Each state is unique, but common threads provide valuable insight
Over the course of the last six months, I’ve been speaking with a lot of cannabis business owners and prospective entrepreneurs in California.
As you can probably imagine, there’s both an overflowing sense of excitement and palpable trepidation as the Golden State transitions into a regulated marijuana market after more than two decades of loose rules and laissez-faire business models. Many of the longtime medical growers are (justifiably) concerned about the influence of big business and big money flowing into the state. Others are wholly convinced they’ll be millionaires by this time next year as they throw caution — and likely their hard-earned capital — into the wind.
While each state’s unique legalization structure makes it impossible to predict the future, certain trends can be gleaned by studying how the process has played out in Washington, Colorado, Oregon and Alaska.
Here are a few storylines I think are worth revisiting:
– For the most part, cannabis is a commodity. Growers and aficionados will say otherwise, but I haven’t seen much evidence that people are willing to pay more for “top-shelf” flower. A small percentage of people are willing to pay premiums for the best of the best, but most consumers want budget pricing or something in the middle of the road, whether they’re buying a burger, a beer, a car — or a couple grams of cannabis.
My point isn’t that growers should strive for middle-of-the-road; it’s that business models should be based on far lower wholesale prices than they’ve ever gotten in the unregulated medical market. When we first started Marijuana Venture, we published a guest column that referenced wholesale prices of $8 a gram. More than a few readers called me an idiot, saying prices would never drop that low. Three years later, many Washington producers are happy to get a buck a gram and some have even resorted to fire-selling their entire crops for as low as 10 cents a gram.
– Testing is a nightmare. Washington, Oregon and Alaska have all seen supply chain bottlenecks either due to producers’ inability to pass pesticide and contamination tests or because there simply haven’t been enough labs.
And perhaps a bigger black eye for the industry has been the rampant inconsistency of potency results, allegations of “pay for play” schemes and labs that have been willing to rubber-stamp microbial screenings. Everybody is looking for a competitive edge and some are willing to ditch their scruples to get it. I can’t imagine California being any different.
– Traceability is an even bigger nightmare. At this point, I’m not convinced any company can handle the requirements of providing a seed-to-sale tracking program, let alone for a state and market the size of California. As yet another hacking scandal comes to light with MJ Freeway, operators have to be feeling pretty uneasy. I wish I had a better outlook or some type of solution, but almost everybody in Washington will point to traceability as one of the industry’s major pain points.
– Bans and moratoria galore. Even today, more than five years after Washington and Colorado voters approved the legalization of recreational marijuana, large chunks of both states still ban commercial cannabis operations. Be prepared to either fight or move when local officials remain rooted to their War on Drugs mentality. But more importantly — and more daunting for people who have spent years hiding in the shadows out of necessity — is being prepared to talk to elected officials, fire marshals, sheriffs, police chiefs, city administrators, planning departments and other people who may not be pro-cannabis from the outset.
California represents a major step forward for the cannabis industry, but to maximize the opportunity, entrepreneurs must learn from the past.