In 2012 the citizens of Colorado approved Amendment 64 to the state constitution, which allowed the sale of marijuana for recreational purposes to anyone 21 or older beginning on January 1, 2014. Medical marijuana dispensaries had been around in large numbers in the state for about 5 years before that. While marijuana remains illegal under federal law, the U.S. Department of Justice is not presently interfering with marijuana centers that are operating legally under state law.
Entrepreneurs certainly noticed the potential opportunities. The legal marijuana business has taken off in Colorado, reminiscent of Silicon Valley a generation ago, leading observers to describe the situation as “the green rush” and to use terms like “ganjapreneur” and “cannabusiness”.
As with any quickly growing industry, the success of legal marijuana has led to the creation of a number of ancillary businesses – companies that provide services related to the industry, but which do not directly engage in the sale of marijuana. A few interesting ancillary businesses include:
The Marketing Agency
Cannabrand describes itself as a “cannabis-cultured branding agency, specializing in experiential marketing for the tourism/lifestyle industry as well as cannabis products and services.” The company was started in 2013 by Jennifer DeFalco and Olivia Mannix, both 25, who met as students at University of Colorado at Boulder. After starting a separate marketing agency that represented a broader class of businesses, they launched Cannabrand as its own cannabis-focused marketing company. “Our goals are to continue to educate the public about cannabis and try to debunk myths related to cannabis,” said Mannix. A component of their cannabis marketing efforts is to promote the substance as “healthier alternative to alcohol”, according to DeFalco. Due to strict regulations governing the advertising of cannabis in Colorado designed to limit the amount of such advertising reaching children, Mannix and DeFalco make a point to consult with attorneys to ensure everything they do is lawful. They still handle marketing work for non-cannabis businesses too, but their time is now spent 60/40 in favor of cannabis related clients. As an extension of this business, they have also launched the Cannabrand shop, CB Culture, selling high-design “canna brands,” including apparel, accessories, pipes, vaporizers and novelty items. “There are so many entrepreneurs in Denver right now starting these different companies. Whether edibles, or tech, or whatever, they have the same drive as Olivia and I,” said DeFalco.
The Law Firm
Vicente Sederberg markets itself as “the marijuana law firm”. Founding partner Brian Vicente served as co-director of the Amendment 64 Campaign and was one of the ballot initiative’s primary authors. This fast-growing law firm now includes a team of 20 attorneys and employees, with offices in both Colorado and Massachusetts. They handle state license applications, local government license and permit applications, corporate formation and structuring, real estate transactions, employment law and due diligence support. Potential new clients contact the firm nearly every day, according to Partner Joshua Kappel. “It’s not an issue of having enough work to do,” he said. Kappel, now 29, began working on medical marijuana issues in Colorado in 2009 when he was still a law student. Kappel notes that, despite his age, there is almost no one who has been working in this area of law in Colorado longer than he has. “This is a new industry, said Kappel. “It’s grown fast, and it’s risky. But with risk comes reward.”
The Payment Processor
Since marijuana is still illegal at the federal level, banks have resisted doing business with this industry, creating perhaps its largest problem: much of the industry has been forced to operate on an all cash basis. GreenHouse Payment Solutions markets point of banking terminals, also known as “cashless ATMs”. The terminals allow marijuana center customers to use ATM/debit cards, as well as credit cards with pin based cash advances. From the customer’s perspective, the transaction is similar to withdrawing cash from an ATM (including paying a surcharge). However no cash actually comes out of the machine; the funds are deposited directly into the merchant’s bank account. Owner Chris Mills started working with medical marijuana dispensaries in 2009 as the business was first evolving. Prior to that, he had been selling credit card processing solutions to businesses generally. GreenHouse now has 5 employees working mostly virtually, in addition to independent sales representatives. Mills still maintains his separate non-marijuana-related payment processing business under a different company name, but at this point his business has shifted to an 80/20 split in favor of the marijuana industry. Mills believes that traditional credit card processing is about 1-2 years away. He hopes to build his customer base now, so that when traditional credit card processing is finally allowed, he will already be well positioned to compete for that business.
The Inventory Tracking Software
MJ Freeway was founded in 2010 by software and IT professionals, one of whom had been an early investor in a medical marijuana dispensary in Boulder, CO. Their software tracks every gram of cannabis from seed to sale. “Guaranteed to meet any state tracking requirements” is a main component of their sales pitch. Their software is designed to help marijuana centers comply with state regulations, and handles point of sale, inventory tracking, manufacturing and cultivation management, and patient record management. MJ Freeway presently has 14 employees and over 500 clients in 14 states, the District of Columbia, Canada and Europe. The company is entirely virtual, with no physical offices. “We’re in constant hiring mode,” said Amy Poinsett, co-founder and Chief Executive Officer. Co-founder and Chief Operating Officer Jessica Billingsley expects to see more and more regulation of the cannabis industry and believes that businesses which address the needs posed by those regulations will be able to prosper.
The Secure Bag
With roots in the luggage industry, Anonymous Bags sells lockable bags meant for transporting and storing marijuana in a manner compliant with state law. These bags are meant to keep out children and pets—and in an area where you can walk into a store and buy marijuana infused candy that looks like Tootsie Rolls and Swedish Fish, securing it properly is important, especially for parents.
The Business Consultant
With five successful medical marijuana centers under their belt, the team from Denver Relief have recently focused their efforts heavily on the consulting side of their business. They advise other centers on best practices for plant growth, business operations and legal compliance, and they help ancillary businesses break in to serve this unique market. Despite the fact that he is only 30 (he was 25 when Denver Relief first opened its doors), founder Kayvan Khalatbari and his partners are considered among the more experienced pros in Colorado’s legal marijuana industry. Their early success gained them notoriety. Now, clients often seek them out, in part due to their extensive contacts and relationships in the industry. Khalatbari does not see helping other businesses as competing with their own centers, but rather taking Denver Relief to the next level. “We understand that what the market is now pales in comparison to what it is going to be,” Khalatbari said. In the past 18 months, Denver Relief Consulting has taken on 40 clients in 12 different states and Canada, with 80-90% of their consulting business now coming from outside of Colorado, mainly Illinois, Nevada and Canada. Khalatbari believes many people he talks to have an inaccurate perception that those in the marijuana industry “are making money hand over fist.” As with any other industry, Khalatbari notes that those who are successful must reinvest back into their businesses.
The Tour Company
Rod Di Mercurio of Canna’tarium Tours started a company that provided scenic limousine tours of the Rocky Mountains in 2013. When recreational marijuana became legal on January 1, 2014, he changed his focus to “cannabis tours”, which might remind you of Napa Valley wine tours. The tour takes patrons (mostly out-of-towners) to recreational marijuana centers, where they receive VIP treatment and help finding the particular strains they are looking for. Then, when the customer is ready, Di Mercurio turns his limo towards the mountains. He also performs non-marijuana-focused tours, but notes that there is more demand for the cannabis tours. He indicates that he has collaborated with historical societies and those promoting tourism in some of Colorado’s historic, small mountain cities, as well as a dude ranch. “These communities are interested in tourism, not cannabis,” said Di Mercurio, indicating that he believes cannabis legalization has energized Colorado tourism generally.
The Wholesale Network
Cannabase Connects, started by two young web developers and an online marketing consultant, is a networking website designed to link the legal marijuana community in Colorado. “Our background was in tech, not marijuana,” says CEO Jennifer Beck, 27. “Our goal is to be a top tech company.” The platform began as a private closed network for licensed Colorado businesses trading in wholesale marijuana. Beginning on April 20, 2014, the app will allow individual consumers to privately connect with shops. With funding from investors, Beck indicated that the principals of Cannabase regularly work 12-14 hours per day, six days per week, on improving and expanding their browser-based application. Presently, Colorado law limits marijuana centers to selling mostly product that they have grown themselves. Cannabase executives hope that an anticipated change in the law later this year will allow for an expansion of wholesale selling and spike demand for their service.
The MMJ Business Academy offers single day 8 hour classes once every 45-60 days, designed to provide interested entrepreneurs a comprehensive primer in the legal marijuana business. Co-owner and lecturer KC Stark thinks of it as similar to the University of Phoenix, but for marijuana related businesses. “Our job is to tell people the reality: it’s more difficult than a bull fight in a pit of snakes,” said Stark. But he noted: “All of our clients are winners. None are in jail. None are out of business.” Day-long classes are $299. Networking is heavily encouraged and presents a good opportunity to meet potential partners, employees, vendors and/or customers. A recent seminar had 115 attendees, many of whom came from all across the country. Some were interested in opening businesses in Colorado; others were simply interested in taking knowledge back to their states.
The Social Club
Colorado law still prohibits public consumption of marijuana. Recreational marijuana centers look like stores, not like bars. Studio A64 is a private social club in Colorado Springs, also founded by KC Stark. Modeled after membership-based organizations like The Shriners and The Elks, Studio A64 members can comfortably smoke marijuana (but not cigarettes) in this club. However, this is a b/y/o weed location. Studio A64 does not sell marijuana or permit sales at the club. Memberships are $5 per day or $30 per month. Patrons can purchase coffee, drinks and snacks. The club includes a stage and musical equipment; musical acts are scheduled, but members are also encouraged to just jam when it suits them. Fridays are “ladies nights”. Artists of all sorts are encouraged to sell their art. Most importantly, business networking is encouraged. Stark proudly notes that he has seen people find jobs, do business, and start not-for-profit groups in this club hall—just like The Elks. While Stark does not believe that the legality of the club’s activities is debatable, there may be a reason that other investors have not flocked to open up similar businesses. Studio A64 is presently in a legal battle with its city government over zoning. Stark believes his case may set a legal precedent for Colorado. He recognizes that if he wins his victory may open the floodgates for competitors, but he sees his efforts as a service to the community—as well as an opportunity to potentially franchise Studio A64.
Other ancillary businesses include: edibles, smoking accessories (including a serious blown glass industry), accounting, insurance, security, video surveillance, grow lights, commercial agricultural equipment, legally mandated childproof packaging, testing labs and marijuana focused media.
Without exception, every person interviewed for this article indicated that he/she believes the legal marijuana business is in its infancy, and there is plenty of room to grow, particularly in the ancillary businesses. Each stated that there are plenty of opportunities for a young entrepreneur with a good idea and for talented individuals looking for work. Most stressed the importance of following the law and playing by the rules, which they see as critically important for a new, relatively fragile industry.
Most of those interviewed indicated that they see Colorado as the first state among an inevitable many, and many of these business owners are working on preparing to move into other states as the laws of those states change. In fact, some are already doing so.
“You don’t need to pack a suitcase,” said Jessica Billingsley of MJ Freeway. “For those looking to start a business, out-of-state residents cannot own a dispensary in Colorado for a couple more years. For those looking to be in the ancillary businesses, you don’t even necessarily need to be in Colorado to do that.”
The marijuana industry is “growing rapidly enough to be good for everyone,” said Billingsley. “At the end of the day, the industry is still really small.”
Written by Joshua Korman. Joshua Korman is an attorney from Buffalo, NY, who focuses on business law and estate planning. Information about his law practice and other articles by him are available on his law firm’s website: brodykorman.com.
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