“The difference between a drug dealer and a legitimate operation is a point-of-sale system,” says Mark Goldfogel, co-founder of MJ Freeway, a POS, inventory control, and client-record system that’s been used in Colorado dispensaries since 2010. That’s because the only way to legitimize (i.e., tax) all that product is by systematically tracking inventory. And with marijuana, says Goldfogel, not any old POS system will do. In this business, your product literally disappears; over time, a percentage of the marijuana evaporates or degrades into “shake.” That product loss has to be built into the system or it could end up looking like theft or black-market diversion, not the sort of thing marijuana businesses want to be accused of.
Mergers and acquisitions
When Colorado first required medical marijuana businesses to vertically integrate in 2010, the industry was full of shotgun marriages—growers and retailers suddenly had to combine forces into a single entity to comply with the law. Now, as many of those businesses transition to recreational marijuana, some of the growers and retailers involved are going through divorces and shacking up (i.e., consolidating) with other operations. That’s where Chloe Villano comes in. She’s the CEO of Clover Leaf Consulting, which she believes is one of the only business firms in the country that specializes in marijuana-related mergers and acquisitions. Her website could be mistaken for a dating site, with separate areas for those seeking to sell a licensed cannabis business and those seeking to buy one—with Villano playing the matchmaker.
Villano says it can take months for her to find the right business for a potential buyer—she’s seen deals come apart for any number of reasons. In the beginning of her operation, she says that those running marijuana businesses were true believers; they’d seen medical marijuana help people they cared for. Now, she says, “you have big-business Wall Street guys” looking to get into the business. She has to explain to them Colorado licensing law and its residency requirements, byzantine local zoning ordinances, and the other regulatory hurdles. “There’s so much people don’t understand,” she says.
If a marijuana operation wants to comply with Colorado’s 12 dense pages of security rules—detailing everything from the location of security cameras to the dimensions of accompanying video monitors— the Denver-based Canna Security America is the company to go to, says CEO Daniel Williams. That’s because Williams and his partners helped write the rules in 2009 when they were part of the local security company Envision.
In the years since, Williams says the state’s medical marijuana industry hasn’t been the target of many sophisticated burglaries. (Among the more spectacular were the Boulder couple who dressed up as ninjas, complete with samurai swords, to hold up a dispensary for one jar of pot and the guy who belayed into a grow facility one night, Mission Impossible–style, only to realize he had no way to get back out before the police arrived.) In fact, says Williams, he’s only aware of two armed robberies of Colorado marijuana operations, a number he says is “ridiculously low” compared to the rates for liquor stores or gas stations.
That doesn’t mean the 12 pages of security rules aren’t necessary, says Williams. He says all those cameras and video monitors help to deter a much more common kind of theft in the industry: the internal kind, with a bit of pot pocketed here and there by budtenders or shop employees. “You’re dealing with a small cash crop that’s very valuable, very transportable, and hard to track,” he explains.
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Since most of these businesses don’t directly involve growing or selling marijuana, they appear to be on safe legal ground. (Though these days, the entirety of Colorado’s legal marijuana industry seems pretty secure, considering President Obama said that “it’s important for it to go forward” in a recent New Yorker profile.) But that doesn’t mean these ancillary businesses don’t have to be careful. After all, what if the tide shifts and the federal government changes its mind—are these side businesses really safe from any crackdowns? After all, according to federal law, if any part of your property is involved in the manufacture or distribution of controlled substances, that entire property can be seized by federal officials. That means Central Bag & Burlap Co. could lose its business, MJ Freeway’s detailed customer records could be confiscated, and that lovely suburban bungalow Hanson is shopping around to marijuana growers could be snatched up by the government.
Hanson, for one, isn’t too worried about the risk of mixing real estate and marijuana. “People buying a property should do their due diligence and seek an attorney’s advice,” she says. “But I don’t really see the feds coming in and grabbing property in Colorado. From the looks of it, that would really be a nightmare for the feds.”
Nor does she recommend that residential pot growers dismantle their in-home grow rooms before they look to sell or lease to someone else. As she’s come to discover, in Colorado these days, it’s not a liability: “It’s an added value to the property,” she says.
Next up: Colorado is awash in new pot sales—but what do you do with all that money? Because of federal rules, banks and credit card companies aren’t supposed to touch it. A look at how Colorado is trying to manage its pot-fueled cash flow.