Cannabis capitalism: who is making money in the marijuana industry?

Marginalized groups that championed legalization struggle to compete with corporate refugees jumping on the bandwagon

Two hours north of San Francisco, in Mendocino county, orderly roadside vineyards give way to the rugged forests and misty coast of the Emerald Triangle, America’s most celebrated marijuana growing region. In June, more than 300 cannabis industry insiders assembled there for a weekend of bonfires, starlit hikes and river swims.

It was a lovely defining to discuss why none of them seemed to be making money.

Americans expend roughly $40 bn annually on legal and illegal marijuanas. Their appetite is almost certain to increase as it becomes easier to legally access the narcotic and the industry continues to promote pot as compatible with a healthy adult life.

In California alone, tens of thousands of farms grow the plant, which is increasingly processed into gorgeously packaged vape pens and edibles marketed to clients outside the core stoner demographic of young men. Today, seniors are the fastest-growing group of marijuana users in the US.

The future looks very green indeed. But since New Year’s Day 2014, when Colorado opened the world’s first governed recreational marijuana market, the business climate for weed companies has proven vastly difficult for a range of reasons, including high taxes, rapidly changing regulations and a still robust illicit market.

Besides the business challenges, America’s legal marijuana industry also has to reckon with an unavoidable moral dimension. The US has been engaged in a” war on narcotics” since Richard Nixon proclaimed it in 1971. While white Americans use marijuana and other drugs at roughly equal rates to African Americans and Latinos, in virtually every respect, racial minorities have been disproportionately incarcerated and otherwise punished for participation with drugs, including selling marijuana.

In addition, marginalized groups- Aids patients, disabled people, veterans- who championed legalization when it was far riskier to do so now find themselves ill-equipped to compete against well-capitalized corporate refugees looking to jump on the bandwagon.

One company, Acreage Holding, which closed on $119 m in investment capital this summer, has enlisted the former Republican speaker of the House John Boehner to help it navigate the market. Boehner has never smoked pot-” he hasn’t felt the want or tendency”, according to a spokesperson- and he proclaimed himself” unalterably resisted” to legalization when he was in office.

With legal marijuana now one of the country’s fastest-growing industries, who profits is as much of a civil rights question as who gets punished.

The industry’s moral challenge is to ensure the groups who have suffered the most under the drug war can participate in the green hurry and enjoy the spoilings of legalization.

‘A classic story of gentrification’

The story of Amber Senter, a businesswoman and activist who attended the weekend campout, dubbed Meadow Lands, goes some way to explain why racial equity will be as difficult to achieve in cannabis as it is in the rest of American life.

Senter moved to Oakland, California, in 2014. A coast guard veteran with a background in corporate marketing and graphic design, she worked as an executive at Magnolia, a dispensary, and became a prominent proponent for women of coloring like herself in the industry.

‘ If Amber Senter can’t make it, that we are able to ?’ Illustration: George Wylesol for the Guardian

Oakland, the birthplace of the Black Panther party, is known for radical politics and racial tensions. It was among the first US jurisdictions to distinguish legalization as an economic opportunity and has sanctioned dispensaries since 2004. More recently, it became one of the first places to create an” equity program” to support marijuana entrepreneurs who were locked away for pot-related offenses or who come from neighborhoods considered disproportionately affected by the” war on drugs “.

Senter didn’t qualify for an equity permit. But in November 2017, her business partner signed a memorandum of understanding to open a dispensary with Marshall Crosby, a personal trainer in his 50 s who did qualify.

A native of Oakland’s impoverished east side, Crosby has lived a hard life. One of eight infants, he said he had several bullets lodged in him and had served stints in jail.” I became a statistic in the narcotic life a long time ago ,” he said.

On 31 January, Crosby had some good luck. Oakland set the names of a few dozen equity hopefuls into a lottery and pulled names to consider who could pursue a dispensary license. Crosby was among the four winners.

A few weeks later he wrote to Senter’s partner:” I have decided not to work with you. Run another route .” Rather than work with his local partners, Crosby had decided to partner with Have a Heart, a dispensary chain based 800 kilometres away in Seattle eyeing expansion in Oakland.

In an interview, Crosby said he felt abandoned after he had signed the memo with Senter’s partner. And he felt an affinity for Have a Heart’s COO, Ed Mitchell, who grew up in another rough one of the purposes of the Bay Area. With Have a Heart, Mitchell said Crosby would also receive a payment of an undisclosed sum once they procured the license.

Oakland’s equity program had been laboriously developed over years to maximize not just chores for Oaklanders but local ownership of marijuana companies. But the implementation of policies didn’t stop Crosby from partnering with an outside company.

” It’s a classic narrative of gentrification ,” Senter said following Meadow Lands. The dispensary chain was ” taking advantage of opportunities that were not constructed for them “. In addition to being able to boxing her out, the new store, she said, would compete with, and potentially undersell, existing locally owned dispensaries.

Have a Heart said it would hire Oaklanders for 90% of its jobs in the city and would invest in cleaning up the area of Chinatown where it hopes to open.” We believed Oakland was a place where we could really do some good ,” Mitchell said.

Even if this applies, the situation foresees similar deals which may reward a few local individuals but extract profit out of the city for big corporations.

” Someone was just able to swoop in and sabotage fair business dealings; that’s wrong ,” said Anne Kelson, an Oakland cannabis attorney who is not professionally involved in the case.

Kelson said the incident had shaken Oakland’s cannabis community.” More than one business operator has come to me and said:’ If Amber Senter can’t make it, who can ?'”

Across the bay in San Francisco, another ambitious dispensary chain, MedMen, is pursuing partnerships with equity applicants. Compared with less sophisticated operators, MedMen brings” a certain guarantee of execution”, its spokesman, Daniel Yi, said.” At the end of the day a business that’s not successful wouldn’t help anyone .”

Marijuana farming in California

Most attendees at the campout in June belonged to the industry’s craft cohort. Many of them have been professionally involved in cannabis for decades.

Marijuana farming in California has never been easy. Those who succeed are skilled, cunning and well-versed in the law.

Today they’ve applied their intelligence to the endless intricacies of the California market. It both conforms to and departs from stoner stereotypesthat most conversations at Meadow Lands dug into riveting topics like zoning deviations, building materials and water use rules.

Of the nation legalization experimentations, California is, by far, the largest and most complex. For growers who operated in California’s gray and illegal markets and now want to transition into the legal market, the economics can be brutal. In the illegal market, an Emerald Triangle farmer might have sold a pound for $3,000 tax-free. Now the cost is more like $600, before taxes and compliance-related costs.

” I’ve never seen a craft cannabis brand work out, because it’s not cost effective ,” Hilary Bricken, a Los Angeles cannabis attorney with Harris Bricken said.

” Presently , no one in legalized marijuana is getting rich ,” Steve Schain, a senior attorney with the cannabis-focused Hoban Law Group, said.

In Schain’s view, even the largest and most professionally operated companies are being built to be acquired when major agriculture, alcohol and pharmaceutical companies consider it safe to earning. Already, immense grow projects, 100 000 square feet, are coming online in the desert east of Los Angeles, and across Canada.

The difficulties small farmers face were anticipated. In the lead-up to legalization, California’s small growers had expected a provision which would prohibit farms larger than about an acre( 43,560 sq feet) until 2023, devoting small growers time to adapt.

But when the rules came out last November, a new loophole allowed mega farms immediately. The California Growers Association, which has approximately 1,000 members, is suing the state.

At Meadow Lands, a French-born hashmaker known as Frenchy Cannoli argued craft cannabis should follow France’s wine model and create a” hierarchy of quality” based on the concept of terroir , the idea that environmental factors like soil and climate contribute to a plant’s ultimate yield. Today, he said, many places create great wine, but because France established the standard in the 1800 s,” they will always be the center of the wine industry “.

At night, Frenchy, who at 62 has a high broad forehead and harlequin smile, stood on a picnic tablecackling as he tended a many-armed hookah.

Master # hashishin @ frenchycannoli suns his cephalopodic hookah at @meadow. sf’s great #meadowlands2018 event. It was a trip-up all the route down the rabbit hole on what the craft render chain is thinking, and also lots of fun. #frenchycannoli #frenchycannolitech #grasslandsaf #hash #hashish #cannabiz #cannabusiness #420girls #420 #craftcannabis #craftconcentrates #california #mendocino #mendocinofarms #mendow #getmeadow #marijuana #norcal #emeraldtriangle

A post shared by WeedWeek (@ weedweeknews) on Jun 17, 2018 at 7:36 pm PDT

Initiatives to create French-style ” appellations” for northern California cannabis are under way, but they may not do much if the growers still have to immediately compete against big industrial farms.

While California’s small growers are fighting, they also have clout. Which explains why one of the visitors to Meadow Lands that weekend was the California state senator Kevin de Leon, an underdog US Senate candidate operating to the left of his fellow Democrat, Senator Dianne Feinstein.

While some Democrat, such as Feinstein, have constructed their peace with legalization, De Leon dedicates it a full-throated endorsement.” For many underemployed workers and trade the unemployed, cannabis is the future ,” De Leon said, speaking at a campsite one morning. Dressed in pressed slacks and a crisp white shirt, he joked:” I’m not a narc .”

The audience laughed. After a night of camping, it was 8.30 am and they were passing joints.

Cannabis space

Canada, true to form, has moved to legalize marijuanas in a more orderly way than the US, with legalization day defined for 17 October. The industry there perhaps devotes their counterparts in the US a vision of the future.

In Canada, a handful of companies already dominate the cannabis market. And a few weeks after Meadow Lands, a very different marijuana industry assembling took place at a big glass hotel in central Vancouver.

The opening party took place in a smoke-free ballroom. The keynote speaker was Henry Rollins, the legendary punk rocker known for his association with the straight edge culture, who doesn’t consume cannabis himself. His message to the International Cannabis Business Conferencewas that the industry shouldn’t be too greedy. But he wasn’t fooling anybody.

” It’s the suits taking over ,” Carolyn Cudmore, the founder of the Vancouver craft company the Preroll Factory, said.

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