July 24, 2009 – LAKE FOREST, Calif. — Sellers of marijuana as a medicine here don’t fret about raids any more. They’ve stopped stressing over where to hide their stash or how to move it unseen.
Now their concerns involve the state Board of Equalization, which collects sales tax and requires a retailer ID number. Or city planning offices, which insist that staircases comply with the Americans With Disabilities Act. Then there is marketing strategy, which can mean paying to be a “featured dispensary” on a Web site for pot smokers.
After years in the shadows, medical marijuana in California is aspiring to crack the commercial mainstream.
“I want to do everything I can to run this as a legitimate business,” says Jan Werner, 55 years old, who invested in a pot store in a shopping mall after 36 years as a car salesman.
State voters decreed back in 1996 that Californians had a right to use marijuana for any illness — from cancer to anorexia to any other condition it might help. But supplying “med pot” remained risky. The ballot measure didn’t specify who could sell it or how. The state provided few guidelines, leaving local governments to impose a patchwork of restrictions. Above all, because pot possession remained illegal under U.S. law, sellers had to worry about federal raids.
But in February, the Justice Department said it would adhere to President Barack Obama’s campaign statement that federal agents no longer would target med-pot dealers who comply with state law. Since then, vendors who had kept a low profile have begun to expand, and entrepreneurs who had avoided cannabis have begun to invest.
Some now are using traditional business practices like political lobbying and supply-chain consolidation. Others are seeking capital or offering investment banking for pot purveyors. In Oakland, a school offers courses such as “Cannabusiness 102” and calls itself Oaksterdam University, after the pot-friendly Dutch city. As shops proliferate, there are even signs the nascent industry could be heading for another familiar business phenomenon: the bubble.
Medical use of pot now is legal in 13 states. It is also facing some resistance. New Hampshire’s Democratic governor, John Lynch, vetoed a med-pot bill this month, citing inadequate safeguards. Los Angeles, which passed a moratorium on new dispensaries in 2007, is trying to close a loophole that has led to an explosion of new ones.
John Lovell, a lobbyist for the California Peace Officers’ Association, objects to “the notion that marijuana is safe and can be used for any and all purposes to heal any and all ailments,” adding: “There are 34 different elements in marijuana smoke that are shared with tobacco.” He and others also complain about the ease with which patients can get pot recommendations from certain doctors.
Still, at a time of deep recession, the med-pot business is attracting career switchers. Mr. Werner was the sales manager of a Chrysler dealership, and dismayed with the collapse of car sales. He had a doctor’s recommendation to smoke pot, for pain from a spinal condition. One day a car-dealer friend, Bill Shofner, who also had a pot recommendation (for migraines), suggested: Why not become pot vendors?
The mellowing of federal regulations for selling medical marijuana has created a crop of pot entrepreneurs with dreams of taking their homegrown businesses into the stock market. Justin Scheck and Stu Woo report from California.
Each invested $40,000. Following state guidelines, they set up as a nonprofit, called Lake Forest Community Collective, from which they would draw salaries.
It is on the second floor of a strip mall in the Los Angeles suburb of Lake Forest that also houses Mexican restaurants and a Peet’s Coffee shop. A customer first encounters a brightly lit front room with a security window and an Obama poster, then is buzzed into a vestibule with an ATM. Beyond that is a spotless room with glass cases displaying pot in pill bottles.
Scribbled on a board are prices, from $10 to $25 a gram, for different strains: Sour Diesel, Purple Urkel, Bubba Hash. Sour Diesel is popular, says a volunteer, and “really potent.”
This still is a far cry from, say, Amsterdam, where pot remains illegal but authorities are so tolerant that pot is available in coffeehouses.
In California, pot sales, legal and illegal, are estimated to total $14 billion a year. Medical marijuana makes up maybe an eighth of that, says Dale Gieringer, director of the state’s chapter of the National Organization for the Reform of Marijuana Laws. He estimates the state has three million pot smokers, including 350,000 with doctors’ recommendations.
The state taxes med-pot sales, and on Tuesday, the city of Oakland added its own special tax.
In Lake Forest, Messrs. Werner and Shofner pay about $4,000 for a pound of marijuana, retailing it for about $6,000. They don’t break even yet, the two say.
The business is a little like selling cars in one way, Mr. Shofner says: The longer they hold their stock, the less it is worth. Aging marijuana loses both potency and weight.
Med-pot sellers say they generally avoid marijuana from Mexican cartels; the risks are higher and the quality is lower. Messrs. Werner and Shofner say they at first bought largely from far-northern California, where clandestine growers also supply the underground market.
For reasons of cost and consistency, they have been taking fuller control of the supply chain. A few months ago they gave money to members of their collective for grow lamps and other equipment, and now they get much of their supply from them. “It’s like McDonald’s” making deals with potato farmers, Mr. Werner says.
Some vendors are toying with another familiar business model: vertical integration. In pot, that means growing as well as dealing. This was a risky approach when a federal raid could cost an owner his pot, his computers and maybe even his liberty. Now, one Los Angeles-area med-pot vendor says he has acquired land in Northern California and begun to grow his own.
Mr. Werner and his partner recently decided to expand. They signed leases for two new outlets.
They also have lost their wariness of advertising. The proliferation of dealers makes promotion essential. The two now pay several hundred dollars a month for ads on Web sites like Weedmaps.com, which helps people find medical pot.
Justin Hartfield, who started Weedmaps, says it has grown quickly to about $20,000 in monthly revenue, half from ads.
The rest comes from referring people to doctors who recommend pot. Mr. Hartfield bills the doctors $20 for each patient he sends them. The American Medical Association ethics code says payment for referrals is unethical. Mr. Hartfield says the doctors are keenly aware of the ethics issue and consider their payments not to be fees for referral but “advertising fees that change every month.”
Shane Stuart, 23, says he used to buy weed from street dealers but in February saw an online ad for a pot-friendly doctor. He realized then, he says, that medical marijuana was becoming more mainstream and having a pot ID card wouldn’t hurt him with employers. He came away from a $200 doctor visit with a note recommending pot for pain from a hyperextended knee.
Mr. Hartfield, the Weedmaps impresario, has a doctor’s recommendation for marijuana “to ease my anxiety and help with my insomnia.” Mr. Hartfield says the med-pot system is really just a way of legalizing marijuana for anyone who wants to smoke. He says his anxiety/insomnia isn’t really serious enough to require treatment. “I’m fine. I don’t really have it,” he says. “The medical system is a total farce. I’m an example of that. It just needs to be legal.”
Med-pot advocates say marijuana can ease chronic pain, spur appetite in anorexics or chemotherapy patients, and relieve eyeball pressure in glaucoma patients. The law voters approved in 1996 listed several conditions that might be helped but said so long as a doctor recommended pot, all “seriously ill Californians” had a right to it for “any…illness for which marijuana provides relief.”
David Allen, a former Mississippi heart surgeon, last month opened a general practice in Sacramento and listed himself on a Web site as a pot-friendly doctor. Marijuana, says Dr. Allen, 57, “helps the common conditions that affect every human being — for instance, anxiety, depression, insomnia and anorexia” — and can relieve certain arthritis symptoms and muscle-spasm conditions.
Still, he says, many of his patients are people who already used pot but just wanted a doctor’s recommendation to avoid legal trouble. “If I was to deny them, I would put them at more risk, and I’d be hurting society by doing this as well,” he says. “Cannabis is safer than aspirin.”
Dr. Allen smokes pot for insomnia, anxiety and stress. He says he quit heart surgery because what he does now is more lucrative. He says he doesn’t pay for referrals, a practice he considers unethical.
As the business matures, ancillary ventures are springing up. In Oakland, OD Media manages advertising and branding for about a dozen pot clients. An Oakland lawyer, James Anthony, and three partners have started a firm called Harborside Management Associates to give dealers business advice. A pot activist named Richard Cowan has opened what he envisions as an investment bank for pot-related businesses, called General Marijuana.
Mr. Cowan is also chief financial officer of Cannabis Science Inc., which is trying to market a pot lozenge for nonsmokers. It was founded by Steve Kubby, a longtime medical-marijuana advocate who a decade ago was acquitted of a pot-growing charge but briefly jailed for having illegal mushrooms in his home. Mr. Kubby says there is “no more alternative culture” at the company, which went public in March and has hired a former pharmaceutical-industry scientist to try to win Food and Drug Administration approval for the lozenge. Mr. Kubby left as CEO this month in a dispute with the board.
Part of the opposition medical marijuana continues to face is rooted in concern that unsavory characters from the illegal-drugs business will get involved. The city attorney of Lake Forest, where Messrs. Werner and Shofner have their store, recently sent a letter to the landlords of pot dispensaries asking them to evict tenants. Mr. Shofner says he reached a settlement with his landlord to stay.
To defend their interests, some pot proprietors are hiring lobbyists. Messrs. Shofner and Werner pay consulting fees to Ryan Michaels, a political organizer with an expertise in med-pot compliance issues.
There are signs medical pot’s increasing business legitimacy is crowding the market. A 20-mile stretch of Ventura Boulevard in the San Fernando Valley now has close to 100 places to buy. “So many dispensaries have come along, the prices are dropping,” says one operator, Calvin Frye. Two years ago, his least expensive pot was about $60 for an eighth of an ounce. Now it is $45.
Across the country, a med-pot bill is working its way through New York’s state legislature. If it makes it, entrepreneurs are getting ready.
Larry Lodi, a 49-year-old Little League umpire from Long Island, spent two days at Oaksterdam University in May, learning the fine points of cultivation and distribution. Mr. Lodi envisions a business that would link the growers and the sellers of medical marijuana. “I want to be the middleman,” he says. Source. By JUSTIN SCHECK and STU WOO