How to Grow and Thrive in the New Marijuana Market

This article, along with others about the growing legalization of marijuana, is featured in Newsweek's Special Edition: Weed Nation

Back in 2010, Colorado's legal cannabis industry was still going through its growing pains, with 80 percent of new dispensaries failing to gain a significant foothold in the (then only medical) market in the Centennial State. It was into this uncertain situation that the masterminds behind Pinnacle Consultation, then working as growers for a single dispensary, launched their larger-scale plan. Approached more and more by other dispensaries hoping to get a leg up in quality, the folks behind Pinnacle began offering their services not only as consultants for the physical breeding of plants, but for the entire infrastructure required to begin a new cannabis business.

Pulling in experts from every aspect of the industry, Pinnacle has been able to collect the raw material for an understanding of the cannabis business that can be uniquely profitable. The firm's commercial services director, Kris Fowlkes (quoted throughout this piece), is particularly interested in the ways in which the aesthetic and practical standards of the recreational industry are being established by businesses opening right now.

Starting a Grow

"Shipping containers and indoor growing used to be our go-to, but greenhouses are more relevant now in today's climate. You can put together, fairly inexpensively, a rudimentary greenhouse, low-cost and seasonal, which is definitely most attractive in an environment like California. You don't even have to provide supplemental lighting. The only things you have to provide are ventilation to make sure there's air movement, labor input to be able to make sure the plants are growing, and water—which is a new challenge for legal operators in California.

"For those who do want to have an indoor grow with lighting, we see two ways clients can go: With more efficient lighting such as LED, you have a lower operating cost but a much higher startup cost. You have to balance that out, so the longer-term-minded clients are the ones investing in newer lighting technology. As a result, the vast majority of our current clients request traditional lighting: 1,000 watt HPS [high pressure sodium] fixtures for flowers that are expensive to operate but very cheap to buy. So it's kind of a tightrope that we walk."

Mom-and-Pop Pot Shops

"The idea that [businesses should be] competitive in craft is definitely starting to take off now in recreational markets, but the scale at which some businesses are able to operate isn't something that everybody can compete with. The problem is that 'small batch,' which is a big selling point for cannabis dispensaries, just like it is for craft brewers, is a harder sell as far as the commodity is concerned. Another aspect of this mom-and-pop aesthetic is that the kind of businesses we're approached by are really trying to avoid the commodification of cannabis. They want to keep it in a similar idea to alcohol, where you can have mass market beer and craft beer and they both can coexist. There's enough of a demand to sustain those two categories. And as the wholesale price declines, it's very difficult for small operations to keep up, which is why most of them rely on the strength of their marketing.

"I think new businesses have to understand that in order to monetize the business you have to start looking at the revenues outside of growing. For example, if you're able to license your brand to somebody else, or if you're able to have a very large social media following to the point that you're able to see advertising revenue derived from your showing another person's product, or showing what stores your product is going to be in."

Get Unique!

"One of the very first things we want new dispensary businesses to do to guarantee that quality as far as the craft goes is proprietary genetics. The more diverse your genetics are—as far as not being similar to something commercially available now—the more demand you'll see. So if you're trying to be a craft grower, you can't produce the same product as a commercial grower. People don't like it more just because it's grown in a small batch. You actually have to have something different, something traditionally harder to grow than the commercially viable strains. The cost input to maintain that quality level is higher, and it's much harder to fight for a higher retail value when you're fighting the commodity market. That's what we're seeing right now in Oregon, and we're anticipating to see it in California very quickly. The bottom line is new businesses must be able to produce a product that has that level of quality so that you can have a demand for exclusivity."

This article, by Senior Editor Tim Baker, was excerpted from Newsweek's Special Edition: Weed Nation. For more on the changing laws and attitudes on legalization pick up a copy today.