How to Plant the Seeds of Success in the New Cannabis Economy
Entrepreneur - Andre Bourque - 9/22/16
Does it take much more than a match and a bowl to go into business? If you know your chronic from Colombian, isn't that enough to sell the stuff? What does an entrepreneur need to do to open a green business and capitalize on the new cannabis laws?
Planting seeds in the cannabis economy is not for the amateur without the right guidance and information. That was one of my many takeaways from the recent Cannabis World Congress in Los Angeles.
What’s the attraction?
The possibility of big revenue has people rushing to the retail cannabis business in states where they have passed laws permitting marijuana sale for medical or recreational purposes, and in states where they expect that market to open soon.
CNBC estimated the potential market as high as $40 billion back in 2010. But, the Huffington Post bases its 2015 forecast on the ArcView Report, and predicts that "by 2019, all of the state-legal marijuana markets combined will make for a potential overall market worth almost $11 billion annually.” And, Forbes sees a 26 percent growth in 2016 to $7.1 billion.
Why such variations? For starters, it's challenging to measure a market where there is a huge under-market in illegal sales and in sales to customers from outside the licensed jurisdiction. And, while it is probable that additional states will permit the market, it is by no means certain. Additionally, sales in population-dense centers like Los Angeles can skew any forecast.
Nonetheless, there is gold in that grass. These numbers put the cannabis industry among the top 10 in the economy, right up there with consumer goods, construction and telecommunications. In all, 25 states now permit the sale of medical marijuana, admittedly with widely varying regulations.
Where’s the economy?
As laws change with every election and meeting of state legislatures, the above CNN map is a recent survey of the U.S. Notice the map key that labels the green states legal for medical and recreational use, orange states where medical marijuana is okay (including some jurisdictions that have independently decriminalized restricted possession) and yellow states where only medical Cannabidiol (commonly referred to as CBD) is permitted.
Related: High Stakes: How This Marijuana Company Gained Buzz in a Budding Market
It bears noting that some places have also decriminalized having possession CBD in small amounts. CBD is a derivative with reputed positive medical outcomes without the psychoactive experience.
At the same time, you might want to contrast that with a map that locates admitted users, such as a few of the maps found here at LiveScience.com. Knowing where the consumers are and where the laws are permissive, you have a better shot at targeting a location.
For example, marijuana users report heavy use in the New England states where, in some jurisdictions, only medical use is currently legal. And, given the wide-open spaces in Washington, Oregon, Colorado and Alaska, sales are likely to be located in the few densely populated cities there. As you can see, despite the promise, where you choose to plant seeds in the cannabis economy depends on many factors. It's probably not something to jump into without thorough legal advice.
What does it take?
For starters, planting seeds in the cannabis economy with a retail outlet takes retail business know-how. Small businesses have a terrible record of failure. The Small Business Administration (SBA) finds that half of all small businesses fail within the first five years and only a third survive seven years. They fail because owners lack management experience, underestimating the need and availability of capital, poor planning and staffing, as well as for generally entering business for all the wrong reasons.
Related: This Incubator Is Helping Cannabis Businesses Blaze a Trail Forward in a Budding Industry
So, if you want to enter the business because it looks like fun, you might want to have some seasoned industry assistance along the way. “The legal cannabis industry is becoming highly institutionalized,” said Adam Bierman, chief executive officer of MedMen, a Los Angeles-based firm that offers management services to licensed operators. “It is a natural evolution as the industry outgrows its legacy origins. You have serious, institutional capital entering this space today, and these investors demand a certain level of accountability and performance.”
In summary, when you consider entering the retail marijuana space, it would be wise to weigh the following added concerns:
- Learn the financial operation, including pricing, supply chain management, cash flow and reserves, point-of-sale software, accounting principles and more.
- Study the law and possible regulatory environment and join business advocacy groups.
- Secure an experienced attorney prior to formal planning to reduce liability exposure and comply with all regulatory authorities.
- Pay payroll taxes and comply with regulatory sales taxes, which are more complicated and higher than typical sales taxes within the marijuana industry.
- Harvest resources in the supply chain: Farmers, supplies, accessories and so on.
- Train employees in retail customer service and in the nuances of what the law permits in terms of labeling, representation and advertising.
Marketing is one of the single most important parts of staging and ensuring a successful entry into the retail cannabis industry as well. This includes market research and advertising. Cannapreneurs need to know the demographic profile of the customers that surround their retail locations and how far they will travel if the right accomodations are provided for them.
"Cannabis marketing is the strategy in which you creatively reach your customers and let them know you are providing what they need," said James Marland, CEO of The Grow Division. "To quote Ted Levitt, the godfather of marketing, and professor at Harvard Business School, 'Nothing drives progress like the imagination. Put customers at the center of all you do and put marketing at the center of strategy'".
Succeeding in cannabis sales appears very promising, but it does involve business risks that do not threaten more ordinary retail products. Still, success is often a function of the risk, and the passion and autonomy that drives entrepreneurs can make the real difference.
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Growing pains: Oregon marijuana boom brings jobs — and complaints — for Josephine County
Grants Pass Daily Courier - By. Shaun Hall - 08/29/2016
GRANTS PASS, Ore. — Josephine County’s growing marijuana industry is experiencing growing pains.
The number of medical marijuana grow sites in the county has remained steady from a year ago, at about 2,500.
But growers who sell to retailers have been sprouting up — 38 new state-issued licenses have been granted this summer to people who plan to grow for the recreational market. More applications are pending.
Pivoting to take advantage of retailer preference for indoor-grown marijuana, these new operations are springing up in former pastures and fields across the county.
“This industry didn’t exist a year ago,” observed Dani Jurmann, standing outside a row of industrial-size greenhouses on Cedar Flat Road near Williams, where he and his family employ nearly 30 people growing marijuana for the recreational market. “The world has changed, and Oregon is at the forefront.”
There’s good and bad happening. The good includes jobs and investments. Jurmann pays employees $15 an hour to start, plus benefits. He employed contractors and suppliers to get the place up and running. He obtained land.
He also bought big greenhouse fans and framing lumber, and built a gravel road.
That’s where the bad comes in— some neighbors complain about noise from the fans, and the road had to be moved to avoid annoying a neighbor who complained about the new traffic.
Operating as Shadowbox Farms, Jurmann employs not only gardeners and trimmers, but a compliance officer and a foreman. The operation’s aim, besides providing 6 million servings of product a year, is to provide a living for his family and employees, in a career some might consider a dream job.
“We offer real jobs with a real future,” he said. “We’re supporting a lot of families here and that’s what’s important to us.”
It all comes with a price, of course. There’s the competition and the new neighbors, and a county planning department that has told him there’s a need for permits for those greenhouses.
In response, Jurmann has applied for the permits, said he’s willing to invest in new fans, and is planning to put up a line of closely packed trees to block sound and sight.
“We are working very hard to meet the needs of our neighbors,” says Jurmann’s wife, Angellina. “We are a mom and pop business. Our community reputation is really important to us.”
The fans are shut off by 8 p.m. nightly.
The whole operation is surrounded by an 8-foot-high chain-link fence. Dozens of cameras provide surveillance. A former stable has become an office, and there’s a room for young plants, in addition to a dozen or more new greenhouses topped with plastic and removable black covers, which give plants 12 hours of sunshine and 12 hours of shade. Every plant it tagged, so it can be tracked.
It’s a going concern and yet a work still in progress.
This week, the new road was put in. Last week, post holes had been dug for a new fence, outside Jurmann’s nearby home, where his four children are being raised. A couple dogs that looked anything but vicious lounged in the sun. The place bustled with workers.
“You couldn’t build something like this in six months without making a mess,” says Jurmann, a grower for the last decade who persuaded fellow family members to pool their money and give it a try.
He’s convinced his crop is superior to marijuana grown outdoors, where rain and wind and dust can take their toll, including how the product looks — an important consideration for retailers.
He predicts a glut of marijuana grown outdoors, which could cause prices for those products to drop, and affect the ability of outdoor growers to make a go of it.
“There’s only going to be the biggest and strongest that survive,” he said.
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by Matt Ferner
Marijuana businesses may not yet get a full green light on the banking rights that non-marijuana businesses already enjoy, but they are likely to get a "yellow light" as soon as the new year, Jack Finlaw, Colorado Gov. John Hickenlooper's (D) chief legal counsel, said on a joint call Thursday.
"What we're being told," Finlaw said on the call hosted by Drug Policy Alliance, "is probably in the first quarter of 2014 there will be some guidance issued that's comparable to the Cole memo from the Department of Justice that will give, maybe not a green light, but a yellow light to banks to allow them to do business [with marijuana businesses] -- to take deposits, to set up checking accounts, to set up small business loans, to allow these businesses to accept purchases through debit cards or credit cards, to allow what normal businesses are allowed to do."
Last week, the Bank Secrecy Advisory Group had a closed-door meeting in Washington, D.C., to begin talks about reforming banking regulations so that banks can legally engage in services with marijuana businesses.
Currently marijuana businesses aren't allowed to set up legal bank accounts because the federal government still considers marijuana to be illegal. Worried banks fear that they could be implicated as money launderers if they offered traditional banking services to the pot businesses.
"It's my understanding that the ball is in the court of the Department of Treasury," Finlaw added. "The Department of Justice having issued the Cole memo and having signaled to Treasury that they would be willing to see some accommodation in the banking regulations, is working with FinCEN in Treasury."
FinCEN is a bureau of the U.S. Department of Treasury that analyzes financial data to mitigate against illicit use and money laundering.
Even if the DOJ and Treasury give the "yellow light" to banks, there would also continue to be some oversight by the banks to ensure that the marijuana businesses they work with are not a front for illegal activity, Finlaw said.
Thursday's news follows a DOJ announcement in August that it is "actively considering" how to regulate interactions between banks and marijuana shops that operate within state laws and don't violate other federal law enforcement priorities.
Although official regulations have not been set, for now, financial institutions and other enterprises that do business with marijuana shops that are in compliance with state laws are unlikely to be prosecuted for money laundering or other federal crimes that could be brought under existing federal drug laws, as long as those pot businesses don't otherwise violate the DOJ's enforcement priorities, a senior Department of Justice official said.
"My understanding is there is a discussion in Washington about how much of this can be accomplished administratively through FinCEN, Treasury and Justice, and how much Congress needs to do something," said Ethan Nadelmann, executive director of Drug Policy Alliance, on Thursday's joint call. "It may be the reason for putting out a yellow light instead of a green light, [it] may have to do with some constraints in federal law and the administrative agencies trying to figure out how far they can accommodate these legitimate needs for access to legal banking while staying within the constraints of federal law."
Finlaw also noted that no one in Washington had given timing on the release of a marijuana business banking memo, but that the first quarter was the hope and expectation based on how the process has been working thus far and how long it took for the DOJ's Cole memo to be released.
"The hope is that we can get this resolved in early 2014," Finlaw said.
Dan Riffle, director of federal policies at Marijuana Policy Project, told The Huffington Post that the hope is that the banking issue is resolved before recreational marijuana retail shops open in Washington in Colorado in 2014.
"This raises obvious safety concerns and tax compliance issues, and one of the primary reasons Colorado and Washington voters approved initiatives to regulate marijuana was to reduce the risk of violence and ensure sales of marijuana are taxed appropriately," Riffle said. "It's imperative that Treasury, FinCEN, and the DOJ work together to resolve this issue as soon as possible in order to honor the will of voters in those states."
Messages to DOT and DOJ regarding the possibility of a first-quarter announcement were not immediately returned.
Colorado's first recreational marijuana shops are expected to open on Jan. 1, 2014, with Washington state's opening later in the new year.
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