Insight Into the ‘CannaBusiness’
WESTMINSTER, Colo. — A groundbreaking panel of industry experts came together to discuss the state of “CannaBusiness,” the legalization of marijuana and the emerging business issues in the state of Colorado, at the Smoker Friendly Conference & Tobacco Festival held here Friday.
Moderated by Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities LLC, the lively panel consisted of Colorado Congressman Ed Perlmutter; Aaron Smith, co-founder and executive director of the National Cannabis Industry Association; David Threlfall, grower and marijuana retailer (medicinal only); and Pat Pericak, grower and marijuana retailer.
The panel immediately launched into its most frustrating business operations topic of the moment — banks saying “no” to doing business with those in the marijuana market because federal law still classifies marijuana as an illegal substance.
Perlmutter explained that because banks are heavily regulated, their involvement with the marijuana business could go against the federal Controlled Substance Act, as well as several federal statutes.
“So even as a legitimate business in the state of Colorado, bankers are saying, ‘We are concerned about the implication that we’re laundering money or aiding and abetting a federal crime,'” the congressman stated.
The result is that marijuana retailers such as Threlfall and Pericak are virtually being shut out of the banking system, which means they don’t have access to checking accounts, savings accounts, loans or any type of card services.
Pericak said the situation is following the path of prohibition.
“My monthly payroll is right at $250,000 a month and that is paid in cash, with all taxes taken out,” he said. “I pay $110,000 a year to the state of Colorado, I want a bank. We want to deposit cash, we want to pay taxes the way everyone else does. We are a legal business.”
To add “insult to injury,” as Perlmutter put it, “there is a provision that if you pay your taxes in cash, you are subject to a 10-percent penalty, so we need to straighten all this out.”
From Threlfall’s perspective, the banking issue is not only a hassle, but it's also preventing him from taking advantage of growth opportunities for his business.
“In my day-to-day operations, when vendors come, I have to have cash. We are counting cash constantly and making cash receipts; it’s a lot of extra work,” he said. “We have ‘grow’ opportunities, but we can’t finance anything through a bank. We are always jumping through hoops.”
Pericak made a passionate plea to federal lawmakers: “If you want this business to come out of the back alley, out of the dark and into the light, and you want to collect taxes, let us deposit our cash. For God’s sake, wake up.”
The dilemma is hopefully going to ease up soon, according to Perlmutter. The U.S. House of Representatives just passed a measure that bars treasury and securities regulators from spending money to penalize banks that provide services to legitimate marijuana businesses, but it has yet to go before the U.S. Senate.
“We’ve been persistent in increasing the awareness and visibility of this issue,” said Perlmutter. “Initially, we had to get through the ‘chuckle factor’ — people saying, 'Oh yeah, you’re from Colorado, yeah, right' — but that chuckle factor is now disappearing and they know it’s a serious subject that needs to be addressed.”
FROM TOBACCO TO CANNABIS?
Herzog asked the panel to speculate on the involvement of the cigarette market (meaning tobacco companies) in the marijuana market down the road.
“Drunk driving is down, arrests are down and alcohol consumption is down in the state of Colorado [since marijuana was legalized],” Pericak noted. “So, if it’s not the cigarette people, it might be the distillers and bottlers getting into this.”
Smith of the National Cannabis Industry Association cautioned that whoever gets involved in the cannabis business should do it for reason beyond profit.
“If you’re looking to get involved, don’t just do it for the money. Do it to help patients and advance social freedom and to change the world because it’s a very difficult business,” Smith said. “If you get involved in the marijuana business, you’re automatically part of a social movement and you need to invest in political change.”
Threlfall also warned that currently, “more money has been lost than made in this industry” and he cited the changing technology as one reason why.
“Technology is a big thing in cultivation,” he said. “Remember the first brick cell phones. It’s the same thing with grow lights and watering systems — all of that has changed a lot in the last three years. In the last year and a half alone, we’ve tested six or seven different grow lights and hoods.”
Products are changing and evolving, too. Edibles are becoming an increasingly larger portion of Pericak’s business. When he got into the “over 21” marijuana side, which is what he and other retailers prefer to call the “recreational” marijuana business, edibles accounted for 15 percent. Now, they're up to 35 percent of his overall business.
His guess is that edibles are becoming more popular due to their easier-to-transport factor.
However, Threlfall cautioned that “the medicinal value on edibles is minimal.”
From a retail merchandising perspective, a question from the audience inquired as to when the panel thought the industry might see a more traditional-looking marijuana retail store.
Pericak responded: “By June of 2015 and I’m not being sarcastic.” He explained that he has seen the plans from the state of Illinois to allow 60 dispensaries at that time, which he is calling “mega stores.” He said these stores "will look like the traditional Apple store, but samples will be bolted to the table and iPads will list the various strains.” In Colorado, he explained, “we had to go where they would let us, so we inherited awfully stodgy locations.”
All in all, though, Colorado pulled a hugely popular product out of the criminal market and into the legal system, according to Smith. “By and large, Colorado is doing things right. Tourism is at a high and crime is down. And Colorado has the fastest-growing economy in the country.”
In addition, the $11 million that the state made in six months from its marijuana tax money “is not anything to scoff at,” he added.