CHICAGO – With federal legalization efforts moving forward, pot entrepreneurs might want to focus on the recreational side of the business rather than the medical side, as major pharmaceutical companies are poised to jump in there. That's the future, according to Adam Bierman, managing partner of MedMen, a marijuana consulting firm headquartered in Los Angeles. Bierman spoke at this week's Marijuana Business Conference and Expo in Chicago.
"Right now two separate things here are intertwined [the medical and recreational sales of marijuana]," Bierman told a panel on business opportunities in states that are just now opening up marketplaces for medical marijuana: New York, Nevada and Illinois. "Once it's legalized on the federal level, you guys can't play on the pharmaceutical side. You're not going to compete with Pfizer. You have a chance to get on the recreational side because the big players aren't playing."
Today, the federal government lists marijuana as a Schedule I drug, making it illegal, even though 23 states and the District of Columbia have legalized medical marijuana and four states -- Colorado, Washington, Oregon and Alaska -- plus the District of Columbia have approved recreational use.
But once the federal government removes marijuana from the list of controlled substances, "Big Pharma will get involved and you'll be picking up your prescriptions at Walgreens or CVS," Bierman said.
In states where medical marijuana was legalized 10 to 15 years ago, obtaining a license to grow pot used to be easy, especially in unregulated states like California and Michigan, where many people started growing operations in their basements. Now, however, the upfront investment is headed north of the $1 million mark and the number of licenses available is strictly limited.
The real opportunities for people who want to get involved are in ancillary services: legal, accounting, medical, equipment, marketing and accessories. You have to find a niche.
"Niche is a big piece," said Trent Woloveck, chief operating officer of American Cannabis Consulting, who was also on the panel with Bierman. "What is your value add?"
Aviva Jeruchim of Boston is one such niche entrepreneur. Her Leaf Goods LLC plans to produce "fashion-forward carrying cases" for cannabis. Right now she's concentrating on secure cases for the leaves themselves. She sees a market, however, for cases for edibles and health and beauty aids as well.
Ana Davila of New York is interested in packaging.
"I have plants in Asia. Right now we produce plastics for children. Those plants could be turned for marijuana packaging," she said.
In addition to the high cost of a license to establish marijuana growing and dispensary operations – and the escalating state licensing fees – those seeking approvals to open a marijuana growing operation must prove they have the necessary real estate in hand, whether owned or leased, and the necessary capital to fund the business for at least six months before the first bud is sold.
The funding is complicated by banks' reluctance to get involved in an industry illegal on the federal level -- after all, whether national or state, banks are governed by federal law. The resulting difficulty of moving funds has made pot a predominantly cash business with all the danger that poses to the businesses and the community at large.
Additionally, the application process is growing more complex. Kris Krane, managing partner of the retail consulting group 4front Advisors, noted the applications can run thousands of pages, and in fact an application the group helped put together in Illinois took up 10 full cardboard boxes. The applications need detailed plans for how a facility will be constructed, funded and secured, in addition to a business plan and projections for growth.
"If your application is only 50 pages, you're not getting a license," Krane said. "If you're not working around the clock, you're not getting a license."
Dr. William Lauth of Geneva Life Sciences experienced this firsthand. His company went after one of the Illinois licenses granted earlier this year but failed to get it and he has soured on the state’s hyper-regulated market where only 2,300 patients have been certified and would be able to buy marijuana legally.
"Most doctors here [in Illinois] have no idea how effective marijuana can be in treating patients," Lauth said. "In general they're very conservative. Ninety percent are against it because of federal laws."
Instead Lauth has turned his attention to Nevada and partnered with Vegas Valley Growers LLC, which says it is investing $2.5 million to $3 million in a grow center in the Las Vegas area. Vegas Valley Growers hopes to bring in its first crop in September and expects to grow 5,000 pounds a year, and five to six crops.
Lauth sees Nevada as a much more lucrative market. It already has 11,000 patients signed up. Additionally, the Legislature decided to recognize the medical cards of marijuana user from other states, opening the way for the 45 million visitors the state sees annually to buy products. There's also a referendum on recreational marijuana planned for the 2016 ballot.
Legal cannabis already is an $11 billion business, including growing operations, processing and ancillary businesses, and Marijuana Business Daily projections show the industry growing to $30 billion by 2019, with other estimates as high as $50 billion. Recreational and medicinal sales through dispensaries alone this year are projected to reach $3 billion, growing to $8 billion by 2019. This has all happened as numerous states have moved to legalize or decriminalize marijuana, even though the federal government has not.
"The federal government's position is very unclear," said Chris Walsh, managing editor of Marijuana Business Daily, which organized the conference at the Chicago Hilton. "But the overall climate has improved dramatically."
Nine more states currently are considering medical marijuana legislation, and enterprising marijuana business owners are doing everything they can to position themselves to be on the front lines.
The key to a successful operation, Krane said, is local community support, a sentiment echoed by Meg Sanders, CEO of MiNDFUL, a Colorado dispensary operator.
"We don't go where they don't want us," Sanders said. "It's not worth the fight."
Sanders recommended those hoping to get into the "leaf-touching" end of the business hire a government affairs person and understand the election cycles of the communities in which they're involved. She also said getting involved in a community is key.
"We call it doing well by doing good," she said.