By Tony C. Dreibus
Scott Boyes doesn’t see the crowds of people walking up and down the Las Vegas Strip at all hours of the day as tourists. He sees them as potential customers.
The chief executive officer of Toronto-based Canadian Bioceutical Corp. announced Monday that his company has signed a letter of intent to purchase a Nevada medical marijuana cultivator to capitalize on the state’s MMJ program, which allows registered patients from other areas to buy cannabis while visiting.
“I’m sitting here in the hotel looking down Las Vegas Boulevard and here it is a (weekday) and there are tens of thousands of people walking around,” said Boyes, who wouldn’t divulge the name of the company his firm purchased nor how much it paid. “We like it here.”
A number of companies and wealthy entrepreneurs are hoping to snap up provisional licenses in Nevada – or the businesses that won them – after the state’s governor signed a law in June allowing the transfer of MMJ permits, creating what could become a lucrative secondary market.
Licenses to grow, process and dispense medical marijuana are expected to bring a tidy sum given the potential market, which includes tourists with medical marijuana cards from other states and countries. The possibility of recreational marijuana legalization in Nevada next year and the relatively friendly regulatory environment in the state has also piqued the interest of many companies, entrepreneurs and investors.
The state still must hammer out regulations on license transfers, and the law allowing them doesn’t take effect until Oct. 1. But there appears to be “a fair number” of companies putting their licenses up for sale now, said Boyes, who is looking to purchase or partner with four or five companies that hold licenses in Nevada.
Some of these licenses have been listed recently for millions of dollars, though it’s unclear whether any have sold for that much.
“There are definitely people out there interested in getting into the Nevada industry,”said Amanda Connor, an attorney who works with cannabis companies. “So there’s the potential to make a lot of money.”
Targeting Tourists, Recreational Market
On the surface, the MMJ market in Nevada is relatively small. Nearly 9,500 patients are registered with the program, which is tiny compared to some other states.
But dispensaries – the first of which opened recently – could capture tens of thousands of visiting patients (and potentially even more) as well. Las Vegas alone attracts more than 40 million visitors a year. If even a sliver of them are MMJ patients, dispensaries could have an ample out-of-state market to tap.
While that alone makes entering Nevada’s budding marijuana market alluring, it’s not just tourists that would-be cultivators, processors and dispensary owners in the state are targeting.
A passage written into a ballot measure set to go before voters in November 2016 says only individuals or companies that hold medical marijuana establishment registration certificates will be allowed to even apply for rec permits for 18 months should the initiative pass.
That would give existing MMJ license-holders a huge head start on the new market.
“It’s almost like having a golden ticket in the recreational market assuming that initiative passes,” Connor said. She added that even if recreational doesn’t go through, Nevada’s “reciprocity” rule allowing dispensaries to serve out-of-state patients – and therefore tap the state’s massive tourism market – makes the licenses highly valuable.
While it may seem counter-intuitive to sell a license that seems to have so much promise, those who landed licenses may be short of funds to continue building out cultivation sites or dispensaries, lack the skills they need to properly operate a cannabis company, or perhaps have run into problems with business partners, Connor said.
Some companies with provisions licenses are already apparently looking to cash out.
One cultivation license was recently on the block for about $4 million, according to industry experts interviewed by Marijuana Business Daily. Boyes said one company he spoke with said it is selling its dispensary license for $10 million.
While an eight-figure price tag may be overly expensive, selling a cultivation permit for $4 million isn’t out of the realm of reason – even if the company only spent $500,000 obtaining the license, said Adam Bierman, managing partner at MedMen, a cannabis licensing and management firm.
“I don’t think it’s ridiculously priced at all,” he said. “For cultivation, there were 180 or so licenses issued statewide, which is a very small number for a state serving 50 million people at the end of the day because of reciprocity and rec cannabis in 2016. There’s tremendous value. Five years from now they’re going to be worth lot more than $4 million.”
Much of that will depend on whether Nevada legalizes recreational marijuana next year, however.
State, Local Approval
There will be some serious hurdles involved in obtaining a license from a company as well. Buyers – both those that purchase licenses and those that acquire companies with permits – will have to go through the same rigorous licensing process the original owners went through, Connor said.
They also will not only have to get approvals from the state to operate a marijuana business, but from local governments as well.
State officials will draft rules governing license transfers, as will municipalities. So far, most cities and counties haven’t even started discussing the laws, Bierman said, which could turn off potential buyers.
Boyes of Canadian Bioceutical said he is confident the regulations will be in place soon after the Oct. 1 implementation of the law. While Canadian Bioceutical hopes to close the purchase by the end of this month, it must wait until Oct. 1 to actually get the license to grow marijuana from the company it’s purchasing, as that’s when the new law on license transfers takes effect.
Opinions vary on whether cultivation licenses or dispensary licenses are worth more. Some say that because of the lower number of dispensaries currently allowed in the state, those permits are more valuable. Others say that with recreational marijuana likely being approved next year, cultivation permits will skyrocket in value.
Someone who holds all three licenses – those for cultivation, processing and dispensing – and is looking to sell is in the best position, said Brandon Rexroad, the co-founder of Rexroad McKee, a company that has permits in the state of Nevada and also grows, process and sells cannabis in Oregon.
“If you have them all, you could do a quick turnaround and easily make at least a million dollars,” he said.
Tony C. Dreibus can be reached at [email protected]