The Business of Legalized Marijuana

16-18 The Business of Legalized Marijuana

Gary Price: It’s been vilified, worshipped, criminalized, immortalized in film, literature and song, and praised for its powers – it’s “cannabis,” or more popularly known as “marijuana.” To that litany of bad and good you can now add “big business” – big legalized business. With more and more states giving the nod to medical and recreational marijuana, it was only a matter of time before Wall Street got into the act. Keeping track of the business side of legalized marijuana is the job of Chris Walsh, editorial director of the online news source, Marijuana Business Daily, which touts itself as “the most trusted cannabusiness news source since 2011.” Walsh says that, despite the fairly lackadaisical attitude of some European countries toward the use of pot, the U-S is actually the country on the cutting edge of the business of marijuana…

Chris Walsh: Canada has legalized medical marijuana at the federal level, and some other countries have as well, but the U.S. is pretty much leading the charge on this, especially from a business standpoint. You also have some countries taking this a step further. Uruguay has actually legalized recreational marijuana at the federal level itself. So they became the first country to do that. But, yeah, on the medical side we have about half the states in the U.S. have legalized medical marijuana and you gotta think that there’ll be some kind of bigger change at the federal level coming in the next five years.

Price: As states craft laws legalizing marijuana for medical use, Walsh says the business end of the industry is huge, which is amazing since it’s not yet a large corporate enterprise…

Walsh: This is still really a mom and pop industry but it’s a massive industry now. According to our estimates, sales of medical and recreational marijuana in states where it’s legal will hit about $4.3 billion, just a year. And that has an economic impact that ripples throughout a community and the state, so this year we expect the economic impact of the industry will be up to $17 billion. And that includes all the money and jobs that this creates not only in the marijuana industry, but when it revitalizes communities and then other companies hire to meet the demand of the workers and the people in this industry. So, you know, it has a massive economic impact and it’s only going to grow. I mean, we think that sales will be growing from, as I mentioned, about $4.3 billion this year to up to $11 billion in 2020. So this is becoming a major, American industry.

Price: And as with most new industries, the more popular their product becomes, the more difficult it is to jump on the bandwagon. Walsh says that with government regulations and start-up costs, getting into the game is becoming more and more expensive…

Walsh: About five or six years ago, there weren’t many regulations at the state level on this industry, so you basically had people opening marijuana cultivation facilities and dispensaries where you sell medical marijuana for 10-, 20-thousand dollars. It was easier to start than a lot of other businesses. What you’ve seen recently, though, is that states are regulating the industry heavily now and with that comes licensing fees, application fees and a whole bunch of other costs tied to getting into compliance with these regulations. And the regulations cover everything from security to employee badging – in Colorado, for instance, employees have to get approved to work in the industry and update that annually – and then you have recordkeeping regulations, I mean the list goes on and on. So it’s become a lot more expensive recently.

Price: Walsh says the industry is moving away from the mom-and-pop business model because of the cost and all of the red tape. But those hurdles don’t deter the corporations whose deep pockets and armies of lawyers are well equipped to take on anything that comes their way…

Walsh: The pharmaceutical companies, they are not involved yet because this is federally illegal, but you can be that they are looking at this and will be poised to move if and when the federal government changes its position. So the point I’m trying to make is that the barriers to entry are increasing. It’s becoming a lot more expensive to get involved and it’s moving away from mom-and-pop, it’s more of a corporate industry as it grows. So to get involved now you have to have a lot of money or you have to line up investors. It depends on the state and its regulations, but you know to open a marijuana grow facility or dispensary you could be talking maybe 50-, 60-thousand dollars on the very low end, up to a million or more. A lot of states are now requiring that you have a couple hundred thousand dollars in escrow, and the licenses can cost 20-, 30-, 40-thousand dollars annually.

Price: Just because corporate America has the resources to step in and create an even bigger legalized marijuana industry than we have now, that doesn’t mean that the entrepreneurs of the nation will be frozen out. Walsh says that it takes a lot of work and a lot of people to make medical and legal recreational marijuana a reality, and that means opportunities for small- and medium-sized businesses to get a piece of the pie…

Walsh: There’s a whole other side to the industry most people don’t think about that we call “the ancillary side,” and these are all the companies that provide services and products and technology to the businesses in the industry that touch the plant, and to patients and consumers. So this ancillary side, think of it this way: All the services and product this industry needs can be legal, consulting, HR, HVAC services, construction, real estate, the list goes on and on. And that is an easier part of the industry to get involved in because you don’t have to meet all these regulatory requirements.

Price: One roadblock that even the largest corporations would have to negotiate is banking. Walsh says that there aren’t many financial institutions now that will take money from legalized medical or recreational marijuana facilities, and that creates cash flow and security problems…

Walsh: All of the major banks in the country have cut off the cannabis industry because it’s federally illegal, they don’t want to get in trouble with the U.S. government and lose their bank charter or jeopardize their main business. So you’ve seen the Wells Fargos and Chases of the country say, “Nope, we’re not going to open up any cannabis-related accounts.” That means that companies either have to find a smaller local bank or credit union that will work with them kind of as one-off basis, or, what you find is that most companies that touch marijuana don’t have a bank account at all. So there are a lot of problems with that — you have a lot of cash on hand every day, how do you accept payments from customers? Well you know a lot of them, you can’t use credit cards because the credit card companies won’t work with the industry either, so it’s heavily cash-based and that creates security concerns – robberies, even employee theft – and then you have just logistical and operational issues. I mean, how do you pay your vendors if you can’t write them a corporate check? And how do you pay your employees? And how do you keep track of all that cash, and where do you put it?

Price: Even with those problems, Walsh says that there haven’t been a lot of robberies in these facilities because states require optimum security such as wall-to-wall cameras and alarm systems. There are bigger concerns about legal medical and recreational marijuana than where to put the money, though. Walsh says that the industry is facing a knot of regulations from various states that can prove to be a challenge for patients…

Walsh: The big concern on the medical side is dosing and potency and transparency in terms of what are people actually buying and ingesting? Was the marijuana made with pesticides? Patients need to know all that and there’s a lot of either lack of regulations on that or confusing regulations. So that’s the concern on the medical side. On the recreational side it’s basically kind of the same thing, do consumers know what they’re buying? A lot of people aren’t as familiar with marijuana in the recreational market. You know, maybe they did it in college and then they grew up and got jobs and had families and now that it’s legal, they’re going to try it again. But they don’t know what they’re getting. They don’t know what they’re capable of consuming in terms of potency.

Price: There are questions over testing, dosage, how much THC – the chemical in marijuana that gets you high – should be in each product and how that should be taxed. Walsh says, though, that the biggest question is how do you keep recreational marijuana from falling into the hands of kids?

Walsh: It goes back to alcohol, prescription drugs, anything else that is legal that you don’t want kids to get their hands on – guns. You know you have to package these things in a way that they’re hard for kids to open and then keep it away from them in the household. And so that’s where you see a lot of fears about recreational. Is it going to get into the hands of kids? Are teenagers going to use it and become burnouts? And that’s still a big question, I would say. But the industry is trying to prevent that. I mean there is packaging now that adults can’t even open it’s so difficult. So, it remains to be seen how this all plays out.

Price: With the movement across the country for legalizing marijuana for medical purposes and a slower one for recreational purposes, Walsh says it could become a commodity just like sugar and pork bellies. What next…marijuana mutual funds and ETFs?

Walsh: Absolutely. I would put money on that. I think that this is quickly becoming the next great American industries and once the kind of federal barriers are removed, you will see these giant venture capital firms get involved; Wall Street firms in terms of mutual funds and all that will come of age here, once these federal barriers are removed. You haven’t seen a lot of that so far because, again, marijuana is still federally illegal. But this is becoming a massive industry and there’s no doubt in my mind that in a couple years –whether it’s five years or 10 years when the federal government changes its tune – this is going to just like any other industry out there. You’re going to be able to invest in it at a high level and there are already a lot of people investing in it making money and that will only increase as we go forward.

Price: Walsh says that in those states where medical marijuana or recreational marijuana is legal, the stigma of the product is fading. And with 20 states putting the marijuana question on the ballot this November, it seems like that stigma may disappear altogether in the near future. Chris Walsh invites listeners to read up on the latest news about the efforts to legalize marijuana for medical and recreational purposes, as well as updates on regulations, market research and conferences pertaining to legal marijuana, in the Marijuana Business Daily at mjbizdaily.com. For more information about all of our guests, log onto our site at viewpointsonline.net. You can find archives of past programs there and on iTunes and Stitcher. I’m Gary Price.