How much does it cost to launch a cannabusiness in the Bay Area? | KALW

How much does it cost to launch a cannabusiness in the Bay Area?

Dec 21, 2017

Starting a marijuana business is not so simple; there are a lot of rules and fees, especially if you are buying or selling the actual plant. But people are finding many different routes into the industry.

The legalization of marijuana has ignited a “green rush.” And entrepreneurs want to get into the cannabis industry now, as various studies project California marijuana sales will reach over $6 billion by 2025.

 

But starting a marijuana business is not so simple.

 

There are a lot of rules and fees, especially if you are buying or selling the actual plant.

 

But people are finding different routes into the industry.

 

Finding space for a canna-business

 

Mark Hersman and Nick Portolese first became buddies more than 10 years ago when they met at church. They’ve since bonded over hockey and sports.

 

But in the next few months, their sports-based friendship may be tested.

 

Because now they’re partners — in a marijuana business.

 

“We want to bring this industry out of the shadows,” says Nick. “There is a valid reason to use this plant as medicine.”

 

The three of us take a walk down busy Park Street in Alameda to the corner of Clement Avenue. The area’s blend of old car repair shops with new restaurants show signs of gentrification.

 

“This is a part of town that’s changing,” says Mark. “This is a small part of town they have reserved for cannabis businesses.”

 

We stop just a few blocks from the Park Street Bridge and are standing in front of a boarded-up Irish bar.

 

I see a worn building with faded red paint and a parking lot that needs repaving — but Nick sees a possible dream coming true.

 

“This could be a potential location,” Nick says. “It really all depends on the available space and the price, of course, and the condition of the building.”

 

The city of Alameda recently passed an ordinance that allows for two medical dispensaries on the island. Mark says they are hoping to open one of those dispensaries next summer, through their new company, Portman Enterprises.

 

Then, Mark says, they’ve got their eyes on something new in the local marijuana scene — a cannabis-friendly social club.

 

“So that would be a club that charges a monthly membership that allows them to enjoy a country-club atmospheres and enjoy cannabis on the premises,” says Mark. “We’re thinking of things like a full menu of food and beverages, little bit of entertainment, pool tables and the like.”

 

Cannabis people and business people

 

These guys may be new to the cannabis industry, but they’re not new to marijuana. They consume for health reasons and are very passionate about legalization.

 

Nick, who is Canadian, says watching his parents suffer through cancer inspired him to launch their business.

 

“There was this stigma around using the plant to help them, to aid in whatever condition they’re going through,” Nick recalls.

 

Part of their motivation is personal, but they mean business too. Mark previously worked in finance at Charles Schwab, and Nick does IT for Nielsen, the media-metrics company.

 

Mark says he’s noticed two types of entrepreneurs in the industry: cannabis people going into business ... and business people going into cannabis.

 

They fall under the latter category. So what’s the difference?

 

“On the cultivation side is where you see a lot of cannabis people going into business,” Mark explains. “They have tremendous experience and technical skills in growing the plant and proper nutrition, fertilization, hydration techniques and that sort of thing. That goes well beyond my scope of knowledge. But they don’t know a lot about running a business — meeting payroll, regulation, audits and taxes, etc.”

 

Whether someone is skilled with the soil or a spreadsheet, these businesses cost money to start.

 

Mark says he and Nick need a lot to make their dream happen. A whole lot.

 

"So moving forward with the dispensary first, we’re probably looking at a $3–$4 million capital raise,” Mark says. “And then we would be looking something similar, probably $4–$5 million on the social club. So we’re looking at roughly $8–$9 million total for both businesses.”

 

Nick says they’re conducting a capital raise and looking for investors. The business partners have already invested $100,000 of their own money — and that’s just on research and development.

 

Why so much?

 

Real estate. They want to own their property, because sometimes landlords are fickle when leasing to marijuana business. Mark says because of federal laws, banks can pull loans on a landlord’s building.

 

“I mean, you really need at least a solid quarter-million dollars to get your business launched,” says Sharon Golden. She's a business consultant who works specifically with cannabis entrepreneurs.

 

She’s also founder of the Alameda Island Cannabis Community — a group of local residents advocating for safe and legal access within the city.

 

Sharon tells me Nick and Mark’s personal investment is not uncommon.

 

“I think a lot of people who came out here felt they were going to get rich quick,” Sharon says. “This was going to be their big break. In reality, it takes a lot of money to start one of these businesses. Compliance in general is lot.”

 

Sharon is referring to businesses like dispensaries, edibles, farms, testing sites — ventures that involve actually handling the plants pay a lot in licenses and permits.

 

“The state licenses run anywhere from maybe $6,000 a year to $76,000. Microbusinesses are $120,000 a year,”  she says.

 

Add to that packaging, manufacturing, machinery, security — and then there’s the taxes.

“For adult use there’s going to be 15 percent sales tax and then your local 9.25 percent sales tax,” says Sharon. “So you’re looking at a 25 percent sales tax on the consumer at the end of the day.”  

 

More than growing plants

 

Yet there’s also room in the green rush for businesses that don’t involve the sale of marijuana.

 

Take Sharon, for example. Her business consultant rates start at $50 per hour.

 

So how can someone without the capital get in on the action?

 

I head over to East Oakland, where Nate Cameron welcomes me to his home with music from his band MJs Brass Boppers. He’s a musician. His wife Krystle is a communications and digital consultant.

 

The couple moved here from New Orleans  two years ago and founded Them People Productions. The company provides safe social spaces for people of color.

 

Come January, they’re expanding into the cannabis industry.

 

“We as black people, you know, we’ve had this stigma on us relating to marijuana use,” says Nate.

 

Krystle adds: “We are actively putting together events where people of color, who have usually felt and been more persecuted as far as recreational uses of cannabis has gone, can enjoy their cannabis in a space that feels comfortable.”

 

 

Krystle and Nate Cameron of Them People Productions are expanding their event production company into the cannabis industry.
Credit Jenee Darden / KALW News

They’re planning events like parties and artist gatherings where attendees smoke while painting or playing an instrument.

Krystle and Nate were inspired to host cannabis-focused functions, after attending others that lacked diversity.

“There’s always the head nod,” she says. “When you see that one other black couple that’s walking around, like — ‘ah, you’re here.’ I know in those spaces I haven’t always felt the most comfortable, because I’m not of the demographic that’s well protected in that space.”

 

Nate began planning cannabis events years ago during a stint in Amsterdam. He recently brought his party planning skills to the wealthy, white suburb of Woodside.

 

“It was a big retirement party in a big safe space at this home,” Nate recalls. “I was very intentional about hooking people up with people of color. I was kind of very proud. There were people-of-color cannabis vendors there and there was a person-of-color DJ there as well.”

 

In researching this story I’ve learned of people teaching blunt-rolling classes, leading weed and wine tours, giving Cajun cannabis cooking demos. Even lawyers and marketers have specialized cannabis practices.

 

Most of these businesses cost far less to start and don’t require permits.

 

Like Krystle and Nate, there are lots of people out there hoping they can ride the cannabis wave using their current trade skills, without spending lots of money.  

 

“We’ll get a venue and sometimes a venue will be a partner, so we don’t have put in an investment,” Krystle explains. “We just share whatever income from the ticket sales are. We usually pay our artists out of that money. I think in the very beginning the most we had invested in the event was maybe $1,500.”

 

That’s more my speed — although I admit that this is all new to me. I don’t consume, so I was surprised by how many layers there are to venturing into the cannabis industry, and how many different ways people are trying to cash in and make their fortune.

 

But I wonder, will regulations and the high value of weed change cannabis culture?

 

“The product itself is about community and sharing,” says Krystle. “You don’t roll a joint and smoke it yourself. You don’t make edibles and do it yourself. It is to share with other people.”  

 

And maybe share the wealth, too.