Small Business

As a budding business, marijuana not for the faint-hearted

The day after New Year’s, Ralph Morganis watching crowds of people lining up outside the EvergreenApothecary in Denver with what looks to be a mixture of pride,elation and apprehension.

Morgan, 40, is one of Evergreen’sowners, and the excited horde of people at his shop have lined up tobecome some of the first adults in Colorado to legally purchasecannabis for recreational use under a new state law. And headmits he never expected the crush of people that have come to buyhis product.

“In fact,” he said, “we printed250 certificates so that people could use those as a memento toarchive the event, and we were out of those by about 8:15 a.m.”

Morgan and his wife Heidi startedEvergreen four years ago as a legal medical marijuanafacility. Before that, he worked for several large companies inmedical device sales and marketing. He says he was intrigued bythe growing trend in legal medical marijuana and began researching the industry.

“I knew it was going to be a part ofhistory, started doing some due diligence on it and learned that,wow, there is tremendous medical efficacy here,” he recalled.

The Morgans found commercial space insouth Denver, along with a landlord who was open to the idea of housing a cannabis shop. “We admittedto him that we didn’t have any idea of what we were doing, had nevergrown marijuana,” Morgan laughed.”We just thought it was a phenomenon,and it was a part of history.”

The first year was a struggle.Morgan says for a while there were more people cominginto their store trying to sell them marijuana than actual customers. Buthis company then began targeting older cannabisconsumers. During the first first year, the average age of theApothecary’s customer base was 64.

“We didn’t satisfy the [typical marijuana user’s]stereotype, that’s for certain,” he said. “We really enjoyedspeaking with people who were finding tremendous success with theirailments with cannabis.”

They soon started a second company,Organalabs, that extracts cannabis oil for tablets, use in portablevaporizers and other applications. And a year later the Morgansmerged with another group, Colorado Harvest Colony.

Unlike other small businesses, themedical marijuana industry in Colorado – and now its recreationalcounterpart – is burdened with very specific regulations. State lawrequires companies to grow at least 70percent of the product they sell. Recreational marijuana alsocomes with a stiff salestax meant to fund state education projects.

Because marijuanaremains a felony under federal law, most banks andfinancial institutions won’t work with the cannabis industry,forcing dispensaries to deal largely in cash-only transactions.

“You’re forced to grow organically,” Morgan said, referring to his business model and not his cannabisplants. “It’s great to not have debt, which we don’t. However,you’re shackled to what you can afford. So you can steal equity fromthe home, you can ask friends and family. But the market’s maturing.A lot of people now are interested in investing.”

Like other established companies inColorado’s cannabis industry, Morgan and his group ramped-upproduction after the 2012 elections, when the state’s votersapproved the sale of recreational marijuana to adults. But even thatadvance planning couldn’t prepare him for the rabid consumer demandunleashed on Jan. 1 when the new law went into effect.

“At this pace, we’re going to be outof product to sell people on the [recreational] side in amatter of weeks,” he said. If Evergreen runs out, a new crop isharvested weekly at the company’s grow facilities and a new supply,while limited, comes on the market.

Once the hoopla and pent-updemand for marijuana dies down, Morgan predicts this budding newbusiness is going to see “tremendous stability” – and open thedoor for the legalization of cannabis in yet more states.