Kingpin: Marijuana Funding Model Starts to Take Shape

Yahoo! Finance ^ | Feb 14, 2013 4:23 PM EST | Tim Sprinkle

[ExxonPatrolUs]

When Ean Seeb and his business partners founded Denver Relief, their medical marijuana dispensary in downtown Denver’s Baker neighborhood in 2008, it was strictly a bare-bones effort. No fancy interior decor,noproprietary strains or products, no state-of-the-art grow house. Their inventory at the time was as limited as their personal bank accounts.

After all, as a cannabis business they did not have access to traditional bank loans and had to literally bootstrap their way up the hard way, borrowing seed money from friends, family and employees and building out the operation one step at a time.

“Denver Relief started with $4,000 and a half pound of pot,” Seeb jokes now, referring to the business’s meager beginnings, but it has since grown into a mini marijuana empire that’s one of the best known and most established of its kind in Colorado. In addition to its 1,500-square-foot dispensary, Denver Relief now offers cannabis business consulting services and wellness treatments and it operates its own cultivation facility.

None of this came cheap – building out the retail operation was a six-figure project, Seeb says, and setting up their 13,000-square-foot hydroponic cultivation facility cost them more than $500,000 – and funding has always been a challenge. Marijuana is still illegal under federal law, despite the fact that it is now legal for adult “recreational” use in Colorado and Washington State and for medicinal use in 14 additional states. Most banks remain unwilling to do any sort of business with cannabis operators due to federal regulations such as the BankSecrecy Act,whichrequires financial institutions to report potential criminal activity to the government. That means no small business loans, no revolving credit lines and no credit card transaction services. Some operators have even had trouble getting access to a basic business checking account.

[CitizenUSA]

I don't like pot, but the federal government has no legitimate legal or moral authority to ban it so long as it isn't part of commerce between the states, i.e. directly marketed across state lines. Justice Thomas was entirely correct in Gonzales v. Raich:

http://en.wikipedia.org/wiki/Gonzales_v._Raich

Wickard v. Filburn subverted the clear meaning of the Commerce Clause. It allowed the federal government to regulate anything affecting interstate commerce, meaning just about everything.

http://en.wikipedia.org/wiki/Wickard_v._Filburn

[Ken H]

Thought I'd mention the Tenth Amendment. It often gets overlooked.

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people

[Sparticus]

All the same, these guys are still scum and if they continue in this nasty business, I hope nothing good ever happens to them ever again.

[AlmaKing]

No dependence on governmentally corrupted banks and credit card companies is an ideal position for any business. This is a really good example of competitive capitalism.

I’ve heard all the anecdotal horror stories of pot, but I don’t think they represent the majority of use cases. In fact, many of the horror stories have the same themes of the anti-gunners stories.

The loss of economic and political freedoms due to the governmental ‘cure’ of the war on drugs has not been a good trade-off.

[Sherman Logan]

Unfortunately, their business empire will probably implode when MJ becomes fully legalized, which will probably be in a few years.

The illegal or semi-legal status of the product supports artificially high prices and profit margins. When it becomes just another agricultural product and supply explodes, prices and margins will drop like a rock.

There will always be niche high margin markets for super high quality stuff, just as for booze and cigars, but the volume in these markets will always be small.

Unless of course the feds or states impose truly extortionate taxes, in which case there will continue to be high-profit low-volume black markets in untaxed stuff.

[Ken H]

Medical marijuana is doing a booming business. For example, CA collects around $100M/yr in revenues from $1B in sales. People can grow their own, but most choose not to. Instead, they pay $300/ounce and up at dispensaries.

The same market forces are at work for both medical mj and recreational mj.

[RginTN]

Wait til the lawyers start suing and the taxes go cigarette high...will the pot growers vote for Democrats then?

[Wolfie]

All that is prefereable to 20 years in a cage.

[Sherman Logan]

Right, because the market is still illegal or semi-legal and thus very high margin.

Once it is fully legal the supply will expand tremendously and the price will drop like a rock. It’s not like there are any huge intrinsic barriers to entry. This is Adam Smith 101.