Seizing the Opportunity

Industry veteran Steve DeAngelo looks at the opportunities and challenges presented by California’s new cannabis markets

by John Schroyer

Marijuana industry pioneer Steve DeAngelo knows a few things about the cannabis business.

The activist and businessman co-founded a slew of California marijuana ventures, including the famed Harborside dispensary, the ArcView Group investment network and the testing firm Steep Hill Labs. Today, DeAngelo is Oakland, California-based Harborside’s executive director.

Marijuana Business Magazine asked him about the opportunities and pitfalls presented by California’s new medical and recreational marijuana markets.

What types of business opportunities do you plan to take advantage of?

(In early 2016) we acquired a 47-acre cultivation facility in the Salinas Valley, and we’re building that out with about 360,000 square feet of greenhouses. We’ve developed a new brand – the Harborside Farms brand – and we’ve already been soft-launching some of the products at our retail shops.

But in the (upcoming) months you’ll see us producing a pretty wide range of products, and that’ll include extracts, vape pens, pre-rolls, packaged flower, some edibles. You’ll see that line rolling out statewide. That is our main focus, optimizing the farm.

How is life going to change for you with the onset of cannabis business regulations in California?

The biggest and most obvious one is we’re going to be able to sell to adults and not just medical patients. That’s huge. In California, unlike the approaches taken in Washington state and Colorado, we’re going to have a unified supply chain, which means that the same growers, extractors, manufacturers, distributors and retailers will be able to serve both the medical and adult-use markets.

The real difference will be that when somebody walks up to the counter at Harborside, they will either have medical cannabis identification – in which case they qualify for a tax discount – or they don’t, in which case they pay the full tax rate. So that’s going to radically increase the number of people that we’re serving, and it’s also going to, in ways that aren’t totally predictable, change the demographic of people we’re serving.

How are you prepping for the changes?

We’re getting ready to launch a new loyalty program for our patients and people who will eventually be our customers. It’s going to be similar to, say, what Starbucks has, with an app that people will be able to access our system through and get loyalty points.

We’re implementing new point-of-sale systems, new seed-to-sale tracking systems. So a lot of new software systems are coming in to help us build a good foundation for the increased number of transactions we’ll be looking at.

What’s more visible is we’re beefing up our web-order pickup and delivery functions. We’ll be introducing curbside pickup, so people won’t even need to come into the shop. We’re now, in Oakland, going to be allowed to have onsite consumption, so we’ll be introducing a tasting room experience.

What are the biggest challenges for you and Harborside?

The main challenges are coming about because of this period of transition we’re in. On the retail side, we’re seeing a lot of competition coming from gray-market – not really legal and not really licensed – competitors.

For a long time, there have been unlicensed delivery companies. But now we have basically consumption clubs that are opening in the city. And they’re selling to adults because they’re completely unlicensed and unregulated, which we’re not able to do at this stage of the game. And there are new kinds of ways for people to buy cannabis: There are all sorts of house parties and festivals and gatherings and banquets. There are canna-cuisine banquets and farmers’ markets and all of those alternative channels, which are currently unregulated.

There’s this huge wonderful orgasm of cannabis entrepreneurship. That’s nibbling away a bit at some of our demand, and growth this year has not been as strong as growth last year on the retail side.

What will the California industry look like in three or five years?

We’re going to continue to see the growth of more convenient and socially acceptable product formats. Things like vape pens and edibles are going to continue to grow in power. They’ll be attached to brands, so you’ll see a transition from a supply-driven marketplace to a consumer-driven marketplace, and California, I think, is going to be the birthplace of what will be global cannabis brands.

You’re going to see a lot more diversity in where cannabis is grown throughout the state. Historically, cannabis was grown almost exclusively in the Emerald Triangle (Humboldt, Mendocino and Trinity counties). I think you’re already seeing that shift. We have another center of cultivation in the desert, which is mostly indoor cultivation. Then we have Monterey County and neighboring counties, like San Bonito and San Luis Obispo, which are seeing concentrations of greenhouse cannabis production.

Do you feel like there’s going to be, in the immediate future, a good bit of room for new market entrants?

I do think there’s opportunity for companies that have prior experience in other markets to come to California. That said … you have to be really good at cannabis to succeed in California.