Week in Review: Arizona’s defiant marijuana firms, California deadline & big cannabis investment in Iowa

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Arizona cannabis companies defy a court decision banning the sale of extracts, California marijuana businesses deal with the state’s July 1 transition, and an emerging player in the MJ industry plans a large indoor grow in Iowa.

Here’s a closer look at some notable developments in the cannabis industry over the past week.

Business as usual

Despite a court ruling that Arizona medical marijuana dispensaries were banned from selling extracts, it’s business as usual in the Copper State.

Demitri Downing, founder and executive director of the Marijuana Industry Trade Association of Arizona, doesn’t see the court decision as a setback. He sees it as a mishap.

Downing said he hasn’t heard of any business shutting down production or distribution of extracts and doesn’t foresee it impacting bottom lines “much or at all” as companies proceed “as if nothing has changed.”

And while he’s heard rumors of one or two dispensaries taking extracts off their shelves, Arizona’s companies are essentially standing together, he added.

Arizona medical marijuana firms, which are vertically integrated and produce the extracts they sell, have been conducting business like this for years, and it’s Downing’s understanding the state Department of Health has said it won’t make any changes.

He expects the ruling from the Arizona Court of Appeals to be sent to the state Supreme Court, with support coming from “every which direction” from dispensaries, patients and patient advocacy groups.

Downing, who is confident the Supreme Court will rule the issue was misinterpreted by the appellate court judges, said he sees a bright future for the state’s medical marijuana program.

Pain, but survival

Marijuana Business Daily contacted several dozen California businesses to see how the state’s July 1 regulatory transition to mandated lab testing of cannabis and new packaging rules impacted them.

Several encountered serious hurdles, some said they were doing OK, and a few reported they were “thriving.”

Here’s a rundown:

  • Dan Grace, founder, Dark Heart Nursery, San Francisco: “I’d say the industry is at a 7 or 8 out of 10 on the pain scale. January would have been a 10 out of 10 … Some of our retail partners are managing shortages in their primary product categories (flowers especially), which is taking up their bandwidth. Our grower-partners, on the other hand, are hesitant to replant as they’re expecting/experiencing delays in getting their product through testing and into the supply chain.”
  • Steve Adkins, CEO, Korova edibles company, Oakland: “The largest obstacle has been the turnaround time from our lab for test results … I am sitting on about a month’s worth of supply but am waiting up to three weeks to get test results from my lab. I am running out of room to store all the product I have in quarantine. The lab is overwhelmed, and the retailers are desperate for products.”
  • Carlos de la Torre, director of operations, Cornerstone Research dispensary, Los Angeles: “We are doing a little bit better than most of the other shop owners. However, we are still down by about 20% of our manufactured and edible products and down to about 50% of our flowers. All the local labs are totally backlogged, so …  it will be difficult to get new product in for at least a couple of weeks. We fear that by the end of next week we will be down to only about six-eight strains.”
  • Lindsey Renner, owner, Native Humboldt Farms: “I’ve been patiently waiting for July 1; honestly I’ve sold more product in the last two days than I have all year! Whereas in June, (when) compliant product just sat on the shelves, (in) July we struggle to keep everything stocked.”
  • Sam David, president, Coastal Analytical testing lab, San Diego: “Business is good. This year started slow, but over the last several weeks interest from new customers has really taken off. We added capability to meet the new requirements, and I think we’re there.”
  • Kimberly Cargile, CEO, A Therapeutic Alternative retailer, Sacramento: “We currently have very few distributors that have product ready for retailers with the increased regulations after July 1.  We are looking forward to more distributors coming into compliance over the next few weeks so that we can improve our product selection.”

Hostile territory

Iowa regulators recently awarded Iowa Relief the state’s second cultivation license for its low-THC medical cannabis market.

The company is a subsidiary of Acreage Holdings, which is looking to plug around $10 million into a cultivation facility in Cedar Rapids.

But the state remains hostile territory for new cannabis entrepreneurs, according to Michael Mayes, a Chicago-based cannabis consultant.

He advised clients not to bother applying for a license to grow marijuana in Iowa, where he says regulatory obstacles appear to favor heavily capitalized out-of-state operators.

“You can tell that lobbying dollars were spent to limit competition in Iowa,” said Mayes, who cited $100,000 annual licensing fees as a major deterrent to new businesses.

Indeed, Iowa’s two cultivators have come from out of state:

  • MedPharm Iowa, an affiliate of MedPharm Colorado.
  • Acreage Holdings, a New York company with marijuana operations in 12 other states. Former U.S. House Speaker John Boehner is on Acreage’s advisory board.

Those companies are spending heavily to establish operations in a state where business potential is very much in the future because:

  • Iowa has only 415 MMJ patients.
  • Cannabis products in Iowa cannot exceed 3% THC.
  • Further expansion requiring action by state lawmakers.

“Most investors entering a market want their money back in three to five years,” Mayes said. “In Iowa, you’re looking at seven to 10 years and maybe longer, which is why you’re only going to see the biggest companies competing there.”

Bart Schaneman can be reached at barts@mjbizdaily.com\

John Schroyer can be reached at johns@mjbizdaily.com

Kristen Nichols can be reached at kristenn@mjbizdaily.com