Weed whackers

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Articles - April 2014
Thursday, March 27, 2014

In March the Oregon Senate approved giving local governments authority to keep out the dispensaries until May 2015. So far, 21 cities have moratoriums in place against pot dispensaries, including the city of Medford, Josephine County and Polk County. These political victories could cost communities like Roseburg, where the unemployment rate stands at 9.7% — nearly two points above the state average. Rural counties also miss out on local taxes and fees. Dispensary owners pay the state a $4,000 application fee, and $500 of that is nonrefundable, regardless of whether or not the application is approved.

Dispensaries, labs and businesses that produce medibles also produce jobs and pay taxes — even if industry experts expect the economic benefit will not be as dramatic as in states like California, where the dispensary business is also subject to the state’s 5.6% sales tax. Indeed, some experts believe legalization efforts around the country will be propelled by states’ need for tax revenue. In Colorado legalization is expected to generate $134 million in tax revenue for the upcoming fiscal year; already in January 2014, the first month retail sales of marijuana went into effect, Colorado netted $3.5 million. 

Oregon’s legal pot industry will unfold along a traditional urban-rural divide, with much of the initial growth blossoming along the I-5 corridor cities, agrees Roy Kaufmann, president of the Kaufmann Group, a marketing and public affairs consultancy working to “rebrand” the cannabis industry. But Kaufmann also believes rural counties, already proud of their indigenous wine and brewery operations, will eventually warm to a regulated industry that helps fill depleted government coffers.

At this stage, exurban counties are the big unknown, Kaufmann says. “People are watching Washington County, Clackamas County,” he says. “Will they follow the lead of Multnomah County? Or are they going to follow the lead of the rural counties — Polk, Marion — that have voted against legalization?” 

0414 pot map
Medical Marijuana in Oregon
Registered patients (shown in red) and dispensary applications (in green) by county
SOURCE: OMMP. Figures as of March 24, 2014

As Oregon cities alternately embrace and reject the economic potential of the burgeoning cannabis industry, mainstream investors are moving full-steam ahead. Last summer, Seattle’s Privateer Holdings became the cannabis industry’s first private equity firm when it announced the completion of its Series A funding round, which raised an initial $7 million from investors. Privateer CEO Brendan Kennedy previously served as COO of a Silicon Valley bank that funded tech startups, and he founded Privateer in 2010 with Yale classmate Michael Blue.

“Privateer is focused on elevating the conversation and building trusted, approachable brands in the cannabis space,” Kennedy said in a press statement. “We are moving the cannabis industry out of the shadows and into the light.”

They aren’t the only ones. Advanced Cannabis Solutions, whose stock rose 447% by late January, obtained access to $30 million in credit that it will use to acquire properties to lease to marijuana growers, according to Bloomberg.

National players are paying attention to the changes coming to Oregon’s medical marijuana market. In February Portland hosted the Northwest CannaBusiness Symposium, an industry event planned by the National Cannabis Industry Association. The event featured talks on cultivation and retail operations, marketing, and a government relations panel talk with Congressman Earl Blumenauer.

Respectable cannabis investors aren’t the only sign of changing times. In January Federal Drug Enforcement Agency Chief of Operations James L. Capra told members of Congress that he considers legalization of marijuana to be “reckless and irresponsible.” But at least one former Oregon-based DEA agent doesn’t seem to share those views. Just one week after his former boss blasted the legal pot industry, former agent Patrick Moen announced that he’d be taking a job with Seattle’s Privateer Holdings.

In 2014, there are plenty of uncertainties surrounding Oregon’s marijuana market — after all, the federal government still considers pot an illegal drug. In late March the Oregon Health Authority also proposed rules banning “medibles:” the concern is children will be attracted to hash brownies and other treats. Still, in California and Colorado, laws legitimizing the sale of marijuana have led to increased entrepreneurship and job creation, exploding profits and tax generation for these states. 

As Oregon moves the cannabis industry off of the black market, the potential exists to shift the profits generated by this cash crop into the mainstream state economy. But questions remain about just how much rural Oregonians will reap from legalization. Says Kaufmann: “It’s incumbent now on the regulated medical cannabis industry to prove they can be the kinds of business community neighbors that any town in Oregon would want to have.”

 



 

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