January 2, 2013

Bad Business Practice? Rush to Open 1st Colorado Marijuana Club Leads to Lost Opportunity

Image of Medical Marijuana in Colorado

Well that was fast. The first Colorado business targeting recreational marijuana users has already closed, thanks to an over-eager entrepreneur who got caught up in the hype to be first.

Paul Lovato opened a marijuana club in the small town of Del Norte before his lease even started. The idea was to sell coffee and merchandise in one area, and then offer free samples of marijuana in another. Lovato initially planned to open on Jan. 1 – when he could begin using the building under the terms of his lease. But he decided at the last minute to launch on New Year’s Eve to beat the opening of Club 64 in Denver by a few hours.

Not a good move: His landlord saw local and national media coverage of the business and decided to pull the lease before it went into effect, according to the Denver Post. Meanwhile, the first meeting of Club 64 – which will use different locations for each gathering – went off without a hitch.

Let this be a lesson to everyone interested in tapping the emerging recreational cannabis markets in Colorado and Washington: Bad business practices will sink your company before the feds or state officials do, any day.

There are of course advantages to being first. It allows you to establish a loyal client base and build a reputation before your competitors. And you earn bragging rights (which can be used for marketing purposes), to boot.

But there are well-known drawbacks, too. Being first means making mistakes that others can learn from, and you have to take on much more risk – and face much more scrutiny – than those who come later. In the marijuana industry, you also have to deal with complicated legal issues and landlords who are uneasy with the idea of renting out their properties to cannabis businesses.

What’s unfortunate is that this situation likely could have been avoided had the owner followed a common-sense approach to running a business. If Lovato waited just a few hours to abide by his lease, it would have been difficult for the landlord to evict him without engaging in a legal battle.

Additionally, he had no business or competitive reason to launch early. The opening of a social club in Denver would’ve had no impact on a business in Del Norte, as the cities are more than 200 miles apart. Bragging rights are great – unless it costs you the entire business.

Every fledgling industry needs pioneers who are willing to take on sizable risks. And anyone who tries to open a marijuana club or shop in Colorado before the state develops and implements rules covering the industry is definitely a pioneer. But taking on unnecessary risks is not advisable in an industry that is already extremely risky as it is.

That doesn’t mean you should sit back and simply watch as the marijuana market develops in Colorado and Washington. Getting in on the ground floor is still important. Craft a business plan and develop a strategy that will allow you to move in quickly down the road. But it might be a good idea to let others make the initial mistakes. Don’t rush everything to the point of recklessness. And if you really want to be one of the first businesses to tap the market, at least make sure you’re all square with your landlord.


6 Comments:

  1. My thoughts exactly.

  2. WEED + GREED = DESTRUCTION

  3. Let me get this straight? This guy opened a couple of hours early on new years eve and you are bagging on him for doing so? Obviously, his landlord is a prick and was looking for a reason to break their agreement after he saw the media coverage. If he was not? He would not have made such a big deal about a few hours when he had already given the guy the keys and possession of the property. This article point the finger at the wrong person, you should be criticizing the landlord, not the renter.

  4. I think the guy is a genious he is the first buiseness in 3 billion years to open a pot smoking facility he didn’t go to jail he has all the free publicity, Probrably got his money back. go dude! America is on your side!

  5. And he has cannon balls!

  6. Paul and his first landlord parted on good terms (sounds like Good Business Practices to me). found a second landlord within hours and reopened. which is better – a floating game like Club64 or a fixed business site like Paul’s? keep watching…

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