By Roger Parloff, senior editor @FortuneMagazine March 21, 2013: 4:11 PM ET *
Jason Levin, a young engineer who lives in Berkeley, is addressing a group of 30 angel investors gathered in a long conference room at Seattle's stodgy Washington Athletic Club. Levin is hoping to persuade one or more of the people around the table to invest in the startup company he envisions, called Uptoke, in exchange for a stake in the company. He has seven minutes to make his presentation. Levin and his team of engineers have produced prototypes of a high-tech, handheld portable vaporizer, he explains. Such devices heat cannabis (or tobacco or herbs) to the point where active chemicals are released without combustion of the plant material. The vapors are less harsh to the throat than smoke and contain few, if any, toxins. The most effective vaporizer on the market today is the Volcano, a tabletop model that usually costs at least $650, isn't portable, and requires the use of a balloon to capture the vapors, Levin explains. Handheld vaporizers -- powered by either batteries or butane -- are also available, but all have their drawbacks. The simplest, which adapt e-cigarette technologies, are inexpensive but can clog and break and don't work with conventional cannabis flowers (i.e., buds), requiring instead the use of a canister of cannabis oil, which is messy, hard to find, and not to everyone's taste. The better compact vaporizers, which sell for about $250, can vaporize conventional marijuana but still take time to heat up, may require waiting between tokes, and need prior grinding and bud preparation. In contrast, Levin explains, the Uptoke has a built-in grinder; buds are prepared and vaporized in a single chamber. It heats to 375° F in just 2.5 seconds, and requires no waiting between puffs. Power management tools automatically turn off the heating mechanism when the user isn't inhaling, which means that both cannabis supply and batteries last longer. Levin sees a retail price point of around $300. A couple of investors nod approvingly. We are inside the sixth quarterly forum of the ArcView Angel Network. ArcView was formed in 2010 to bring together businfoessmen who believe that the prohibition era for marijuana in America is coming to an end and that a legitimate cannabis industry is now taking shape. "A geyser is going to go off," ArcView CEO and co-founder Troy Dayton tells me the day before the event, held on Jan. 28. "The question is, Which companies are going to be sitting on top of it when it does?" ArcView aims to bridge the gap between would-be financiers of this new industry -- investors who sometimes know little about marijuana -- and would-be entrepreneurs in it, who sometimes know little about finance or business. ArcView launched its Angel Network in November 2011 -- right in the teeth of a federal crackdown during which hundreds of medical marijuana dispensaries in California, Michigan, and Montana were being closed down, killing investor enthusiasm. But January's event -- to whose closed-door sessions Fortune was granted exclusive access -- is taking place in a different world. Everything changed last Nov. 6, when voters in Colorado and Washington approved, by 10-percentage-point margins, ballot initiatives that not only made it lawful for adults to use and possess up to an ounce of marijuana -- for any purpose, not just medical -- but also ordered state regulators to begin licensing commercial businesses to engage in for-profit cultivation and distribution of the drug, much as those regulators currently do with tobacco and alcohol. Though other jurisdictions had legalized the use of marijuana for medical purposes -- 18 states and the District of Columbia now do so -- or had "decriminalized" possession of small quantities of the stuff (meaning you risk only a ticket and a fine if you're caught), these two "tax and regulate" initiatives were a...