how to make money growing weed legally

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

The future looks green – but who benefits? Illustration: George Wylesol/The Guardian

The future looks green – but who benefits? Illustration: George Wylesol/The Guardian

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

Last modified on Thu 4 Oct 2018 01.28 BST

T wo 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 gathered there for a weekend of bonfires, starlit hikes and river swims.

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

Americans spend roughly $40bn annually on legal and illegal marijuana. Their appetite is almost certain to increase as it becomes easier to legally access the drug 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 customers 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 regulated recreational marijuana market, the business climate for weed companies has proven immensely 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 drugs” since Richard Nixon declared 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 involvement 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 Holdings, which closed on $119m 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 need or inclination”, according to a spokesperson – and he declared himself “unalterably opposed” 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 rush and enjoy the spoils 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 advocate for women of color like herself in the industry.

‘If Amber Senter can’t make it, who can?’ Illustration: George Wylesol/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 recognize 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 up 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 50s who did qualify.

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

On 31 January, Crosby had some good luck. Oakland put the names of a few dozen equity hopefuls into a lottery and pulled names to see 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. Went another route.” Rather than work with his local partners, Crosby had decided to partner with Have a Heart, a dispensary chain based 800 miles away in Seattle eyeing expansion in Oakland.

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

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

“It’s a classic story of gentrification,” Senter said following Meadow Lands. The dispensary chain was “taking advantage of opportunities that were not made for them”. In addition 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 is true, the situation anticipates similar deals which may reward a few local individuals but extract profit out of the city for large 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 stereotypes that most conversations at Meadow Lands dug into riveting topics like zoning variances, building materials and water use rules.

Of the state legalization experiments, 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 price 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.

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

How to make money growing weed legally

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Lately we have been thinking about how many people are dependent on the legal cannabis market to make a living. However many that may be, it all starts with the grower, the farmer, and the cultivator. If no plants are grown, there is nothing to sell. As obvious as this sounds, it is most often forgotten in the so-called Green Rush to profit. So, for this whole legalization thing to work, above all, the farmer must be nurtured and cared for just as the plants must be fed and watered.

The more we delved into the subject, the more astounded we became at the unbelievable number of people who are actually involved in getting the flower from farm to consumer, or from farm to manufacturer to consumer. The cannabis economy is as extensive and intertwined with every aspect of daily life as is the auto industry. And of course, no cannabis moves without wheels.

Basically, there are several tracks which, though seemingly independent, are totally interconnected. The various “touch the plant” cannabis businesses and their employees, from grower to retailer, is one track. Another track peripheral to that includes all the people that the license applicant must employ to get the license in the first place. A third track is comprised of business consultants, as well as attorneys, who do the legal work of drawing up by-laws and contracts. Then there are third-party companies handling payroll and accounting for the cannabis business. Then there are all the government agencies and their newly-hired employees who regulate the industry, whose salaries come out of the high level of taxation imposed on cannabis.

In addition, we must take into account all those ancillary businesses which make products and equipment necessary for cultivation, processing, manufacture, labeling, packaging, testing, and retail displays.

If we follow the chain of custody, we can get an idea of the hundreds of people who are directly and indirectly involved in — and earn their living even partially from — the cannabis industry. But, spoiler alert, we are about to get very wonky with numbers. Nevertheless, it is all just simple arithmetic, so try and stay with us.

Now, before there is a chain of custody, before the seeds are even cracked in the springtime or the clone cuttings are taken, and long before the first harvest, numerous people are at work for the cultivators, manufacturers, distributors, lab testers, event producers, and retailers, helping them to get their numerous permits and licenses. And they need to get paid, too.

These people are consultants and contractors, accountants and attorneys, geologists, foresters, soil engineers, biologists, compliance officers, and payroll administrators. In addition, for the physical compliance upgrades, there are carpenters, plumbers, electricians, excavators, draftsmen, designers, and even architects and engineers.

Some of these individuals or companies specialize in cannabis business, others do not. Some only take a small fee, while others make most of their income providing essential services to the cultivators who are trying to get legal for the first time. If we count just one person from most of the above listed categories, there are a minimum of 16 preliminary professional and tradespeople a farmer typically must engage with during the process of setting up a business and obtaining the various state and county licenses and permits.

And approximately that same number of people goes for each of the seven types of businesses through the chain of custody. That means sixteen preliminary consultants, contractors, attorneys, designers, etc. each for cultivation, manufacture, processing and packaging, testing, distribution, event production, and retail business. Now, we are already up to 112 workers (16 x 7) who never even come near the plant; they just enable the business to get going.

This number does not include the number of people engaged in the management of the peripheral businesses. Each one of these businesses also has a CEO, an accountant, bookkeeper, attorneys, compliance officer, office manager, and security personnel. This means there are at least eight (8) management employees for sixteen businesses for each of seven types of cannabis business. In other words, that is 896 (8 x 16 x 7) people for whom a slice of their income is derived from cannabis. This is added to the 112 people actually doing the work for the cannabis business which hired them, for a grand total of 1,008 (112 + 896) people peripheral to a given cannabis business who nonetheless are dependent on it.

To this number of preliminary peripheral occupations making their living from cannabis must be added all of the government workers, at the city, county, and state levels, who review applications, inspect cultivation sites, answer phones, interface with the public, and enforce the laws, ordinances, rules, and regulations that other additional government staff have written at the behest of the legislature or the people’s referendums.

The taxes on cannabis commerce, combined with permit and license fees, as well as all the fines and penalties imposed on those who are found to be out of compliance, pays for all their government salaries. Ironically, they are, in that sense, our employees, whom we have to pay, and who make us follow the rules that they have imposed upon us. Rules we have had little to no input in crafting, and which are much more restrictive than the rules for practically any other industry. And that money is taken off the top. No tax deductions are allowed (though state tax deductions may be allowed this year).

For California, there are the three departments which have the primary rule-making, license-issuing, and enforcement powers: the Department of Food and Agriculture (CDFA) housing the CalCannabis Branch, the Department of Consumer Affairs (CDCA) with the Bureau of Cannabis Control, and the Department of Public Health (CDPH) with the Manufactured Cannabis Safety Branch.

Each of these branches has hired hundreds of people to make their programs operable. Farmers generally do not have much involvement with Consumer Affairs and Public Health, dealing mostly with Food and Agriculture instead, whereas distributors, testing labs, event producers, and retailers deal with Consumer Affairs, and manufacturers fall under Public Health. In the chain of custody, the flower, on its journey from farm to table, directly encounters at least three government officials from the particular department overseeing its affairs, for a total of 21 (7 x 3) people.

Yet for each person the cannabis business deals with directly, there are untold numbers of people back in Sacramento who make up CalCannabis, the Bureau of Cannabis Control, and the Manufactured Cannabis Safety Branch, who are processing forms, writing regulations, etc. Nonetheless, their salary comes from the cannabis plant. Let’s estimate 100 people per department focused on cannabis, for a combined total of 321 (21 + 300) state employees across the three main cannabis regulatory departments.

In addition, the Departments of Pesticides, Fish and Wildlife, Fees and Taxation, Employment Development, Fire Protection, and Environment — with its Water Resource and Water Quality Control Boards — all have new divisions and personnel dedicated to creating cannabis regulations, issuing permits, and enforcing the new laws. Even one farmer getting licensed for a single farm has to engage with at least two to three people directly, and an unknown number of people in the background, from each department, commission, or board. For each of these, seven additional agencies whose approval is required for a license, three people is again a minimum number to encounter. This is 21 (7 x 3) people for each of the seven types of cannabis business, or 147 (21 x 7) government personnel charged with monitoring cannabis businesses. Here, too, are another 50 people per department who are support personnel or management. This gives us 350 (7 x 50) plus another 147 workers engaged with cannabis businesses, which equals 497 (350 + 147) workers within the seven agencies. Added to the previous 321 workers from the three umbrella departments, we arrive at a grand total of 818 (497 + 321) state government employees dedicated to cannabis.

Don’t forget: This is just the math for the state agencies. At the county levels, there are also several departments which need to give their approval, as well as collect taxes and fees, and which must be paid so that these workers can take home a paycheck. An estimated 105 (5 x 7 business types x 3 state departments) county workers and probably about the same for each city that allows licensed cannabis businesses, so that’s a low estimate of 210 county and city government workers altogether.

Thus far, this totals 2,036 (1,008 + 818 + 210) people from private industry and government agencies taking a portion of their wages from cannabis — and these are only the ones who never touch the plant.

Finally, after all the permits and licenses are acquired and the business is established, the chain of custody commences with sprouting the seeds. Now we encounter all the people who touch the plant or touch the packaging and processing.

This track starts with the people at the farm, such as cultivators and their helpers, harvesters, and the METRC track-and-trace program person, who is an independent contractor. For our small one-quarter acre farm, that means two people beyond the owners, though at times, during planting or harvest, extra hands are employed. Larger operations would, of course, have more employees. That makes five workers at the farm level.

At the processing and packaging plant, which has its own payroll, there is the intake manager plus trimmers, packagers, label attachers, and warehousing personnel, making at least eight workers involved in manicuring, preparing, and packaging the cannabis flowers for testing and subsequent delivery.

For the distributor, whose operations sometimes include the above processing and packaging of the plant, there is an inventory manager, packaging materials supply manager, delivery drivers, and a wholesale manager, so at least eight more employees.

For the testing lab, there are sample pick-up drivers, and in the lab there are technicians who actually test the products, so call it four additional workers.

At the retailer, there are product buyers, inventory stock controllers, floor managers, and budtenders. Let’s say seven more people, since there are different shifts of budtenders.

Then there is the trim shake or sugar leaf that is sent to a manufacturer to make concentrates, edibles, extracts, topicals, etc., and there are more people who touch the plant or jar. This route for the trim or shake also entails a distributor for transport to the manufacturing site, and from there, back to the distributor to be tested, and then on to be delivered to the retailer. One would estimate seven employees at the factory or kitchen. These would include an intake manager, several people making the product and others packaging, as well as doing inventory control.

The minimum number of people who touch the flower, trim, shake, or packaging before it gets to the customer is at least 39 (5 + 8 + 8 + 4 + 7 + 7) people.

This number, however, does not include the people engaged in the management of cannabis businesses who do not touch the plant. Each one of these businesses also has an owner or CEO or both, an accountant, bookkeeper, attorney, compliance officer, office manager, security personnel, and so on. Many cannabis businesses have branding and marketing personnel, too. Call it about 10 people per business entity, so with cultivation, processing, packaging, distribution, testing, event production, and retail there are about another 70 (10 x 7) people who get their compensation courtesy of the cultivator, without even seeing the flowers.

Now, we have estimated or counted at least 109 (39 + 70) people employed by the companies that touch the plant. Compare this with the 2,036 people who don’t touch the plant, but still take their cut before the cannabis business gets theirs. And we’re not even done yet.

Lastly, we must consider where the cannabis business owners and employees spend their money. Local businesses spend locally. Aside from spending at nearby supermarkets, gas stations, car dealers, clothing stores, etc., who supply life’s daily needs to the cannabis community, there are all the businesses that offer necessary supplies or agricultural services once the farmer is in production. These encompass soil testing labs, organic certifiers, nursery businesses, soil makers, fertilizer and compost makers, hay and straw producers, amendment producers, etc. And then, on top of all of them, there are all their workers.

Further, there are all the businesses that make solar panels, generators, pumps, pipes, greenhouses, sprayers, fencing, irrigation systems, tractors and accessories, rototillers, planter pots, hand tools, lighting equipment, dehumidifiers, fans, surveillance equipment, and water and air purifiers, which are necessary to a cannabis cultivation business. And again, all their workers.

In addition, manufacturers have their own special equipment needs for their different manufacturing processes, such as various kinds of extractors, freeze dryers, stoves, ovens, ventilation and purification systems, and who knows what else. The same is true for processors, packagers, distributors, and lab testers, who also purchase special equipment and machinery.

When cannabis businesses pay other businesses and agencies, they in turn use that money to pay other businesses. By now, we have lost count of all the people and businesses who are dependent on cannabis to make a living or a profit. This number is inestimable, but, obviously, it’s less than infinity.

However, when you add together all the people and companies who have to get paid before the farmer gets a share, it is no wonder that no one in the legal cannabis business in California can make a profit. Clearly, it is all the peripheral and ancillary services, consultants, contractors, and supply businesses that make whatever money is left over after taxes and fees.

Throw in the fact that there are not nearly enough licensed retail outlets to sell the product once it has reached the end of the custody chain, and you get the picture of why California’s cannabis situation is a fiasco — why everyone but the grower, the manufacturer, the distributor, and the retailer is making money. But without that flower, and a way to profitability for the cultivator, the whole edifice collapses. The roots run deep, and it takes a legion of laborers to keep the system going.

That said, we can’t resist making the comparison with the number of people and costs involved in the chain of custody in the traditional illicit market. Of course, in the old days, there were no taxes and no fees, no lab testing, minimal packaging costs, and the farmer and their partners did all the work themselves. The only government departments were the sheriffs, the police, the district attorneys, the DEA, CAMP, and so on. The only lawyer an underground cannabis farmer needed was a defense attorney if someone got busted — and, to be fair, that was going to cost them, big time. However, since people never wrote anything down, they only needed an accountant for personal income taxes. People would hire a local underground carpenter, electrician, or plumber for installation, but no permits or fees, no inspections. And the price of flower was over $3,000 a pound wholesale, climbing up to $5,000 briefly. Today, if the legal grower gets $900 a pound after expenses, they are lucky.

Trimming was done at home, by the pound, by trimmers who lived onsite and stayed up working into the wee hours of the night. Packaging involved turkey bags and contractor bags for growers, and sandwich bags for dealers. Transport was by the grower, or they paid a driver $100 a pound. In the really early days, buyers would meet farmers at remote spots in the mountains, bringing suitcases full of cash, and take the whole crop. Later, aggregators would assemble 10-packs and 20-packs, paid in cash, either when it changed hands or shortly after.

Yeah, a grower could make some good money in those days. But the number of jobs it created was minimal, sort of pre-industrial, compared to the economic bonanza for all those involved in the business today. That is, it’s a bonanza for everyone except the very people without whom none of this would be possible. If all the small farmers go out of business, what will happen to the thousands and thousands who live off of them?

If thousands of jobs depend on cannabis growers (which they do), then why do the farmers profit last? Our columnists break down the bleak economics and bureaucracy of California's legal industry.