Road to retail marijuana not always green

By Copy Editor

Twenty-four states have adopted marijuana law reforms, legalizing the substance for medical and—in some cases—recreational use. Still, many entrepreneurs bolting for the “Green Rush” are having difficulty getting their reefer-related businesses off the ground.

Even in Washington and Colorado, where the ganja is legal for recreational use, marijuana business owners face state regulations, community animosity, bank rebuffs, lease rejections and additional federal taxes. However, those who persevere it stand to profit, become a fixture in the industry and pioneer the business.

Ellis Smith, co-founder of American Cannabis Consulting, a national marijuana industry consulting firm, said the first step to opening a dispensary is securing funds. Smith said many entrepreneurs spend $150,000 to $200,000 in pre-application and application costs alone.

“It’s not like it was in Colorado four or five years ago when anyone could start a [marijuana] business off the ground and get going,” Smith said. “In all the new states [where cannabis is legal, business is] very competitive.You have to be well-funded to go with the marketplace in order to even compete.”

Escalating competition is making it harder to start marijuana businesses as the industry grows. ln Illinois, which passed legislation legalizing medical marijuana in August 2013, competition for medical marijuana licenses will be hotly contested: A proposal put forth by the Department of Financial and Professional Regulation will allow 60 dispensaries in the state, with 13 in Chicago and 11 in the suburbs. 

“The mom-and-pop model is kind of becoming nonexistent,’ Smith said. “It’s super competitive.” Marijuana is still classified as a Schedule 1 narcotic drug, meaning cultivation and distribution violates the Controlled Substances Act. Therefore, banks are hesitant to grant loans or even savings accounts to cannabis business owners because it puts them at risk for prosecution and co-conspiracy charges, not to mention violation of federal money laundering statutes. To cope, marijuana business owners are adopting new means of handling their cash, and necessarily so.

“One of my friends had about $40,000 in cash,” said Christie Lunsford, operations director of the 3D Cannabis dispensary in Denver. “She was transporting it to the bank and she stopped at Panera to get some soup for her children. She was on her way home to put the money in the vault to take it to the bank the next day. Someone broke into her car [and stole the money]. She was being followed, essentially stalked.”

Lunsford said many marijuana business owners have taken to opening unspecified accounts, working with holding companies and relying on ATM networks to deposit money and protect themselves from cash overflow. 

“The fallback is that Bank of America doesn’t have any physical locations in Colorado, but they have three ATMs and either they’re completely ignorant or they’re turning a blind eye because most of my colleagues have Bank of America accounts,” said Lunsford.

Just to open a legal business, Smith said prospective owners must spend between $20,000 and $30,000 in licensing fees that vary by city. Conversely, In Illinois, it only costs $25 to license a craft brewery that produces up to 465,000 gallons of beer annually and distributes no more than 232,500 gallons to licensed retailers, according to the State of Illinois Liquor Control Commission.

Lunsford said the hardest part of starting up a business was finding a landlord willing to lease to a medical cannabis center.

“Nobody had done this before and we were essentially considered drug dealers,” Lunsford said. “[Our landlord] had specific requirements regarding security deposits and the rent was double per square footage of a normal retail or manufacturing facility. This is not for the faint of heart.” 

According to Smith, officials at the city, county and state levels all have a say in who is allowed to set up in their district.

“[Even if] the mayor and the chief of police said yes, the county still has a say in it, so we still have a few more hoops to go through just to get these guys on the ground running,” Smith said.

Setting up a cannabis business may also put neighboring stores on edge because of the influence a dispensary could have for the area’s customer clientele, meaning neighboring residents and store owners may pressure property holders to reject marijuana retail outfits. One of the biggest concerns: the smell. 

“The surrounding businesses will comment about the smell, but there’s the Purina dog food factory down the street, and it makes me want to retch every time I drive by it,” Lunsford said. “So a natural plant odor of a plant being cultivated, or rotting meat being turned into dog food?” 

Despite struggles, cannabis impresarios have persisted, crafting profitable businesses in the midst of a booming industry and adapting to the unique obstacles that make setting up a cannabis store so difficult.

Smith said marijuana operations owners could yield 35–45 percent returns annually, which is more than typical business revenue.

 “It’s pretty damn lucrative once you’ve got your s–t figured out, once you get your costs down and your outfit up,” he said. “[But] it’s a full return for taking on a business. You may make a little more money, but it’s not a get-rich-quick scheme.”