Not So Fast

How to navigate the transition from medical to rec

by Joseph Peña

lf you own a medical cannabis dispensary and are hoping to enter an emerging recreational market, you might be tempted to make the shift as soon as possible.

But here’s a word to the wise: Rein yourself in, because a hasty transition is a recipe for disaster.

“You don’t have to be first to market,” said Brian Caldwell, a rec industry veteran who is president of the cannabis consulting company Triple C Licensing in Washington state. “Don’t jump the gun. Watch and see what happens. Let the market settle and then make the best business decision.”

Industry veterans gave several tips for navigating your state’s new landscape. Among other things, study the relevant regulations at every level of government, reevaluate your business plan – maybe you want to establish a niche to distinguish yourself – and partner with reliable growers and other rec vendors. Also, don’t ignore your medical marijuana patients, and join a trade group to stay informed.

Know the Regs and the Locals

As with the medical market, your first step is to review state, county and city regulations for the various licenses each entity offers, said Mark Malone, a Denver attorney who is executive director of Colorado’s Cannabis Business Alliance.

“It’s an absolute must,” said Malone, the former legal adviser for Craft Concentrates, a Denver-based producer of concentrates, edibles and other products.

While you might know your state’s medical marijuana rules like the back of your hand, be aware that regulations could be very different for stores, cultivators and manufacturers in the rec market.

And, as in the medical marijuana market, be sure to study state and local regulations because they can conflict. Cities and counties may have more stringent operational restrictions than the state does, Malone said.

Moreover, local residents may be more uneasy about recreational cannabis than medical. In fact, municipalities stretching from Massachusetts to California have been quick to impose moratoriums and outright bans on recreational marijuana before the new market gets off the ground.

In other words, it pays to keep your ear to the ground to be aware of local politics and other developments that could play a role in any market transition.

Another precautionary move: Meet with your local planning commissioners now, said William Simpson, founder and president of Oregon’s Chalice Farms, a vertically integrated cannabis business with three recreational grows, six retail stores, an extraction facility and a commercial kitchen.

They’ll be approving permits and zoning, so it could be beneficial for you if they know your name – if you don’t already. Follow up with them and be sure to attend public meetings.

“If you’re not involved, there are going to be big things that you miss,” Simpson said.

Review Your Business Plan

Research the cost of local real estate, the expense of maintaining dual licenses (if applicable in your state) and the profit margins for your products. And consider establishing a niche.

Patience may save you money on real estate in newly zoned locations. When the market settles, the cost of real estate may stagnate as demand cools. Also, know the potential capacity of a new facility.

“Reevaluate your current location,” said Caldwell of Triple C. “Look at real estate and take into account that a new facility might need to accommodate 1,000 to 2,000 customers a day.”

If your state allows you to maintain dual licenses for medical and recreational sales, study the fine print, said Amy Andrle, co-owner of L’Eagle Services, a Denver recreational cannabis outlet. Andrle and her husband, John, opened L’Eagle in 2009 and transitioned the business to an adult-use license in 2014 after choosing not to maintain their permit to sell medical cannabis.

So Andrle speaks from experience when she suggests an important question for business owners to ask: “What are the associated costs of maintaining both licenses?”

In Colorado, for example, dispensaries with dual licenses must catalogue separately in seed-to-sale tracking systems, point-of-sale systems as well as counter sales. Assess whether that’s a cost-effective approach.

“Know what you can handle logistically and from a labor standpoint,” Andrle said.

Take a close look at profit margins on your products, too.

“In Colorado, recreational sales are taxed much more heavily than medical,” Malone said. “Make sure you fully calculate what your costs are from your vendors as well as what tax implications there are per sale.”

It’s also helpful to know your niche.

L’Eagle’s specialty is clean, organic cannabis known for a long curing process that amplifies the flower’s scent, flavor and potency.

“When you look at the landscape of marijuana now, there are not a lot of ways to distinguish yourself from conventional cannabis,” Andrle said. “Hold on to a specialization. Wave that flag.”

Partner With Solid Rec Vendors

A backlog in testing – as has happened in Oregon – can create a shortage of recreational product, and vendors may be stretched thin in the first few months that rec is legal.

Don’t assume product will be available from the get-go, said Triple-C’s Caldwell. You might have dependable vendors who provide medical cannabis, but that doesn’t mean they can or will provide recreational products, too, Malone said.

Start building relationships with manufacturers now, said Simpson of Chalice Farms. Reach out to them at association meetings or trade shows. Study their products and their capacity. Ask what they’re planning to produce, what their strategic business plan is and how many clients they work with. Ensure they’re positioned to support your needs.

You can also scout other dispensaries, look at advertisements or search your state’s online database of local licensees to find vendors, Malone said.

Tour a manufacturer’s facilities or a vendor’s grow to understand its operations. That will ensure you’re working with a vendor you can depend on. If a vendor’s operations are disorganized or noncompliant, look elsewhere for your product.

L’Eagle partners with a vendor to produce products using the store’s trim. If that’s the case for you, test the trim when you ship it out and again when it comes back in, Andrle said.

It’s important to trust, she said, but you must also verify. Make sure the profiles match and that vendors aren’t cutting your trim with another product. Your reputation and license depend on it.

Continue to Provide Quality Care

If you have a dual license, do not turn your back on your MMJ patients.

This is a critical point, said Caldwell: “You can embrace rec, but you have to respect medical.”

Keep medical consumers informed about the changes they will see in your dispensary.

In Washington state, for example, medical cannabis users were hit with a marijuana excise tax when regulators rolled MMJ into a recreational program. Patients became eligible for a 10% discount but also were now paying tax on a product not previously subject to such an assessment.

So make sure patients know about changes in advance.

“Communicating with the medical patients you serve is very important,” Andrle said. “They were your lifeline, and you don’t want to lose them.”

Whether you’re in a state that allows dual licenses or you choose to forfeit your MMJ license to sell only rec, explain those changes to your patients, too.

Create rewards programs or deepen discounts for medical patients. Ask them how you can continue to meet their needs, Andrle suggested.

Manufacturers should demonstrate their commitment to serving the medical market by offering fewer products but supplying them consistently, said Nancy Whiteman, co-founder and co-owner of Wana Brands, a Colorado-based edibles, extracts and medicinal capsules producer with operations in Colorado, Oregon and soon Nevada.

It’s counterintuitive to have a robust medical menu that is frequently in back stock.

In Colorado, where plant count in the medical market is controlled by patient count, trim has become expensive and the expectation of high dosage remains. Producers must pick and choose which products to support.

“It’s not because we don’t love our medical patients – we do,” Whiteman said. “We just don’t have the plant material to support the product.”

Join an Industry Group

Trade groups give regular updates on regulations and compliance and what your peers are doing to prepare for changes, Whiteman said. They also give you a voice in upcoming legislation.

“The industry has so many moving parts in terms of regulations,” said Whiteman, who serves on the board of Colorado’s Cannabis Business Alliance. “It’s easy to miss them if you’re not a part of an industry group. If you’re not at the table, you’re really missing out on a chance to shape the industry.”

Join a group that aligns with your ideals, Simpson said.

Vet industry groups so you align your brand with like-minded business owners, Simpson said. If there isn’t a local association you want to join, gather the people you know to form an association. Or work with an attorney and a lobbying group and attend all state, county and city meetings.

“It’s important to have a voice on Capitol Hill and good contacts with your regulatory body,” said Malone, the Denver attorney. “For that, industry groups are your best bet.”

Communicate With Consumers and Clients

Your consumer database is a gold mine. It will help you communicate with customers and create brand loyalty, Caldwell said.

Facebook and Instagram are unreliable tools in the cannabis industry – the companies have closed the accounts of marijuana businesses – but some point-of-sale systems can be leveraged to create a customer database.

Collect phone and email information. Your point-of-sale system might allow you to send mass SMS communications or emails, or it might allow you to export a list of customer contact information.

“There are limitations on what you can do on social media, so use other technology to the best of your ability,” Caldwell said.