The Story of David Iacovelli (Seattle’s Hydro Spot)

Sep 21, 2023

American Dream Achieved

IBA, as an approximately fifty-year old business brokerage firm serving the entrepreneurial community of the Pacific Northwest, has been uniquely positioned since before the American Bicentennial celebration of 1976 to witness and hear the stories of thousands of people who have lived the American dream through entrepreneurship creating beloved businesses by employees, customers, and communities while finding personal fulfillment and financial prosperity through execution of their ideas, hard work, perseverance, and ability.  In an effort to share these stories heard throughout the years by our team of business brokers, who are commonly regarded as the “best listeners” in the M&A industry, IBA has retained highly regarded writer, Nesha Ruther, to tell their stories.  It is our goal to share one story a month. It is our hope that you will find the stories as inspirational and motivational as they are to us and the buyers who bought the businesses in IBA facilitated transactions in Washington, Oregon, and Alaska.

The Story of David Iacovelli (Seattle’s Hydro Spot)

By Nesha Ruther

David Iacovelli grew up in upstate New York, but he always felt a little out of place there. Suited for warmer climates and a culture that was less buttoned-up, he moved to California at the age of 19 to attend Humboldt State University. “If you know that area at all, it’s right on the California cliffs in the Redwood Forest,” David says. “It’s super pristine and beautiful. I’d walk from my dorm room to class through an old-growth forest with trees 30 feet wide and hundreds of feet tall.”

At the time, marijuana was a huge part of campus culture, “There would be hippies in the forest selling weed on the walk to school,” David recalls. University students were not the only ones who partook, cannabis had become a part of the entire city of Arcata, where the university is based. “I graduated school and wanted to stay in the area,” David said. “I used [marijuana] in college, but I didn’t realize how the whole town was built on it. That’s Northern California for you.” One day, David was visiting a friend’s house, they moved aside a tapestry and behind it was a wall of cannabis plants. “The room was full of plants and lights,” he recalls. “From there it just snowballed.”

It was the early 2000s, and while cannabis had yet to be decriminalized in major cities across the country, there was a growing base of people who used marijuana for medical purposes and had licenses allowing them to grow and purchase it legally. David began spending time with his friends who were growers and learning the ins and outs of the industry.

Other friends of his didn’t grow, but provided the equipment needed to successfully care for the plants. “I had friends who had hydro supply stores, and it was like selling shovels to gold miners. They were really successful all through California.”

In 2010, David began looking into the process of opening his own supply store, but California and Oregon were already oversaturated. “I began thinking ‘maybe I could do a hydro store in Seattle.’” David took a trip up to Washington to check out the competition. “I went to the stores in Seattle that sold hydro equipment, and they were all terrible. Totally laughable places. There were ping pong tables in the aisle of the store, a half-eaten piece of cake on a paper plate on the shelves. One was in someone’s house, and it looked like a horror movie. The competition was laughable at best. I was like ‘Alright, this is the spot, let’s do it.’”

David’s next step was identifying cool, up-and-coming neighborhoods in Seattle, with a population that would be receptive to his product. He settled on Ballard; this would prove to be a wise choice as Ballard would become increasingly trendy over the next decade.

David named his store Seattle’s Hydro Spot and opened for business. Like any entrepreneur, it required sacrifice. He and his now-wife kept their home in California, while David rented a condo in Seattle. For the first two years, their relationship was primarily long-distance. “I would come up and work the store, and she would come for a few weeks, or I would visit her in California. It was a huge back-and-forth game,” he says.

Medical marijuana use was becoming increasingly popular in Seattle, so much so that many of David’s early customers were individuals rather than businesses. “Tons of customers had little [growing operations] going in their basements,” David says.

One unique aspect of Hydro Spot’s business model was its emphasis on education, “I used to joke that we should have served drinks there because people would come in and talk to us for hours about growing,” David says. “There were businesspeople in Seattle with families, that were doing this medical home growing thing, and they had to keep it all under wraps, we were the only place they could talk about it. I would educate people and they would buy products based on what they were trying to mimic and learn from.”

For those who were interested in growing, accurate information was far and few between. David and Hydro Spot filled that gap and led by example in terms of how a legal business should operate in the cannabis industry. “This was still in a time when people couldn’t research everything on the Internet,” David says. “People were afraid someone would look at their IP. There were definitely still walls in place. With us, they had a trusted source. They knew enough about my background that they trusted where I came from and that I was there to do the right thing.”

Many might think that working in the cannabis industry requires back-door deals or other shady gatherings, but this was not the case. While other businesses were losing that face-to-face element to online shopping, Hydro Spot thrived in this area. “People were afraid to have [equipment] shipped to their house, they didn’t want to have a bunch of lights, grow tents, or nutrients sitting on their porch. They weren’t sure how it was going to be delivered, if it could be discreet, or who was watching them. What was cool was that everyone felt comfortable coming into the store to buy stuff, walking out the door, and taking it home.”

Despite David’s efforts to make the store clean, welcoming, and professional, there was still a lot of fear surrounding the growth of marijuana, even if it was being done with a medical license. “There were stories in Seattle and cities all across the country where police have come into hydro stores, stores that are only selling lights and pots, and they’ve raided them. It was part of the evolution of the industry. We were right next to a tow yard, and there were times when there was a cop car parked outside because of a towed car, and nobody would come into the store,” David says.

While today, cannabis and the businesses that sell it have been greatly destigmatized, this cultural shift is a fairly recent one. “I think the old misconception was that [the cannabis industry] wasn’t for real business professionals, now it very much is,” David says. “But then on the flip side, some people think, ‘Oh we can bring in a bunch of business professionals to run a cannabis company, we don’t need the legacy people who were in the trenches and really know the game’. Companies that try to start without someone who worked at the grassroots level usually don’t do well, there needs to be a balance of the two.”

With Hydro Spot, David merged the business-savvy with longstanding knowledge of the cannabis industry and what equipment is needed to grow successfully. Along with growing the store’s brand as a reputable place of information and equipment, David had to establish his own personal brand. This was incredibly important in an industry stereotyped for having questionable characters. “I saw that there was good revenue to be made if you did things right,” he says. “So, I was willing to put myself out in front of people and do the whole in-person game.”

With any new, less regulated industry comes the challenge of securing high-quality merchandise. When it came to selecting what equipment to sell, David relied on his network of friends running hydro stores in California. “I knew the base of what I wanted to sell via my friends’ franchises that were doing well,” he says. He also prioritized his own education, making sure he fully understood how a product worked and what made it successful, at one point flying across the country to New Jersey for a hydro equipment training program.

“If you think about it logically, you need dirt, nutrients, lights, pots, all your general stuff. I just started with one or two options of each, and then slowly people started requesting other brands which I would buy. But you definitely get manufacturers or distributors coming in with something that you’re not sure about or a price that is too good to be true. Once I bought a fan, and I turned it on and plugged it in and it sounded like there’s a jet engine falling through the roof,” he says laughing. “You just learn from it and say, ‘Okay, that was not a good buy,’”

A challenging aspect of owning any business is learning how to attract new customers, this difficulty is exasperated when there is a general caution about buying the product. Marketing the business became critical because it not only gave exposure but showed potential customers that Hydro Spot was a legal and legitimate business. “We put ads in the independent local papers, and that started to give us traction, people weren’t counting on the internet for information as much back then,” David says. “We also had a website of course, but the biggest thing was word-of-mouth.”

One approach David took to building his customer base was community outreach through local events. He would sponsor DJs and local concerts so that people could see Hydro Spot’s name affiliated with their favorite performer.

This effort paid off and David was able to hire staff. Still, it was important to him that he completely trusted his employees, and therefore he kept the team small. “At the peak [of the business] we only ever had four employees, but it was always enough to offset the shifts. It was enough for the store to be open seven days a week.”

David was fortunate to attract employees who were very serious about the industry and curious to learn about the details of the business and the merchandise. “We kept people for a long time. We got some good people throughout the process, and they were really smart.”

Eventually, their staff was so knowledgeable and competent that David could primarily reside in Northern California. He had cameras installed so he could keep track of the day-to-day, and he could log into the point of sale system to monitor purchases. “I used to joke that I could basically do everything but ring [customers] up,” he says.

This degree of confidence and security would not be possible had David not heavily invested his time in training and mentoring his staff. One of David’s employees had been particularly helpful in outfitting the website and loading products online. When David was in the process of selling Hydro Spot, he gave this employee a significant raise to keep him on board.

The buyers ended up needing a programmer to help upload products and moved the employee out to the corporate office in Denver. “He ended up getting a really good job out of the sale,” David says. “I had pleaded with him to stay, and he still thanks me to this day saying, ‘I’m so happy you told me to stay on.’ It was really cool to see his success story come out of the sale.” To this day, all of David’s old employees who wanted to stay on through the transition have found careers with the new owners.

Over time, the store’s clientele began to change. “In the beginning, it was people in their basements or garages, and then it slowly got to be bigger, like multi-floor warehouses,” David says. Larger-scale growers not only needed more equipment but did not have a lot of the same concerns about shipping as individuals growing for medicinal reasons.

To accommodate their changing customers, David began implementing drop shipping into their business practice. “They would just hit us up and we would have [equipment] shipped directly from the manufacturer to their farm, we never had to touch it.”

This transition did not come without challenges, however. At one point, David could quickly install equipment in someone’s bedroom or garage, now he was being asked to install it in a 40,000-square-foot warehouse. To accommodate the growing need, he began offering his services as a personal consultant. “I would charge a retainer, and then go look at their facility and say, ‘You need this and this’ I would come back and put the quotes together for the equipment they needed.” By offering consulting, the products themselves, and installation, David and Hydro Spot had found ways to serve their clients at every step of the process.

As the movement across the country to decriminalize marijuana gained momentum, and growing became a larger practice, the number of hydro stores increased. Gone were the days when Seattle’s only hydro stores had half-eaten cake on the shelf. “There were some bigger stores on the south side of the city that were selling for crazy cheap,” David says of his competition.

However, what these stores lacked was the care and thought David put into educating his customers and connecting with the community. “People did stick around just because they liked our vibe and that we gave education,” he says. “We also had vendor days, which other stores weren’t doing. We would have different companies come to our stores, there would be food, raffles, and music, that was always fun.”

The industry went through another dramatic shift as decriminalization became legalization. Where other states had passed recreational home grow laws that stated anyone over 21 could grow up to six marijuana plants in their home, Washington had no such law. “Washington was the only recreational state where you couldn’t do that,” David says. When legalization occurred, the government jumped at the opportunity to open its own state-run dispensaries. “The government was crazy about wanting to get every dollar of revenue from their dispensaries. They didn’t want anyone else to be selling or even provide cannabis for themselves at all, so they stopped allowing anyone to grow for medical purposes.”

This change in legislation applied directly to Hydro Spot’s customer base, impacting David’s business. “There were rumors in Seattle that cops were going to start going door-to-door for medical growers who didn’t stop, and those were a lot of the people who shopped in my store.”

Within the first six months of legalization, the vast majority of David’s core clientele had shut down their home gardens and medical growing businesses, and therefore no longer needed equipment. Setting up a legal cannabis grow within Seattle city limits was incredibly expensive due to heightened city permit fees, inspections, city ordinances, and more, pushing growers out of the city. “If [customers] didn’t [stop growing] they went to work for somebody outside of Seattle in rural WA who could afford to set up a recreational grow farm. In one year, my entire base of foot-traffic clientele got wiped out,” David says.

Thankfully, David still had a significant portion of commercial growers, and he also began pouring his energy into the consulting, quoting, and drop shipping aspect of his business. “We had to adapt super quickly,” he says.

After six years of being in business, David was contacted by Grow Generation, the largest hydro equipment chain in the country, that had just gone public. “There had been a few hydro store chains that had kind of come and gone over the years,” David says. “Grow Generation was by far the most organized and the most well-funded. They were interested in buying Hydro Spot, their first store in the Pacific Northwest.

Part of their interest lay in David’s inventive practice of drop shipping to commercial customers and his consulting business. “They were intrigued by my model because they barely knew what drop shipping was,” he says. “They wanted to learn about doing quotes and consulting and apply that model to their stores.”

David had always planned on eventually selling the store, and here was an exciting opportunity with one of the most successful hydro chains in the country. “Selling the business was part of my exit strategy from the get-go,” he says. “I always knew I didn’t want to live in Seattle forever, and it had gotten a lot harder to run the business as competition in the commercial space was fierce. It had become much more of a grind, and the people who were winning were well-funded companies that could go big with volume. I saw the writing on the wall for me as a small business owner at the time,” he says. “Having a company like Grow Generation come knocking was great because they were the ultimate player, and they would keep the store and maintain employee’s jobs.”

David began reaching out to brokers and ultimately selected IBA.

“I really enjoyed working with [Gregory & Bill],” David says. “From the jump, they were upfront with what they thought the business was worth and what I could do to help the sale. They just saw that side of [the business] really clearly. I knew people did buy and sell hydro stores, but it was still a fairly new thing, so it was great having them to vet the buyers and facilitate the sales process. It felt like ‘Alright, I have this kind of fringe business, but there is a legit, professional company trying to flip it,’ And [IBA] was super professional.”

Because David had known from the beginning that he intended to sell, he kept a close eye on his books and made sure the business was financially viable. David encourages any small business owner who is even remotely considering selling to do the same. “Gear your business towards doing the books as if you’re going to sell it one day. Don’t cut corners, figure out what the correct business approach is to solve the problem, and make sure it’s known,” he says. “We always tried to keep our books with the intention that someone was going to be reviewing them one day. When I sold to Grow Generation, their CFO said, ‘These are the cleanest books we’ve ever seen!’”

Despite David’s exit from Hydro Spot, he still sees a future for small businesses in the cannabis industry. “I know a lot of good people that did well in the legal cannabis game, and I still think there’s a place for [small businesses] in the industry,” he says. Whatever changes the industry undergoes, David will have a front-row seat.

Since selling Hydro Spot, David and his wife have sold their home in Northern California and moved to Portland, Oregon. He has begun working for a company that produces glasses specially made for growers. He is also currently consulting for Wu-Tang Clan’s Method Man on his cannabis business. “I’m doing professional, business work,” David says, “But I still get to go to farms and talk to farmers and try to understand what issues they are having.”

Method Man is not the only celebrity who has moved into the cannabis industry, “It’s hard to market a cannabis business, so when you are a celebrity brand you can differentiate yourself. You have people like Jay-Z with a brand, Al Harrington, Mike Tyson, and Cheech and Chong. It’s an interesting battle to see play out,” David says.

In many ways, the cannabis industry itself embodies the ideals of the American Dream. Like Manifest Destiny, the Gold Rush, or the rise of the Internet, few things are as American as venturing into the unknown in search of the next big opportunity. “I’ve definitely felt some nights, working at the store, like it’s the prohibition of alcohol,” David says, “There’s an aspect of the industry that is very grassroots, and I think it is very American in that respect. But it’s also nice not to have it all be behind closed doors anymore. I’m definitely way more candid about it now than I have been through a large chunk of my life,” David says.

“I feel like I have achieved the American Dream. We live in a really nice neighborhood in Portland that I would never be able to live in if it wasn’t for selling the store, that’s for sure. I still have more work to do, but I wouldn’t be here today without that journey.”

Nesha Ruther

Nesha Ruther is a writer and editor from Takoma Park, Maryland. She received her BA in English Creative Writing from the University of Wisconsin Madison, where she received a full tuition scholarship through the First Wave program based on academic and creative merits. She was a 2016 Young Arts winner in spoken word, a 2016 winner of the DC Commission of the Arts Larry Neal Writing Award, a 2017 winner of the Mochila Review Writing Award, which was judged by Nikki Giovanni, a 2020 winner of the University of Wisconsin’s Eudora Welty Fiction Thesis Award, and a 2022 Tin House Winter Workshop Participant. She has been commissioned to write and perform for the National Education Association, and has had work published in NarrativeNortheast, Angles Literary Magazine, Beltway Quarterly and more. She currently lives in Cincinnati Ohio and is the Lead Manuscript Developer at Holon Publishing and Collective Press.