Steve DeAngelo is one of the most influential businessmen in the cannabis industry, having founded the largest and most successful medical dispensary in world. DeAngelo also recently completed his first book, “The Cannabis Manifesto: A New Paradigm for Wellness,” which is set to be released in September.
DeAngelo opened Harborside Health Center in Oakland, California in 2006. The business has since added a San Jose location and expanded to include about 130 employees serving more than 94,000 clients. It is considered the de facto dispensary model. While Harborside remains the most noteworthy accomplishment in DeAngelo’s career, it was built on top of years of experience as a political activist and entrepreneur across the country and around the world.
He can trace his political heritage back to 1974 when he first joined the Youth International Party (Yippie). In 1987, he started the Nuthouse, which was a nine-bedroom home turned into a sanctuary for counter-culture and activism. Later, he kept President George H. W. Bush awake with drums on the White House lawn with his “Beat Around the Bush” campaign in 1990, and launched Americans for Safer Access in 2000.
In addition to Harborside, DeAngelo has been instrumental in creating a variety of businesses in the cannabis space, including Steep Hill Laboratory, The ArcView Group and CannaBe. The serial entrepreneur and activist recently spoke with Marijuana Venture’s Greg James and Garrett Rudolph for an exclusive interview.
MARIJUANA VENTURE: You say California is getting interesting. Can you expand on that?
Steve DeAngelo: California already is, by far, the largest legal cannabis market in the world. If you take every other reformed state in the United States and add up their markets together, they just barely add up to a tiny bit more than California. So we’re half of the U.S. market now, and that’s just with a largely unregulated medical cannabis market. What we anticipate is the passage of an adult-use initiative in 2016 and sometime in 2017 or 2018 the licensing of adult-use cannabis businesses, at which point we think that market, which is already the largest in the industry, is going to expand significantly.
You have a lot of industry players and a lot of regulators who are looking ahead at the changes that are going to be happening over the next couple of years, so that’s creating a lot of interesting political dynamics and business dynamics, and a lot of excitement.
Our intention with the initiative in California is to learn from what other states have done and to incorporate the best aspects of their models, but also recognize that California is a unique place. We have a unique set of values here, and we plan on taking the opportunity to imprint some California values in the cannabis industry.
MV: California also probably has a lot better growing conditions than Washington and Colorado for outdoor cannabis.
DeAngelo: California has the ideal micro-climates for growing cannabis, probably more so than anywhere in the world, and certainly in the United States.
MV: Harborside Health Center is the biggest and most well-known dispensary in California. What is it that you’ve done differently from others that has made you so successful?
DeAngelo: There are a number of things we did differently that are responsible for our success. I think first and foremost, is that we always focused from the beginning on our patients, and creating the best patient experience in the industry. One of the ways that we achieve that is building really beautiful facilities that are full of light and furnishings that are elegant, that people really enjoy being in the physical spaces that we create with beautiful displays and lots of information available.
The first part of the patient-centric approach is creating a beautiful, elegant environment where all kinds of people feel comfortable. We didn’t want people to feel like they had to be a Deadhead or a Rastafarian to come into Harborside.
So our look and feel was really designed to appeal to the widest range of cannabis patients possible. Then we also put a lot of emphasis on selection. We typically have over 200 selections available for patients every day, both raw cannabis flowers, but also a wide variety of other types of non-smoked cannabis preparations, edibles, tinctures, capsules, lotions, salves, etc. Really expanding the range of choices for our patients.
Then we were the first dispensary anywhere to laboratory test our medicine to ensure that our patients knew exactly what the cannabinoid profile was and that we were sure that cannabis was safe and not contaminated. Those are three of the ways that we created that patient-centric experience.
Another way we did it is by putting a huge emphasis on training and on our staff. Doctors really just write a legal authorization for people to get medicine. They don’t really advise them on how to use that medicine or what particular type of cannabis is best for their purposes. So we put a of energy into developing training programs to make sure all our patients and all our staff are really well-equipped to advise patients. I think those are some of the steps that really distinguished ourselves from some of the existing dispensaries.
MV: Why do you think California has lagged behind Washington, Oregon, Alaska and Colorado in legalizing recreational marijuana?
DeAngelo: The basic reason California has been behind other states is that California is the largest and most diverse state that’s taken on this issue yet. The cost of financing a winning campaign in California is multiples higher than anywhere else in the country. We estimate that a successful initiative campaign in California costs something like $25 million when all is said and done. That’s something on the order of five times as much money that’s been spent in other states. Just raising that amount of money is a daunting task.
We also have a lot of different diverse stakeholders in this state. Northern California is very different from Southern California. Coastal California is very different from inland California. Cannabis growers who are growing in Northern California who are growing outdoors have a very different set of priorities from cannabis growers who are growing indoors in Southern California. We have a lot of different, competing stakeholders and getting all of those stakeholders to buy into one coherent plan has proved challenging in the past.
I’m happy to report that thus far in this cycle, we’re doing a much, much better job of that.
MV: A little bit off subject here, but is Southern California considered too hot and dry for cannabis, compared to Northern California for outdoor growing?
DeAngelo: There are certainly parts of Southern California that are too hot and dry. You could probably grow cannabis there, but once you move out of an ideal micro-climate, if it’s hotter than ideal, if it’s drier than ideal, if it’s wetter than ideal or colder than ideal, you incur costs to bring that environment back into the ideal balance. So ultimately, cost of production is going to be cheaper in micro-climates that are best adapted to cannabis production.
The real reason you don’t see widespread outdoor cultivation in Southern California is the political dynamics. Southern California does not have that many isolated areas and it has a much more conservative political culture than Northern California does. It just hasn’t been possible for people to cultivate on a large scale in Southern California the way they can in Northern California.
MV: We’ve always wondered if it goes full legal, recreational nationwide, if someone will discover the absolutely ideal place to grow, just as tobacco is in Virginia and avocados are in Southern California and grapefruits are in Texas. We’ve always wondered if it would end up being Northern California or if there’s an even more ideal place.
DeAngelo: I think what you’ll find is that there will be a number of different areas around the country that have pretty great climates for growing cannabis. I think that most of them, ultimately, are going to be located in California, but you have places in Washington, like the Okanogan Valley, where there are very excellent conditions for sun-grown cannabis cultivation. There will be those micro-climates in various different places across the country, but I think you’re right. Ultimately, what we’ll see is that there will be one or two states that will become the low-cost, high-quality producers.
MV: What are the biggest challenges to the marijuana biz in California, both medical and recreational, that you see on the horizon?
DeAngelo: The biggest challenges continue to be regulatory challenges in California. Even though we passed the nation’s first medical cannabis initiative, and that initiative instructed the Legislature to implement a system of statewide regulation, pressure from law enforcement agencies and law enforcement associations has kept those regulations from ever being passed and implemented by the assembly.
In California, we have a patchwork of local regulations that vary from place to place. In one place, for example, vertical integration may be prohibited. In another place, it may be required. You have a lot of really conflicting regulations in California today.
That’s one of the regulatory challenges that we face — the lack of statewide clarity and the patchwork of local regulations. The other is the continued lack of clarity and conflict with federal law. That manifests in a lot of different ways. We are currently still fighting a civil forfeiture action that was launched by U.S. Attorney (Melinda) Haag. We are contesting an IRS tax assessment which was based on 280E.
And there’s still the ever-present threat of a raid and criminal charges. All of those things complicate all aspects of business life, from our recruiting the type of talent we want, to being able to accurately assess our potential liabilities, to being able to present investors with the kind of information that they need.
MV: What do you think about the drought? Do you think the water level is going to be low enough that growers in Northern California are going to have problems?
DeAngelo: There are going to be problems in different parts of the state. Some parts of California have much more water than other parts of the state do. I don’t think it’s going to be consistent all across the state. The way I look at it right now is that the majority of water in California is used for cash crop purposes. We grow crops here. Those crops are sold and they bring dollars into the state. Essentially what we’re doing is trading our water and our land and our sunshine for dollars. Well, if you take the input of water and you apply it to every crop that you could, what you find is that per dollar, per gallon, there is no crop that is going to yield equivalent value to cannabis.
So as long as we’re in a situation where the majority of the crops are cash crops, then in fact, the cultivation of cannabis would allow us to bring in the same amount of dollars and use less water.
MV: Cattle is one of the absolute worst. The conversion rate for water to beef is horrible. You’re using all this water both for the cow to drink, but also to grow alfalfa, which is fed to the cow.
DeAngelo: And what’s even crazier is that people in California who have vested water rights, as many people do, are growing alfalfa and they’re exporting alfalfa. If you look at the dollars you get for alfalfa per gallon of water, versus the number of dollars you get from cannabis, there’s no comparison.
I think in that regard, cultivation of cannabis is actually a water conservation measure.
MV: At Harborside, do you see a difference of indoor-grown and sun-grown cannabis as far as what the consumers want?
DeAngelo: We were the organization that coined the term sun-grown. Before we started our sun-grown campaign, it was referred to as outdoor. I became acquainted with the carbon footprint of indoor cannabis production. It takes 200 pounds of coal through electricity to produce one pound of cannabis indoors. You can drive 23 miles in the average American car on the amount of energy it takes to produce one joint of cannabis indoors.
When I recognized that, it obviously said to me that we needed to do something to increase the consumption of sun-grown. At that time, when we first opened, the market preference was overwhelmingly for indoor. We were only selling 3-4% sun-grown cannabis in the first year that we opened. So we started a rebranding campaign to educate consumers. There was this perception that sun-grown cannabis is of a lesser quality, that it’s a budget item, that the only people who want it are people who can’t afford indoor.
I knew that was inaccurate, because I’ve been around a long time and I remember the best cannabis in the world I’ve ever seen came from outdoor gardens that we grew in the sun back in the ‘70s. So we rebranded. We produced a white paper. We produced an educational video. We produced posters. We developed a really beautiful sun-grown logo, T-shirts, hats. We introduced a new kind of packaging, a beautiful jar with a gold seal and a wooden engraved lid on it.
We’ve been able to now increase the percentage of consumption of sun-grown from 4% up to somewhere between 20% and 30%, depending on what time of year it is.
MV: Do you have any plans of growing Harborside into other locations?
DeAngelo: Yeah, we actually have a license pending in Chicago that we’ve been awarded by the state. We’re just working to get local clearance there. And we’ve got a pretty aggressive expansion plan in California that’s just getting under way now. We plan on expanding our retail footprint and also expanding along the supply chain.
MV: Do you have plans of shifting Harborside from being medical to a recreational store?
DeAngelo: One of the lessons we’ve learned from other states is that having parallel supply chains for medical and adult-use cannabis is a real mistake.
What we’re going to try to implement in California — at least what I would like to see in California — is a unitary system, where you have one set of cultivators, you have one set of manufacturers, you have one set of distributors, you have one set of retailers. And the only difference is that medical patients would get some tax preferences when they show their recommendations.
That way, everybody would be able to access the same system and you don’t have to create a lot of duplication and a lot of confusion — two different regulatory structures, two supply chains, two quality control mechanisms. Just roll that all into one.
MV: What trends are you seeing in the industry?
DeAngelo: We’re seeing a decisive shift away from raw flowers and toward extracts and infused products. That shift has been under way in every legal cannabis market. It’s very evident, and I think it’s going to continue.
I don’t expect that 10 years from now when you walk into most dispensaries, there will be a corner of the shop … that will have the last remaining cannabis flowers; it will be patronized mostly by people who will be my age, which by then will be in our 70s, walking over to the case with our walkers and our canes, saying ‘I’m never going to stop smoking joints.’ But everybody else is going to use a vape pen or they’re going to use infused products.
MV: What’s interesting is how vinyl records are coming back, so you never know, maybe it’ll swing back the other way and people will go back to smoking joints and less powerful stuff.
DeAngelo: Yes, it will certainly swing back at some point. I’m sure that will happen, human beings being the creatures we are. But for now, I’m confident the trend (away from raw flowers) is going to continue.
And another notable trend is that we’re seeing the entrance of a lot of traditional tech models, so you look at companies like Eaze and Meadow, which are not coming out of the cannabis space, but out of the traditional Silicon Valley space. … I think that’s another interesting trend. There are a lot of different views on that trend, but it’s certainly something that’s happening.
MV: How often do you use marijuana yourself?
DeAngelo: I use cannabis daily, usually in an edible form. I have for many, many years. … I rarely smoke now. I just smoked too much in my life and I can’t burden my lungs any more, but also because I like the effects of the edible cannabis. I find smoked cannabis is more disorienting, where a moderate dose of edible cannabis leaves me in a more functional state.
MV: Are there other states you follow closely with regards to cannabis reform?
DeAngelo: I try to keep up with reforms and business developments in every state and around the world. I probably keep a closer eye on the states that are contiguous to California, like Oregon and Nevada. I’m looking ahead to the day when we have the first regional state compact for interstate cannabis commerce. Hopefully that will happen with the western states.