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Cannabis capitalism: who is making money in the marijuana industry?

The future looks green – but who benefits? Illustration: George Wylesol/The Guardian

The future looks green – but who benefits? Illustration: George Wylesol/The Guardian

Marginalized groups that championed legalization struggle to compete with corporate refugees jumping on the bandwagon

Last modified on Thu 4 Oct 2018 01.28 BST

T wo hours north of San Francisco, in Mendocino county, orderly roadside vineyards give way to the rugged forests and misty coast of the Emerald Triangle, America’s most celebrated marijuana growing region. In June, more than 300 cannabis industry insiders gathered there for a weekend of bonfires, starlit hikes and river swims.

It was a lovely setting to discuss why none of them seemed to be making money.

Americans spend roughly $40bn annually on legal and illegal marijuana. Their appetite is almost certain to increase as it becomes easier to legally access the drug and the industry continues to promote pot as compatible with a healthy adult life.

In California alone, tens of thousands of farms grow the plant, which is increasingly processed into gorgeously packaged vape pens and edibles marketed to customers outside the core stoner demographic of young men. Today, seniors are the fastest-growing group of marijuana users in the US.

The future looks very green indeed. But since New Year’s Day 2014, when Colorado opened the world’s first regulated recreational marijuana market, the business climate for weed companies has proven immensely difficult for a range of reasons, including high taxes, rapidly changing regulations and a still robust illicit market.

Besides the business challenges, America’s legal marijuana industry also has to reckon with an unavoidable moral dimension. The US has been engaged in a “war on drugs” since Richard Nixon declared it in 1971. While white Americans use marijuana and other drugs at roughly equal rates to African Americans and Latinos, in virtually every respect, racial minorities have been disproportionately incarcerated and otherwise punished for involvement with drugs, including selling marijuana.

In addition, marginalized groups – Aids patients, disabled people, veterans – who championed legalization when it was far riskier to do so now find themselves ill-equipped to compete against well-capitalized corporate refugees looking to jump on the bandwagon.

One company, Acreage Holdings, which closed on $119m in investment capital this summer, has enlisted the former Republican speaker of the House John Boehner to help it navigate the market. Boehner has never smoked pot – “he hasn’t felt the need or inclination”, according to a spokesperson – and he declared himself “unalterably opposed” to legalization when he was in office.

With legal marijuana now one of the country’s fastest-growing industries, who profits is as much of a civil rights question as who gets punished.

The industry’s moral challenge is to ensure the groups who have suffered the most under the drug war can participate in the green rush and enjoy the spoils of legalization.

‘A classic story of gentrification’

The story of Amber Senter, a businesswoman and activist who attended the weekend campout, dubbed Meadow Lands, goes some way to explain why racial equity will be as difficult to achieve in cannabis as it is in the rest of American life.

Senter moved to Oakland, California, in 2014. A coast guard veteran with a background in corporate marketing and graphic design, she worked as an executive at Magnolia, a dispensary, and became a prominent advocate for women of color like herself in the industry.

‘If Amber Senter can’t make it, who can?’ Illustration: George Wylesol/The Guardian

Oakland, the birthplace of the Black Panther party, is known for radical politics and racial tensions. It was among the first US jurisdictions to recognize legalization as an economic opportunity and has sanctioned dispensaries since 2004. More recently, it became one of the first places to create an “equity program” to support marijuana entrepreneurs who were locked up for pot-related offenses or who come from neighborhoods considered disproportionately affected by the “war on drugs”.

Senter didn’t qualify for an equity permit. But in November 2017, her business partner signed a memorandum of understanding to open a dispensary with Marshall Crosby, a personal trainer in his 50s who did qualify.

A native of Oakland’s impoverished east side, Crosby has lived a hard life. One of eight children, he said he had several bullets lodged in him and had served stints in jail. “I became a statistic in the drug life a long time ago,” he said.

On 31 January, Crosby had some good luck. Oakland put the names of a few dozen equity hopefuls into a lottery and pulled names to see who could pursue a dispensary license. Crosby was among the four winners.

A few weeks later he wrote to Senter’s partner: “I have decided not to work with you. Went another route.” Rather than work with his local partners, Crosby had decided to partner with Have a Heart, a dispensary chain based 800 miles away in Seattle eyeing expansion in Oakland.

In an interview, Crosby said he felt abandoned after he had signed the memorandum with Senter’s partner. And he felt an affinity for Have a Heart’s COO, Ed Mitchell, who grew up in another rough part of the Bay Area. With Have a Heart, Mitchell said Crosby would also receive a payment of an undisclosed amount once they secured the license.

Oakland’s equity program had been laboriously developed over years to maximize not just jobs for Oaklanders but local ownership of marijuana companies. But the policy didn’t stop Crosby from partnering with an outside company.

“It’s a classic story of gentrification,” Senter said following Meadow Lands. The dispensary chain was “taking advantage of opportunities that were not made for them”. In addition to boxing her out, the new store, she said, would compete with, and potentially undersell, existing locally owned dispensaries.

Have a Heart said it would hire Oaklanders for 90% of its jobs in the city and would invest in cleaning up the area of Chinatown where it hopes to open. “We believed Oakland was a place where we could really do some good,” Mitchell said.

Even if this is true, the situation anticipates similar deals which may reward a few local individuals but extract profit out of the city for large corporations.

“Someone was just able to swoop in and sabotage fair business dealings; that’s wrong,” said Anne Kelson, an Oakland cannabis attorney who is not professionally involved in the case.

Kelson said the incident had shaken Oakland’s cannabis community. “More than one business operator has come to me and said: ‘If Amber Senter can’t make it, who can?’”

Across the bay in San Francisco, another ambitious dispensary chain, MedMen, is pursuing partnerships with equity applicants. Compared with less sophisticated operators, MedMen brings “a certain guarantee of execution”, its spokesman, Daniel Yi, said. “At the end of the day a business that’s not successful wouldn’t help anyone.”

Marijuana farming in California

Most attendees at the campout in June belonged to the industry’s craft cohort. Many of them have been professionally involved in cannabis for decades.

Marijuana farming in California has never been easy. Those who succeed are skilled, cunning and well-versed in the law.

Today they’ve applied their intelligence to the endless intricacies of the California market. It both conforms to and departs from stoner stereotypes that most conversations at Meadow Lands dug into riveting topics like zoning variances, building materials and water use rules.

Of the state legalization experiments, California is, by far, the largest and most complex. For growers who operated in California’s gray and illegal markets and now want to transition into the legal market, the economics can be brutal. In the illegal market, an Emerald Triangle farmer might have sold a pound for $3,000 tax-free. Now the price is more like $600, before taxes and compliance-related costs.

“I’ve never seen a craft cannabis brand work out, because it’s not cost effective,” Hilary Bricken, a Los Angeles cannabis attorney with Harris Bricken said.

“Presently, no one in legalized marijuana is getting rich,” Steve Schain, a senior attorney with the cannabis-focused Hoban Law Group, said.

Marginalized groups that championed legalization struggle to compete with corporate refugees jumping on the bandwagon<br>