June 22, 2014 in City, Washington

Uncertainty surrounds marijuana ‘Green Rush’

‘Ganjapreneurs’ juggle opportunity, uncertainty as first stores prepare to open
By The Spokesman-Review
 

As Sam Calvert prepares to open one of the state’s first legal marijuana stores next month, he sometimes thinks of a historic parallel from a previous century.

Washington may be about to experience a marijuana “Green Rush” similar to the Alaska Gold Rush at the end of the 19th century, when discovery of gold in the Klondike prompted thousands to seek their fortunes in unfamiliar territory. Only a small percentage of the miners who went into the frozen hills came out with enough gold to get rich, Calvert said. More people got rich by selling them picks, shovels and other supplies before they went in, and food and alcohol when they came out.

“There’s an endless array of people who want to provide me with supplies or services,” said Calvert, who formerly operated a commercial property company and plans to open Green Star Cannabis on North Division in mid-July.

Other prospective marijuana businesspeople – some call them “ganjapreneurs” – report similar appeals. Lawyers and accountants offer specialized service for the tightly regulated and heavily taxed businesses; software companies offer systems to track the plants from startup to sale; and security businesses offer advice on protecting against robbery or internal theft.

With no sales yet, the would-be marijuana merchants see plenty of money flowing out with none yet coming in.

“The real gold rush seems to be with the producers,” said Cathy Smith, part of a partnership that expects to open Sativa Sisters in Millwood in mid- to late July.

One producer, however, says he hasn’t made any money yet. Sean Green of Kouchlock Productions, who received the first license to grow and process marijuana issued by the state Liquor Control Board, said his expenses have piled up for months for a product-tracking system, security, soil, growing mediums, lights and labels and worker salaries – with no income to offset them.

“I’m speculating that I have the first crop,” Green said, and it should be available in the O’Neil Industries store that adjoins his production facility on East Francis Avenue when that store opens the first week of July.

Suppliers, too, have high hopes for an economic boost from recreational marijuana without ever touching the weed. But there are no guarantees.

Into the unknown

Some of the state’s newly licensed ganjapreneurs have little or no experience with the drug. Others have worked for years growing, processing or distributing medical marijuana, which remains separate, and largely unregulated, from the drug voters approved with Initiative 502.

But no one has any experience with a legal recreational marijuana industry the way Washington is setting it up, because it has never been done before. Colorado legalized recreational marijuana in the same 2012 election as Washington, but that state built its new system on an existing regulated medical marijuana infrastructure.

Washington has had to create a new industry from scratch, said David Rheins, a business journalist who is the founder of the Marijuana Business Association and publisher of Cannabis Now magazine. “I’ve never seen anything like it.”

Some people compare it to the dot-com boom, but that was built on established technology with some well-financed and well-established companies, Rheins said. Others compare it to the 1930s when Prohibition ended, but even then there were known brands and products that were brought back.

“There is no such thing as a strictly recreational cannabis industry anywhere else,” he said.

Taking a chance

Some marijuana license applicants said the opportunity to be in on the ground floor prompted them to apply for one of the state’s 334 retail marijuana licenses. The city of Spokane was allotted eight licenses for its 58 applicants; the city of Spokane Valley three licenses for 27 applicants; and the remainder of Spokane County seven licenses for 13 applicants.

“I threw my hat in the ring,” said Jeff Steinford of Northwest Cannabis Co. “I wasn’t putting too much hope in it.”

“It was a once-in-a-lifetime deal,” said Carol Ehrhart of Four Twenty Friendly. The application was something like a lottery ticket with a higher price tag – she and a partner spent about $600 getting the application ready – but better odds of winning, Ehrhart said.

Both had their applications drawn in the Liquor Control Board’s lottery last month but have experienced some bumps along the way.

Steinford’s lease fell through for his intended location on East Francis, and he had to find a new one. Most landlords wouldn’t rent to a marijuana store, and many who would wanted too much for rent. His company found a storefront on North Market, but the building needs a new roof, and the store might not open until the fall, so he’ll miss the expected rush of customers eager to buy their first legal marijuana when a few stores open in early July.

Ehrhart owns the property on South Lewis in the West Plains where her store will open, but she has faced what she considers exorbitant fees for tracking software and security services.

“Most of us are moms and pops investing everything we have,” she said.

She probably won’t open before the end of August but isn’t too worried about missing the rush because she’s planning a “boutique” store with specialty products. She doesn’t expect to give up her existing accounting business anytime soon.

A handful to open

Being drawn in the lottery does not guarantee the applicant a license. They must set up a store in an area approved by state regulations and local zoning rules, with the required security, tracking systems and training, and pass an inspection by the Liquor Control Board before any marijuana is allowed in the shop. The board said it will start final inspections at the beginning of July, but with a limited staff, only a dozen or so shops are expected to open statewide that first week.

Only two Spokane-area store owners contacted for this story said they expect to open at that time: Instant Karma near the North Division Y and O’Neil Industries on East Francis. Both owners are concerned that they won’t have enough marijuana to meet the demand and stay open every day.

That’s because the Liquor Control Board must also inspect and approve licenses for growers and processors. As of last week, only 61 of the 2,554 applications for I-502 grower licenses had been approved. The majority of licenses are less than two months old, which is the average time it takes to bring a marijuana plant to harvest. That means most won’t have products available when the first stores open in early July.

“A lot of people are getting in that have no idea what they are doing,” said the owner of Nettles Unlimited on East Sharp, a former medical marijuana grower who asked that his name not be used because he has young children whom he doesn’t want stigmatized if their friends’ parents found out what he does. “There’s a huge learning curve in this industry. People are thinking there’s a little plant that grows dollars on its leaves.”

Nettles won’t have any marijuana available until sometime in August, he said.

Other growers said they would have only limited amounts available in early July, or none until later in the summer. That’s prompting store owners to bid up the price for the marijuana that will be available and try to lock up future supplies with contracts for future crops.

That’s risky for new growers who don’t know all the problems that can affect marijuana, said Wesley Tutle of Yield Farms in the Spokane Valley. “If they’re not careful, they could end up losing a big crop.”

Tutle has experience in growing for a medical marijuana collective but still had significant expenses getting his I-502 operation running. It needed labels and packaging to meet state standards and software to track the plants. But the biggest expense was about $41,000 for the 32 cameras and accompanying computer and software for the security system.

Other growers mentioned major expenses for dirt, nutrients and electricity. “Avista, they’re getting paid,” said one.

Ripples in the economy

Paul Mihara of Spokane Organic and Hydroponic Supply provides soil, growth media and lights that producers will need for indoor operations, and a staff with the expertise on how to use them. In the last year, he opened the company’s third store, which is attached to a 5,000-square-foot warehouse, anticipating a jump in sales from the new recreational marijuana law.

“We’re starting to actually see some positive benefits,” Mihara said. The massive growth in demand he envisioned hasn’t materialized yet, although he was working on an order for 150 lights on the morning he was contacted recently for this story.

Many of the customers aren’t brand-new, they’re medical growers making the switch, and possibly expanding. He’s in competition with online suppliers around the country, and has to offer bulk discounts to the large growers and a knowledgeable staff who can help troubleshoot problems for new growers.

“It’s not like we’re getting rich here,” Mihara said. Marijuana supplies are his mid-term business plan; backyard greenhouses for homeowners growing vegetables may be the long-term moneymaker, he said.

Kathleen Sullivan, a Spokane lighting consultant, is branching out with an offshoot company that offers low-energy, high-intensity grow lights for indoor marijuana growing operations. The technology was developed by a former NASA scientist and puts out less heat, she said. It has the potential to increase yields while cutting energy use by about 50 percent. Indoor marijuana grows use large amounts of electricity, so Sullivan is trying to convince pot farmers they can save money if they switch. To help the calculations, she worked with Avista to ensure that marijuana growers would be eligible for rebates or energy credit programs.

The utility studied the matter and concluded they would, said Avista’s Doug Kelley. The programs are based on energy efficiency, not the type of business being operated, he said.

A mother of teenagers who doesn’t smoke marijuana, Sullivan said she wasn’t really familiar with how it was grown before I-502 passed. Since that time she has attended trade shows and conferences hosted by various marijuana business organizations where people are “aggressively networking – everybody wants your business card.”

Canna Con Northwest, described as the largest marijuana business trade show ever, is planned for the Tacoma Dome in August, with four days of seminars and space for as many as 350 vendors. But it won’t be a giant hempfest under the dome, said organizer Bob Smart.

There will be no cannabis at Canna Con, no smoking, no edibles, said Smart, a longtime grower: “It’s strictly business.”

Cliff Albert had moved his security and home theater installation business from Arizona to Montana a few months before he got a call this spring about setting up security for a marijuana grower in Eastern Washington. After learning the Liquor Control Board specifications for high video resolution and memory capacity and designing a system for that grower, he has set up one more and is doing estimates for five others.

“There are so many hoops to jump through to qualify,” Albert said. He won’t give up his theater and sound system business, but I-502 security is “a good arrow to have in our quiver,” he said, particularly if the Washington model for recreational marijuana expands into other states.

Green, of Kouchlock Productions, is trying to establish a brand name for his marijuana while offering consulting services to other growers and processors. Last week, he and O’Neil, who expects to open one of Spokane’s first marijuana stores, held a job fair for prospective employees. But it’s hard to say who has the best formula for success in the coming Green Rush, he said.

“Everybody’s got a different view on what’s going to make money,” Green said.


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