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Originally published July 12, 2014 at 8:00 PM | Page modified July 14, 2014 at 12:59 PM

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Pot firm, zapped by SEC, plants root here

GrowLife, recently slapped by the SEC, has moved its marijuana grower-supplies business to Seattle. Also, Costco quickly warns hundreds of thousands of customers about potentially dangerous chicken.

By Seattle Times business staff


Marijuana is the latest pot of gold at the end of the rainbow for penny-stock companies.

So many ephemeral public companies are now promoting that dream that the Securities and Exchange Commission (SEC) this spring temporarily suspended trading in a handful of those stocks, warning about “the potential for fraud in microcap companies that claim their operations relate to the marijuana industry.”

One of the companies thus slapped down, GrowLife, has moved its headquarters from Southern California to Seattle. It announced the shift in a regulatory filing coinciding with Tuesday’s start of legalized recreational-pot sales here.

GrowLife’s new CEO acknowledges industry hype had driven shares of the small company to levels that didn’t make sense.

“We had a market capitalization of $600 million on $5 million in revenue, so 120 times revenue,” says Marco Hegyi. “I think that raised concerns by the SEC.”

But Hegyi, who joined as president in December and became CEO after the SEC crackdown, says in an interview that “the company that we’ve turned in to now is so different than it was six months ago.”

One difference: It restated its financials last month, pushing its first-quarter loss to an astonishing $71 million on sales of $2.4 million, thanks in large part to noncash charges reflecting a mass of warrants and notes it issued.

Another difference, not yet reported in regulatory filings: Hegyi says he cut the company’s head count by a third this month, from 46 to 30, and refocused it on direct sales of equipment and supplies to marijuana growers.

A third change, says Hegyi, is that the company now has better controls, new board members and a focus on regaining compliance with regulatory standards.

The SEC hasn’t specified what drew its suspicion at GrowLife (ticker symbol PHOT). The boilerplate April 10 announcement of the 10-day trading halt cited unspecified questions “about the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in PHOT’s common stock.”

Hegyi says its focus is to supply “basic infrastructure and consumables” through direct contact between its sales reps and growers.

“We don’t grow anything and we don’t sell paraphernalia,” he says. In a telephone interview from Maine, where GrowLife has a retail outlet, he said the company will shortly expand its direct sales capability “from five to 17 states.”

GrowLife began as a shell company that bought some small hydroponics retailers and suppliers starting in 2012, giving it locations in California, Colorado and the Northeast. Hegyi has closed two of those seven locations, and while he insists the others are “very strong,” he’s refocusing the staff’s expertise on “reaching out to customers” at their grow sites.

He envisions providing “much more of a service relationship” to assist growers, not just a retail or e-commerce operation.

“When you start concentrating hundreds of plants in one room and you’re babying them until they grow, you’ve got a lot of money riding on that,” Hegyi says. “We have experts who’ve been part of the grow industry for years.”

One licensed marijuana producer-processor who vouches for GrowLife is Daniel Curylo, who runs Cascade Crops in Shelton, Mason County.

“I love these guys,” says Curlyo, who is growing his first crop under a license for 3,000 square feet of marijuana plants but acknow­ledges he’s an industry newbie. “My grower is on speed dial with our (GrowLife) rep in Boulder,” Curlyo said.

“The exceptional thing about GrowLife — and I’ve literally spent hundreds of thousands of dollars with them — is the customer service,” he said.

GrowLife’s stock can still be considered vastly overpriced, despite an 85 percent haircut after the SEC’s trading halt drove it from the OTC Bulletin Board into what Hegyi terms “the gray market” of even less-regulated trading.

Even at 10 cents a share, down from its peak of 78 cents in March, GrowLife’s more than 800 million shares outstanding mean it is valued at $80 million or so. That’s rich for a company whose latest strategic turn remains to be proved — in a field crowded with competition for both investors and actual customers.

Bloomberg News reported last month that in all, about 130 public companies, most of them penny stocks, claim to be in the pot business. And the SEC warnings haven’t cooled all the speculation: “On some days, cannabis-related stocks account for 15 percent or more of all penny-stock trading,” reported Bloomberg.

Hegyi says he knows that GrowLife, its customers and its business rivals are under the microscope of both marijuana regulators and stock-market overseers.

“There’s a lot of scrutiny and that’s OK,” he says. “That’s part of what we as an industry have to address.”

— Rami Grunbaum:

Costco knows what you buy

Attention Costco Wholesale members: The warehouse club retailer knows exactly where you are and what you buy. But these Big Brother qualities are good when it comes to a product recall.

The company keeps track of every item its members buy.

So on the Fourth of July, after the U.S. Department of Agriculture issued a high-risk alert for some batches of chicken produced by California-based Foster Farms and distributed by several major retailers,

Costco was able to quickly track down more than 630,000 shoppers and tell them to lay off the chicken.

“This is a Costco food-safety alert,” the voice on the phone said, alerting consumers to a recall due to salmonella contamination. The message asked consumers not to eat the poultry and to return it for a refund.

“Everything you buy we keep a record of,” says Craig Wilson, Costco’s vice president for quality assurance and food safety.

“If you were to buy ground beef, or a couch, or an electrical appliance, we can call you up and tell you about it because we have your records.”

The company is able to call up to 1.8 million people per hour through an automated message system.

The message is usually recorded by whoever’s on duty at the time, and sometimes by Wilson himself, he says. Doesn’t matter if it’s a weekend.

“This one unfortunately happened over the 4th of July,” Wilson says.

“I felt it was important to call the people” before they grilled what could be a dangerous meal, he added.

Not many people in Washington received this particular call, which concerned fresh chicken products either under Foster Farms or private label names, marked with “use or freeze by” dates from March 16 through 31.

The chicken products were distributed by Costco, FoodMaxx, Kroger, Safeway and others in the Western U.S.

Most of the chicken sold in Costco warehouses in this state comes from a different supplier, Wilson said.

— Ángel González:

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