January 16, 2015 – Challenges in New Rec Markets Washington
Week in Review: Challenges in New Rec Markets, M&A Deal and Native American MJ Activity
Alaska and Oregon begin grappling with complex issues tied to recreational cannabis, a fast-rising ancillary firm buys a big stake in another prominent marijuana-related company, and entrepreneurs explore opportunities to help Native American tribes develop MJ businesses.
Here’s a closer look at several notable developments in the cannabis industry over the past week.
Bumps in the Rec Road
As the two newest entrants to the recreational cannabis club, Alaska and Oregon are facing escalating challenges on the state and local levels over how to regulate the marijuana industry.
In Oregon, a whopping 16 marijuana-related bills were introduced this week at the state Legislature. The measures range from prohibiting shops from opening in locations within a mile of schools to requiring that rec stores post warnings for pregnant women.
Some observers, however, see these as minor bumps in the road, saying that Alaska and Oregon will likely avoid major problems by incorporating some of the policies and regulations that proved successful in Colorado and Washington.
“It’s not going to be as messy as people think, because there are already guidelines being developed,” said Zeta Ceti, the owner and CEO of Green Rush Consulting in Oakland, California. “As these policies are being developed and experimented on in other states, (new markets) benefit from that experimentation. So they’re able to understand what not to do and what to do.”
Still, both Washington and Colorado continue to tweak their own marijuana laws. So the blueprints continue to change.
Let the M&A Deals Begin
At the Marijuana Business Conference and Expo in Las Vegas last November (run by Marijuana Business Daily’s parent company), we predicted that there would be a notable increase in mergers and acquisitions in the cannabis industry this year.
Just a few weeks into 2015, we’re already seeing that play out.
As we wrote about on Monday, Surna Inc. is shelling out $4 million to buy a 66% majority interest in Agrisoft Development Group. Both of these companies have built name recognition in the ancillary side of the industry recently. Surna develops cultivation products and technology, while Agrisoft offers inventory tracking services.
Industry consultant Jon Hofer said acquisitions and mergers like these are “absolutely” going to become a long-term trend.
“The ones with like-minded goals are the ones that will go through that process,” Hofer said.
Some deals coming down the pipeline will likely involve earlier-stage companies that have had some success but need help getting to the next level from more seasoned professionals, Hofer said.
“The hard part is behind every good product, is there a good business professional behind it?” Hofer said. “A simple acquisition is going to be somebody with a good product but bad business sense. You’re going to see a tremendous amount of those types of acquisitions as we progress, because they’re realizing, hey, I need to bring somebody onto my board that’s actually going to help me get through some of these things.”
Tribes Drawing Interest
A handful of cannabis entrepreneurs are leaping at the chance to seize a new business opportunity following news that the Department of Justice won’t interfere with Native American tribes that want to grow and sell marijuana.
On Thursday, the New York-based Cannabis and Hemp Association announced that it was in talks with “dozens” of tribes that may be interested in getting into the cannabis industry.
“We are intensively negotiating the parameters of entering into a strategic partnership on an ongoing basis,” Cannabis and Hemp Association President Scott Giannotti said in a statement. “We expect to have a development deal finalized in the coming days.”
And last week, Colorado-based United Cannabis Corp. announced that it signed a deal to help tribes in California grow and dispense medical marijuana.
There are still many legal questions surrounding the DOJ’s ruling, however, which might delay and complicate business plans – especially in states where medical or recreational marijuana isn’t legal.
In midwestern and southern states, for example, some Native Americans have voiced fears that they could still face prosecution, but that it would come from the state instead of the federal government. A spokesman for the Oklahoma Bureau of Narcotics even suggested in December that it could take a court ruling to finalize exactly what the rules are for tribes that do want to get into cannabis.
Regardless, expect more entrepreneurs and cannabis professionals to start helping tribes lay the groundwork to enter the trade.
By John Schroyer
Challenges in New Rec Markets Washington