Weekly Wrapup: The Challenges of a Mature MMJ Market + Positive Signs From Feds

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By Chris Walsh

The business opportunities that arise when a state legalizes medical marijuana and allows dispensaries to serve patients have been well documented.

Here’s what typically happens: There’s a mad scramble – or “green rush” – by entrepreneurs to start centers, cultivation operations, edibles companies and ancillary businesses. A whole new industry springs up overnight, and everyone – it seems – starts looking for ways to capitalize on the market, hoping to get rich quick.

But what happens when the market begins to mature? Medical marijuana is still a fledgling industry, so we haven’t really seen this situation play out yet. Until now.

In Colorado, we’re getting our first real glimpse of what the MMJ business landscape looks like once the dust settles. And guess what? It appears that medical marijuana is just like any other industry: growth slows, companies start going out of business, the market eventually rightsizes itself and only the strong survive.

As we reported last week, Colorado has received 31 applications for medical marijuana business licenses since lifting a moratorium on new MMJ companies in July. The numbers equate to an average of just five applications a month. That represents quite a swing: Before the state enacted the moratorium in 2010, dozens of new cannabis companies were cropping up each week.

Of course, a good chunk of the slowdown in business activity is tied to new regulations the state introduced in 2011, which raised the barriers to entry significantly.

But the opportunity certainly isn’t as great now as it once was, and simply opening your doors and selling marijuana no longer guarantees success. More than 200 dispensaries in Colorado have closed over the past two years, representing nearly 25% of the centers that were operating during the height of the MMJ boom. In Colorado Springs alone, nearly 90 dispensaries have shut down.

The lesson for MMJ professionals: Plan for the long-term at the get-go, because the market will change and you’ll eventually be forced to compete. Learn what your customers want and cater to their needs, stay competitive on price and establish a sound business model – even if you’re successful right now without doing any of those things.

Dispensaries should try to establish a loyal base of patients and offer something that sets them apart from other MMJ businesses, be it a wider selection of strains, tested and labeled products or better customer service. Cultivation sites should establish strong relationships with successful dispensaries and establish solid supply-chain management strategies to avoid inventory shortages. And edibles companies should constantly be coming up with new products at different potency levels to appeal to changing consumer tastes.

Also last week, we wrote about how Washington State still plans to move forward with crafting regulations for the adult use of marijuana after a meeting between its governor and US Attorney General Eric Holder. Washington Gov. Jay Inslee said he was encouraged by the meeting, classifying it as a “confidence-builder” for the state in regards to marijuana legalization.

This is important because it indicates that the feds aren’t going to take an overly aggressive stance toward legalization, as least initially. If Inslee had characterized the meeting as a “confidence-destroyer” and decided to put the rule-making process on ice, we’d be having a much different discussion.

Grasping at straws and reading too much into it? Perhaps. But that’s all we have to go on, and the fact that the government seems to be taking a wait-and-see approach is a positive sign at this point in the process.

Other top stories in MMJ Business Daily last week:

Lawmaker Digs in Heels on Medical Cannabis Repeal

Medical Marijuana Inc. Swings to Profit in Q4