By Omar Sacirbey
Southern California’s medical cannabis industry is one of the largest in the country, but it’s also one of the most chaotic and controversial given the proliferation of unregulated, unscrupulous dispensaries in the Los Angeles area.
CalCann Holdings hopes to change that.
The company is looking to help build the region up into a reputable hub for the marijuana industry by running aboveboard dispensaries and grows in areas that require MMJ businesses to obtain local licenses.
Led by general counsel Aaron Herzberg and chief operating officer Chris Francy, who founded the company about 18 months ago, CalCann made its biggest splash to date last week when it unveiled a partnership with comedian Roseanne Barr. The two sides have teamed up to open a dispensary in Santa Ana called Roseanne’s Joint, which will likely open in early May.
CalCann also owns two other dispensaries in Santa Ana: OC3, which is already open, and the Source, which is slated to launch later this summer.
But the dispensaries are just the start: The firm is also constructing a 42,000-square-foot grow facility in Desert Hot Springs in California’s Coachella Valley, part of its plans to capitalize on – and help legitimize – a region that Herzberg feels is quickly becoming the Silicon Valley of cannabis cultivation.
Real Estate Wranglers
The Roseanne partnership, which generated a fair amount of publicly, is the latest move by a cannabis company to hook up with a famous name.
Herzberg said he has known the comedian for a while, but that didn’t make structuring the licensing agreement a simple matter. To help out, CalCann tapped attorney Matt Portnoff, who ironed out issues in using the star’s name and operating as a not-for-profit.
While dispensaries remain an important part of the firm’s strategy, Herzberg and Francy are currently putting most of their energy into acquiring real estate in municipalities that have approved or seem likely to approve ordinances allowing medical marijuana businesses within their borders.
“Our strategy is focused on looking at properties that are subject to entitlement and starting marijuana businesses from scratch,” Herzberg said. “That is our number one agenda, to begin a private (venture capital) property portfolio.”
They got the idea after putting a $10,000 option on land in the town of Adelanto, which approved six cultivation sites last year. But they didn’t like the political climate, so Herzberg and Francy flipped the land to earn about $1.3 million.
“That got us thinking that marijuana real estate is really hot,” Herzberg said.
They now have secured about $10 million in commitments to acquire real estate that will allow marijuana businesses, Herzberg said.
To help those real estate efforts, they hired a municipal law attorney, Julie Hamill, whose past experience includes working for the National Association of Counties and the National Security Division of the United States Department of Justice. In the past, she was actually involved in closing dispensaries, including Cloud 9 in Orange County.
“We’ve found that the easiest part of marijuana (is raising) money,” Herzberg said. “It’s so much harder to raise money to run a dispensary or for cultivation.”
Silicon Valley of Marijuana
Those real estate efforts are squarely focused in two areas: Los Angeles and Coachella Valley.
Part of the attraction to the region is its condusiveness to greenhouse cultivation. CalCann believes there is a misconception that indoor-grown marijuana is better than marijuana grown in greenhouses.
“If (we) have a mantra as far as cultivation, it’s use the sun. We feel that it’s wasteful and irresponsible to not use the sun. We strongly believe in greenhouse cultivation where it’s possible,” Herzberg said. “We believe marijuana is going to be commoditized in the future and we want to be prepared to produce high quality marijuana using high tech light deprivation green houses.”
But Herzberg and Francy are quick to add that if clients want warehouses in which to grow marijuana, they will give them warehouses.
The other big attraction to the Los Angeles and Coachella Valley areas, they said, is the increasing propensity of municipalities to pass ordinances allowing medical marijuana businesses.
“It’s outpaced anything in northern California in terms of licensed opportunities. There’s such a scarcity (of licensing opportunities) because cities have been banning marijuana cultivation, and now to see cities go in the opposite direction is exciting,” Herzberg said.
He added that municipalities in southern California are more open to marijuana businesses, including large-scale cultivation operations.
CalCann also is considering pursuing a so-called 10A license, which will become available in 2018 under the state’s new medical cannabis regulations. A 10A license allows the holder to vertically integrate three dispensaries, a processing facility, and a cultivation site – components that CalCann already has in its portfolio.
While CalCann says it knows it can make money in Los Angeles and the Coachella Valley, the company is still figuring out a formula that will work. That will depend on what kind of policies Los Angeles and other towns adopt.
“We’re working in Los Angeles. We’re spending time and money without any real plan as how to monetize that opportunity. We simply would like Los Angeles to adopt good public policy and we feel that if Los Angeles adopts good public policy, we’ll be able to participate in that market,” Francy said.
Fighting the Unlicensed
But that’s a big if.
While southern California has lots of sun and a growing number of municipalities willing to allow marijuana businesses, there are also scores of unlicensed dispensaries that could undermine CalCann’s business, Herzberg and Francy said.
Indeed, how big the opportunity is or isn’t in Los Angeles will depend on how many existing unregulated dispensaries survive. Many are out of step with the law, but under Proposition D passed by Los Angeles voters in 2012, about 130 dispensaries, Herzberg estimated, will have “limited immunity” from closure. Even those dispensaries might not make the legal cut, though, Herzberg said.
“It’s questionable whether all those 130 would truly be able to meet compliance,” Herzberg said. “We believe Los Angeles should be open to new operators and we intend on vigorously pursuing the opportunity to open Los Angeles to new operators. We believe that existing operators don’t have legal standing to be grandfathered in.”
While Herzberg talked about CalCann attorney Hamill as someone who could help the company in its real estate acquisitions, it’s easy to see how her experience shuttering out-of-compliance dispensaries could help CalCann fulfill its ambitions.
“We want to clean the slate in LA,” Francy said. “We’re hoping to be highly involved, perhaps only on behalf of others. We don’t know what our own appetite is for operating a store in LA would be, but any number of things could unfold for us.”
This includes being put out of business by unlicensed dispensaries that evade paying taxes and other costs that come with regulation, which will make it much more difficult for those who play by the rules.
“We cannot compete against unlawful businesses. It is no different than any other organized crime,” Herzberg said. “Our survival as licensed dispensaries hinges on putting unlicensed businesses – and there are tens of thousands of them in the state – out of business.”
Omar Sacirbey can be reached at [email protected]