturday, and the line is always at least 60 people waiting to buy clones from Dark Heart," says Zwack.

But it hasn't been an easy road to growth. Even though medical marijuana is legal in California, cannabis companies are still at risk of being shut down because the laws are still being developed. Cities and municipalities can make their own rules, and laws differ city to city, leaving a loose regulatory framework filled with gray areas.

Under Prop 215 (which legalized medical marijuana), all cannabis organizations had to be nonprofits. Then the law was changed with the Medical Marijuana Regulation and Safety Act (MMRSA) in 2015. MMRSA allowed pot companies to operate for profit immediately, and set up a state and city licensing framework that won't go into effect before 2018. Meanwhile, the rules are still so vague that there are many gray areas, and law enforcement still frequently targets cannabis companies. In 2010, 600 dispensaries were closed by the DEA throughout California.

This puts entrepreneurs in a constant state of slight paranoia. Just last week, the DEA and local police raided five properties belonging to Care By Design, which owns the THC concentrate brand Absolute Xtracts, because a disgruntled employee called in false claims, saying the business was not properly licensed. Initially, cops charged Care By Design with running a "meth lab-type" of operation, but the authorities dropped the charges and the company has resumed production.

That's why one of Dark Heart's facilities does not have a sign and the other one has a sign from the previous tenant--to protect the company from prosecution and from criminals. Even as medical marijuana businesses are legal, businesses are at risk until a consistent, statewide law with clear and specific rules is implemented. (For these reasons, Dark Heart asked to keep its location undisclosed.)

"Cultivators have always been in this ambiguous gray area under Prop 215," says Grace. Unfortunately, the law didn't say much about farmers and cultivators and distributors, which has also left targets for raids.

"It's better now with MMRSA, but in the beginning you didn't tell anyone you grew and you never told anyone your grow's location," says Grace. "You had to be very clandestine."

Dark Heart has been able to follow Prop 215 and MMRSA and keep its doors open. But in 2007, during the first year of being in business, when the company sold pot before pivoting to the nursery model, Dark Heart succumbed to another threat present in California's Wild West cannabis industry--crime.

"We were three months into the cycle almost ready to harvest and our crops were stolen," says Grace. "We sunk all this money into the crops and now had to wait another three months for the next harvest. We were struggling to pay rent."
After being burglarized, Dark Heart had no product at all. Three months later, after new plants were nearing harvest, burglars came in and stole everything a second time. With no cash coming into the company, one of the biggest customers let it take over a facility in a safer area of town. As a crime deterrent, Grace and Ubelhart decided to change their business--instead of harvesting the pot plants' buds, they started to sell clones, which have no buds until going through the three-month harvest cycle. Plus, not many cultivators sold clones, so Grace and Ubelhart saw a hole in the market. 

"You just need a few strong mother plants and the clones will be ready every few weeks," says Grace. "It helped us early on to keep money coming in consistently every month instead of every three months."

Recently, Dark Heart started a line of THC concentrate vape pens called Alchemy.

Sitting in his office in an anonymous-looking building next to a row of other warehouses, Grace looks back at the nine years he's been in business, balancing growth and compliance with an imperfect set of laws. He says the industry is waiting for the state's November vote--to legalize recreational marijuana--with fingers crossed. The state's veteran marijuana entrepreneurs are looking for more consistent laws across the state. 

"In the early years, if you were doing it, it was because you were an activist; this was a form of civil disobedience," says Grace. "For years, we didn't know if we'd be open from one week to the next."

As regulations become more defined and federal law changes, bigger corporations will enter the industry. When asked if he fears big money coming in from other industries, Grace explains:

"This is the deal for small business--there is space in the industry to compete. But you have to find a unique value proposition; if you do, you'll have a successful business. If you're not bringing something unique every single day, you should consider doing something else."

Published on: Jun 24, 2016