By Fred Dreier
With recreational cannabis sales slated to start in Washington State this week, entrepreneurs are bracing for a host of short-term challenges involving everything from inventory and edibles to pricing and increased media attention.
Yet some are stressing the need to take a long-term approach, saying businesses should avoid taking shortcuts to boost immediate profits and instead focus on establishing ethical business practices that will help when the market stabilizes.
Creating positive industry relationships and establishing a good reputation with consumers, they say, will create a strong infrastructure for the long run.
“People will remember who did what during those first days,” said Gregory Stewart, chief executive officer of Nine Point Growth Industries, a licensed grower. “Over the long term, the quality businesses are going to rise to the top.”
Here’s an overview of some key issues to watch as the market emerges and a look at how some businesses are taking a forward-looking approach to short-term challenges:
Inventory Considerations
National and local media have already focused on the impending cannabis shortage that will likely hit Washington’s businesses during the first days of sales.
Only a handful of retailers will open on July 8, no edibles will be available and the few licensed producers could run out of inventory given the anticipated demand.
Colorado faced similar issues when it rolled out its recreational industry on Jan. 1, and retail stores had to adapt on the fly.
Businesses in Washington State will likely need to be flexible as well and come up with strategies to spread out their inventory, or they might be forced to close until they can secure more cannabis.
James Lathrop, owner of the retail store Cannabis City, said if product runs low, he may impose a purchasing limit to ensure that all customers are able to at least buy some marijuana.
“We don’t want to restrict, but we are asking people to buy just what they need so that everyone can get a package,” Lathrop said. “We don’t expect them to be volume customers.”
Pricing Issues
Heavy demand and limited supply will likely create the temptation to raise prices as high as the market will bear.
In fact, cannabis wholesalers are reportedly already charging retailers as much as $4,000 a pound for marijuana.
Some businesses, however, are not going that route.
Stewart, who has contracts with five retail businesses, has set his price at $2,800 a pound – tax included – for his four recreational strains: Sweet Lafayette, Opal OG Kush, OG’s Pearl and Copper Kush.
“Some people may look at me like I’m a fool because I’m not getting $4,000 a pound,” Stewart said. “We felt strongly that we didn’t want to price gouge people. That’s not good for the industry.”
It could also have a significant business impact in the future.
Additional growers will enter the market in the coming months once the state processes their licenses. A retailer who felt burned by a grower charging sky-high prices in the early days could turn to these new businesses, Stewart said.
He feels so strongly about this issue that he’s worked with his retail partners to ensure they will keep prices at $15 a gram during the first few weeks of sales.
Choosing Partners & Managing Relationships
One of the biggest challenges that wholesalers and retailers have faced is creating relationships with each other. Lathrop said state agencies never disclosed a list of the licensed growers, so finding a business partner proved difficult.
Lathrop said he obtained a list of growers who had applied for licenses. The list only contained the physical address of the grower, so Lathrop’s store manager drafted a written letter to 30 of these businesses.
Eventually, Lathrop received phone calls from a handful of producers. Of that number, only Nine Point had a license to open on July 8.
“It was a difficult search,” Lathrop said. “There was no model to follow.”
Stewart on Nine Point said he was contacted by at least 15 retailers asking for a supply. He interviewed each of them and asked them about their business before whittling the number down to five.
Stewart said he valued “good citizenship and strong ethics” in choosing his retail partners.
The challenge now will be to manage these relationships, which has proven difficult in other markets where businesses hooked up in shotgun marriages.
Leveraging the Media Spotlight
The state’s Liquor Control Board began issuing retail licenses via email on Monday morning, but only a handful of stores will actually open this week.
So far, for instance, Cannabis City is the only operator set to open in Seattle on July 8.
With such a small number of shops, the media spotlight on those that are actually open will be intense.
Cannabis City sees this as a positive and is hoping to leverage the media attention and create some solid PR for his business. Lathrop has already participated in interviews for local and national press, and he’ll likely get many more requests in the days to come.
Lathrop believes the media attention he gains now could steer customers to his business even after the frenzy dies down, as happened to a handful of shops in Colorado that were featured in newspapers and on TV networks across the globe.
The key is to ensure the media attention is positive. Any missteps could paint the industry – and specific companies – in a negative light.
Looking Forward
So what will the industry look like when the initial rush ebbs?
Sean Green, owner of the state’s first licensed producer, Kouchlock Productions, believes wholesale prices will stabilize once additional growers come online. When the state’s edibles companies are licensed, those products could also drive down the price of cannabis flowers, he said.
As more producers enter the market, retail shops will be able to pick and choose their partners based on quality, price and availability. Green said the network that these businesses create during these first few weeks, however, could also come into play.
“Within three months the market will sort itself out, but quality and relationships will be the most relevant factors,” Green said. “The price for cannabis on day 1 is going to have little overall impact.”
