The business of cannabis
In case you guys missed it, my business story about the small but growing cannabis economy ran on Sunday.
Conservatively, the sector has already launched at least 50 jobs in Clark County, and that’s not counting lawyers, accountants and many other support services – nor is it counting four new growers or their operations that are setting up their sites but not producing yet.
As more states legalize, and more of these businesses form, it will be interesting to see how the sector grows and changes.
Will there be a Budweiser of marijuana? I think many years in the future, when and if the feds drop the Schedule 1 classification, we might see that.
But for now and even then, I think there will be plenty of room for the craft industry. Just take a look at how well the craft beer industry is doing.
I’ve attached the story below. Hope you’ll give it a read and let me know what you think!
By Sue Vorenberg
Columbian features reporter
TACOMA — Under the massive, round roof of the Tacoma Dome, a button-down crowd from across the state gathered last weekend for CannaCon, billed by its organizer as the largest cannabis business conference in the nation.
While tourists and marijuana enthusiasts descended on Seattle’s more lighthearted Hempfest, this much smaller group was on a serious mission — learning how to cash in on the slow but growing legitimization of the legal cannabis industry in Washington. Pot smoking was not allowed. Instead of the music, celebrations and speeches going on in Seattle, the event was peppered with a wide range of seminars, entrepreneurial product vendors, growers, lawyers, insurance agents, accountants and even a group trying to set up a marijuana commodities exchange.
In the middle of all that action, a new business group, the Marijuana Business Association, worked to round more people into its fold. The Seattle-based group has opened a handful of offices around the state and plans to open one in Vancouver on Sept. 19th, said CEO Dave Rheins.
“Despite all the challenges, this industry is being built,” said Rheins, looking out at the wide array of booths. “This culture isn’t new, the product’s not new, but what is new is the whole business side. And we have a lot of education to do.”
What’s new is legitimization of a long-stigmatized product. It’s a new industry, with Washington and Colorado as test cases for legalization. Rheins notes that it will take a bit of time for the market to sort out — and weed the bad businesspeople from the good ones.
New jobs in Vancouver
Conservatively, the sector has already created at least 50 jobs in Clark County this year.
Main Street Marijuana, Vancouver’s first retail store, has about 10 employees, with starting wages at $12 an hour for most workers, said Adam Hamide, a manager.
“That’s a couple dollars higher than most retail jobs,” Hamide said. “Retail, they start between $9 and $10 an hour.”
New Vansterdam, Vancouver’s other retail store, has 10 full-time and eight part-time employees, said manager Don Joling.
Viridian Sciences, a local cannabis-focused software firm that had a booth at CannaCon, has 10 employees.
CannaMan Farms, a local grower, has seven full- and part-time employees.
And Mary Jane’s House of Glass, a regional chain of marijuana product stores, has hired 10 new employees in the last month, five of them in Vancouver, said Brandon Brock, an owner.
Beyond that, at least two new growers are setting up shop in the area, with many more still waiting for the final approval process. There are also four more stores waiting for licensing in Vancouver, which could lead to even more hires.
“Many of these places will hire out at $15 an hour or more,” Rheins said. “This industry, it’s moms and dads, it’s age 50-plus, it’s advertising jobs, retail jobs, science, sales — and it’s local jobs. It’s good taxes and good wages and it will continue to grow.”
Marijuana Venture magazine, a business-focused publication based in northern Washington that distributes in Washington, Colorado and Oregon, could be seen as yet another example of the rapid expansion of the industry.
“We started as an 8-page newsletter and we grew to a full, 84-page glossy magazine in five issues,” said publisher Greg James, who was manning the magazine’s booth at CannaCon. “And our publication is strictly business. We don’t have anything on cannabis culture.”
But like much of the industry, problems remain in fighting stigma around what has long been a controversial drug, said James, who added that he doesn’t use marijuana.
“One friend of mine, an insurance agent, he didn’t want to have anything to do with this industry — but then I told him how hard it is for companies to get insurance even thought it’s required by (the I-502 legislation that legalized marijuana),” James said. “He took out an ad with us and now he’s making tons of money and has a lot of customers. A lot of people in this industry, they’ve never had insurance before.”
Chris Crew, a senior partner at the THC Law Firm in Elma, said he decided to specialize in cannabis law because there were so few law services available for new companies.
“Very few people really jumped into making this their focus from the beginning because it was so stigmatized,” Crew said. “I’ve heard the same from accountants and others. The lion’s share of people have said ‘we won’t touch that.’ But those services are needed.”
Actually, several people that are setting up cannabis businesses have never had a legitimate company before. They’re in the market for a wide range of advice, Rheins said.
“What we want to be is a conduit between the business community and the cannabis community,” Rheins said. “Many of these companies need help with technology, logistics, return on investment, retail operations. We want to work with everyone and help them find each other.”
Networking has also been problematic for many companies, because I-502 doesn’t allow cannabis businesses to advertise. Because of that, many have turned to social media sites including Facebook, Twitter and Instagram to get the word out. But that’s still left them with many difficulties in finding one another, he said.
Growers and stores also can’t market such merchandise as T-shirts or hats, which several customers have requested.
For stores looking for marijuana products, the general process is to look at the licensee list put out each week by the Liquor Control Board, see what growers have been approved and then try to get contact information for them from the list.
“There needs to be some sort of commodities marketplace, like Dow Jones trading futures, only for marijuana instead of pork bellies,” Rheins said. “And there’s a company here that’s working on something like that where growers can list what they have and buyers can say they’re interested. But they still have to go offline to make a deal. Eventually, it will be more full service.”
In the current process, any newly approved grower gets inundated with hundreds of phone calls from across the industry, often overwhelming them, said Josh Miller, CEO of Cannabis Commodities Exchange, which hopes to integrate purchasing services and other features into his product as it evolves.
“The suppliers, they love the idea of an exchange and integrating that with other services,” Miller said. “The Liquor Control Board now, it has a contact list, but they’re really pretty sparse. Once somebody appears on it, everybody calls them. It becomes a daily thing, and we’d like to help them.”
Other problems also face businesses as the new sector evolves.
Many complain that the state excise tax is too high, charging 25 percent when product moves between a grower and processor, again when it moves between processor and store, and once more when the store sells it to the consumer.
In Colorado’s first month of sales, January 2014, there were 59 retail stores open, with $14 million in sales and $2 million in tax revenues, according to information released by Leafly.com, a cannabis information site.
In Washington’s first month of sales, July 2014, there were 18 retail stores open, with $3.8 million in sales and $1 million in tax revenues, according to the site.
It doesn’t take much of a close look to see that the taxes are significantly higher in Washington.
Added to that, it appears that the stores may have to pay a federal tax on the excise tax — although the legality of that remains in question and will likely take either a lawsuit or legislation to fix.
And while some growers are highly skilled businesspeople, there are also many who have no expertise and are overcharging or surprising stores with hidden fees when they arrive at their doors, said Brian Budz, one of New Vansterdam’s owners.
And that leaves owners with the option of staying closed all week or buying product for an extra $2 per gram, he said.
“That really puts retailers in a bad spot,” Budz said. “We’re finding that our purchase agreements are more fluid than we thought, and there’s not much we can do about it. We’ve said no to some, but if we do that, we have to close the store. It’s a Catch-22. That will eventually end up with stores not being able to stay open and growers not having anyone to sell to.”
In Vancouver, that led to a new price spike of between $32 and $38 a gram at both stores for a product that has a street value of about $5 per gram.
And while he declined to name specific growers that he’s had problems with, he was quick to tout Vancouver’s CannaMan Farms and Wenatchee’s Monkey Grass Farms as model businesses to work with.
“Brian Stroh at CannaMan has been a spectacular person to be in business with,” Budz said. “He’s been very open. We’ve been to his farm. What he produces is top-notch, and we have customers that come back and repeatedly ask for his products.”
Ultimately, a lot of the issues could end up at the feet of the state Legislature in the next session.
“(November) is a huge election for us in the state,” Rheins said. “What we’ll be doing is justifying the normalization of both the recreational and medical sides of the industry. And that’s something we’re working to bring people together for.”