Mak­ing dosh from le­gal dope

Idealog - - FRONT PAGE -

Pot, spliff, ganja, skunk weed, doob, reefer, mighty mez, bubonic chronic. What­ever you call it, they are im­bib­ing it legally in four US states, Hol­land, Uruguay and North Korea. More US states and sev­eral coun­tries in Europe and South Amer­ica are look­ing care­fully at le­gal­is­ing it. And there’s big money in mak­ing wacky backy le­git – just ask the Colorado tax depart­ment. Henry Oliver ex­plores the eco­nomic im­pli­ca­tions of le­gal­is­ing mar­i­juana, just in case New Zealand law­mak­ers are think­ing about it.

NEW ZEALAND LOVES mar­i­juana. While es­ti­mates vary, some­where be­tween 11%-15% of New Zealan­ders have con­sumed the drug in the last twelve months. It’s the most-used illegal drug in the coun­try, and num­ber three most pop­u­lar drug over­all, be­hind al­co­hol and to­bacco.

Ac­cord­ing to the 2014 United Na­tions’ World Drug Re­port, New Zealand is the world’s third largest con­sumer of mar­i­juana per head of pop­u­la­tion, be­hind Ice­land and the United States.

And guess what’s pro­jected to be the fastest­grow­ing busi­ness in the US? Apps? The ‘shar­ing’ econ­omy? The in­ter­net of things? Big data? It’s ac­tu­ally ... (imag­ine you hadn’t read the head­line or seen the ac­com­pa­ny­ing im­ages) ... mar­i­juana.

Four US states (Colorado, Washington, Alaska and Ore­gon), plus Washington DC, have le­galised mar­i­juana for recre­ational use, not by turn­ing a blind eye, as in Am­s­ter­dam, but through a highly reg­u­lated com­mer­cial mar­ket.

A fur­ther fif­teen states have de­crim­i­nalised mar­i­juana to vary­ing de­grees, and 23 states have le­galised it for med­i­cal use. In to­tal, 59% of states, plus DC, al­low mar­i­juana use in some form.

While us­ing cannabis re­mains illegal un­der fed­eral law, the Obama ad­min­is­tra­tion has in­structed fed­eral law en­force­ment agen­cies not to in­ter­vene in states with laws that con­tra­dict the fed­eral law.

Leg­is­la­tion has been achieved through pri­vate bal­lot (sim­i­lar to cit­i­zens-ini­ti­ated ref­er­en­dums), and has been pro­moted as a way to bol­ster strug­gling economies by cre­at­ing new busi­ness op­por­tu­ni­ties, in­creas­ing tax rev­enue and cut­ting law en­force­ment costs. It’s early days, but it looks like it’s work­ing. In 2014, le­gal mar­i­juana sales in the US to­talled $US2.7 bil­lion, up 74% from $US1.5bn in 2013. Ar­cView Group, a mar­i­juana- ori­en­tated re­search and in­vest­ment net­work, reck­ons sales will rise to $US3.5bn in 2015, and $US10bn in 2018.

Mean­while six more states are due to vote in 2016, and an ar­ti­cle in Time mag­a­zine sug­gested 18 states ( 36%) will have fully le­galised recre­ational mar­i­juana use by 2020.

Ar­cView reck­ons le­gal­i­sa­tion in all 50 US states would re­sult in an­nual re­tail sales of $US36.8bn.

But the eco­nomic ben­e­fits of the “green rush” aren’t re­stricted to cul­ti­va­tion and sale. As de­mand for le­gal mar­i­juana has grown, a new in­dus­try of in­fra­struc­ture and ser­vice providers has sprouted along­side it.

Take the Mar­i­juana In­vestor News site, with sto­ries geared solely at en­trepreneurs and in­vestors want­ing to put their money into cannabis. Then there was the three- day Mar­i­juana In­vestors Sum­mit in April in Den­ver, which at­tracted 1,000 at­ten­dees, a mix of in­vest­ment groups/ven­ture cap­i­tal­ists look­ing for places to in­vest mil­lions of dol­lars, plus lawyers, ac­coun­tants, hu­man re­sources, and se­cu­rity ser­vices all hawk­ing mar­i­juana-re­lated ser­vices.

Ar­cView has in­vested $US41 mil­lion into 54 mar­i­juana re­lated com­pa­nies. And bil­lion­aire Peter Thiel (the guy who put money early into Face­book, LinkedIn and Yelp and thereby made a name for him­self as the in­vestor that funds ideas that sound crazy to al­most ev­ery­one else) has also jumped onto the cannabis band­wagon. His in­vest­ment firm Founders Fund has put mil­lions into Pri­va­teer Hold­ings, a pri­vate eq­uity firm which launched the Mar­ley Nat­u­ral brand of le­gal mar­i­juana in part­ner­ship with Bob Mar­ley’s fam­ily.

One of the pioneers in the in­dus­try is Chris­tian Hage­seth, CEO of con­sul­tants Amer­i­can Cannabis Part­ners, pres­i­dent and chair­man of Colorado-based pro­ducer Green

Man Cannabis, and au­thor of Big weed: An en­tre­pre­neur’s high-stakes ad­ven­tures in the bud­ding le­gal mar­i­juana busi­ness.

Hage­seth be­gan by cul­ti­vat­ing med­i­cal mar­i­juana and has been a long time ad­vo­cate of mar­i­juana law re­form. He’s as bullish as they come when it comes to the ef­fect le­gal­i­sa­tion has had on the Colorado econ­omy: “We’re a job cre­ation ma­chine,” he says with deep, Amer­i­can en­thu­si­asm. “Colorado is en­joy­ing a great eco­nomic boom and mar­i­juana is one of the key driv­ers.”

Once again, he says the ben­e­fits aren’t lim­ited to grow­ers or man­u­fac­tur­ers. “En­trepreneurs and small busi­ness own­ers are ask­ing how they can use mar­i­juana to their ben­e­fit,” he says. “That goes for ac­coun­tants, web de­sign­ers, masseuses, ho­tel op­er­a­tors, res­tau­rant and bar op­er­a­tors. Could they open a mar­i­juana-friendly res­tau­rant? Maybe you serve a kale and cannabis salad, ac­tu­ally us­ing it in the food prepa­ra­tion rather than just let­ting peo­ple smoke a joint.

“The in­tro­duc­tion of a new le­gal vice opens up a world of op­por­tu­nity for en­trepreneurs be­yond just grow­ing and selling the plant.”

SO WHAT ABOUT NEW ZEALAND?

Once upon a time, dread­locked Green MP Nán­dor Tánc­zos was pretty much a lone voice in the wilder­ness call­ing for the le­gal­i­sa­tion of mar­i­juana in New Zealand. Not any more. As­so­ciate Health Min­is­ter Peter Dunne’s de­ci­sion in June to ap­prove the use of Cal­i­for­niapro­duced cannabi­noid oil prod­uct Elix­i­nol for the first time in New Zealand to help a teenage boy suf­fer­ing from seizures was one sign changes may not be out of the ques­tion.

And the move by re­tir­ing Waikato Po­lice Dis­trict Com­man­der Win van der Velde to speak out in favour of de­crim­i­nal­is­ing cannabis is another in­di­ca­tion.

The Na­tional Gov­ern­ment has been at pains to stress there are no ac­tive leg­isla­tive ef­forts to le­galise or de­crim­i­nalise mar­i­juana in New Zealand, but if leg­is­la­tion con­tin­ues to spread in the States, and other na­tions fol­low its lead, New Zealand is likely to get swept up in the ris­ing tide of re­form. As we’ve seen with gay mar­riage, things can change quickly these days, even af­ter years of stag­na­tion.

The idea that tak­ing a tough stance on drugs has largely failed to re­duce harm is now gain­ing cre­dence in New Zealand. As Ross Bell, CEO of the Drug Foun­da­tion, told stuff.co.nz in July: “We fol­lowed the US into the war on drugs and I think we are go­ing to join them in the peace move­ment as well.”

Would Kiwi en­trepreneurs be in­ter­ested in cannabis as a com­mer­cial propo­si­tion? It’s hard to know, as peo­ple Idea­log con­tacted were very re­luc­tant to get in­volved in the de­bate.

But TradeMe founder and for­mer boss Sam Mor­gan did be­lieve le­gal­i­sa­tion should go ahead.

“The big­ger is­sue is that, like al­co­hol pro­hi­bi­tion be­fore it, the war on drugs has failed. Mar­i­juana and other recre­ational drugs should be le­galised, con­trolled and taxed. This will leave crim­i­nals to fo­cus their at­ten­tion on much more prof­itable ar­eas such as cy­ber- crime, and re­duce sig­nif­i­cant cost and so­cial harm.”

Matt Bow­den, the in­fa­mous party pills in­no­va­tor, was in­stru­men­tal in the de­vel­op­ment of the Psy­choac­tive Sub­stances Act, which reg­u­lates le­gal highs and which many be­lieve could be easily used in the le­gal­i­sa­tion of mar­i­juana.

“I ex­pect here the recre­ational users will have to go to the back of the queue and let the med­i­cal prod­ucts come first,” he says. “Af­ter the med­i­cal is out there, I guess we will see grad­ual re­lease through quite re­stric­tive, tightly mon­i­tored, sys­tems for recre­ational con­sumers.”

If mar­i­juana’s le­gal sta­tus in New Zealand changes, it’s the third op­tion, full le­gal­i­sa­tion for adult use, that will pro­vide op­por­tu­ni­ties for lo­cal en­trepreneurs to make money.

“It will be big busi­ness,” says the owner of a re­tailer hold­ing a le­gal high li­cence, who’s been in the in­dus­try for years. “Like in the States, peo­ple are re­al­is­ing there’s this huge po­ten­tial, both recre­ational and med­i­cal.”

HUGE PO­TEN­TIAL

Colorado’s ex­pe­ri­ence gives some idea of what might hap­pen if New Zealand had a fully- open mar­ket. Colorado has a sim­i­lar pop­u­la­tion to New Zealand ( 5.36m ver­sus 4.47m in 2014). And two years af­ter mar­i­juana was le­galised in Colorado, to­tal sales reached al­most $US700 mil­lion, with the state reap­ing $US76m in tax.

It’s hard to know ex­actly how much weed New Zealan­ders would con­sume if it was le­gal, but

the fig­ures we have show that 9% of Colorado res­i­dents used mar­i­juana at least once a month in 2014, ver­sus 14.6% New Zealan­ders who said they had used the drug in the last 12 months (this lat­ter ac­cord­ing to the latest UN Drug re­port).

Dr Chris Wilkins, who heads Massey Univer­sity’s Cen­tre for So­cial and Health Out­comes and Re­search, stud­ied the illegal mar­i­juana mar­ket in 2001 and es­ti­mated it to be worth be­tween $131 m and $249 m an­nu­ally, with his best guess at $190 m, though he cau­tions that the cal­cu­la­tions may not be much use in es­ti­mat­ing the po­ten­tial le­gal mar­ket.

“The size of the mar­ket as we cal­cu­lated it is the size of the illegal mar­ket and be­cause it is illegal, the price is higher than it would be un­der a le­gal mar­ket. So the size of the mar­ket may be smaller than the ex­ist­ing illegal mar­ket, even if there are more users and buy­ers.”

He also warns about read­ing too much into Colorado’s ex­pe­ri­ences so far.

“It’s quite early days, so I think you have to be a bit cau­tious about look­ing at Colorado now and say­ing that that’s what it’s go­ing to be like. There are still a lot of things to hap­pen there in terms of de­vel­op­ing the com­mer­cial mar­ket, the kinds of costs sav­ing you might get over time and whether the user base is go­ing to grow."

SO­CIAL COSTS

“The other thing to keep in mind is sure you’re go­ing to cre­ate a big le­gal mar­ket, but what we know from al­co­hol and to­bacco is that they’re re­spon­si­ble for a huge amount of so­cial cost: driv­ing ac­ci­dents, poor health, poor ed­u­ca­tional achieve­ment, crime, poverty, so­cial wel­fare de­pen­dence.

“So you might get an ini­tial fi­nan­cial boost in terms of tax­a­tion but there could be a whole raft of so­cial costs that you’re even­tu­ally go­ing to have to pay for.

“[In ad­di­tion] you could ar­gue that if you had a le­gal cannabis mar­ket, maybe you would have smaller al­co­hol and to­bacco mar­kets. But that’s not a ques­tion any­one has the an­swer to.”

The le­gal high re­tailer, who spoke to Idea­log only on con­di­tion of anonymity, says the pop­u­lar­ity of syn­thetic cannabis in New Zealand dur­ing the pe­riod when it was le­gal, showed peo­ple don’t want to break the law.

“They’d pre­fer not to be crim­i­nals.”

CRE­ATIVE OP­POR­TU­NI­TIES

Brand strate­gist Jill Brins­don, who heads mar­ket­ing and advertising agency Ra­di­a­tion, says le­gal­is­ing mar­i­juana would cre­ate sig­nif­i­cant op­por­tu­ni­ties for cre­ative mar­ket­ing and brand­ing – as it has for the craft beer mar­ket.

“If it sits in the same realm as al­co­hol, the op­por­tu­ni­ties will be enor­mous. The busi­ness of le­galised es­capism from the hu­man con­di­tion, there’ll al­ways be a big mar­ket for that.

“We would ex­pect spec­tac­u­lar brand­ing and de­sign. They’ll fol­low in the foot­steps of all the in­de­pen­dent craft beers who are mar­ket­ing them­selves beau­ti­fully.”

The le­gal high re­tailer agrees: “I don’t think this is a to­bacco in­dus­try model. In the States and Am­s­ter­dam, you don’t see big busi­ness that in­volved. What you see is a lot of small busi­ness.

“I don’t think Marl­boro is go­ing to be able to put out a packet of joints and sell them at a dairy. I would guess that most peo­ple who are mar­i­juana smok­ers wouldn’t want to deal with those type of com­pa­nies. They want some­thing lo­cal, not some­thing grown some­where ran­dom and sprayed with God-knows-what.”

When it comes to mak­ing money off le­gal mar­i­juana, US con­sul­tant Chris­tian Hage­seth ad­vo­cates an holis­tic ap­proach.

“I’ve of­ten looked at the gold rush in the United States of the 1860s, and the peo­ple who made the most from the gold rush weren’t the gold min­ers,” he says. “They were the peo­ple who sold the picks and the shov­els to the gold min­ers, the peo­ple who had ho­tels for gold min­ers. Levi Strauss, the blue jeans maker, is prob­a­bly the guy who made the most.

“So if mar­i­juana were le­galised in New Zealand, as an en­tre­pre­neur, look at ev­ery­thing. You don’t have to just get in and grow the plant. You don’t just have to sell it at re­tail. Cre­ate a bet­ter vape pen [a hand-held va­por­iser for “smok­ing” pot]. Sup­ply all the pack­ag­ing for the prod­uct. Pro­vide out­sourced ser­vices for staffing tem­po­rary labour.

“There are a lot of ways to profit in the mar­i­juana busi­ness where you’re not in­volved in the cul­ti­va­tion or sale of it, but rather sup­port­ing the in­dus­try in some sig­nif­i­cant way. En­trepreneurs should know that wealth cre­ation, the op­por­tu­nity to in­no­vate, and the abil­ity to be cre­ative in a busi­ness sense is not rel­e­gated to grow­ing and selling mar­i­juana.”

“We’re a job cre­ation ma­chine. Colorado is en­joy­ing a great eco­nomic boom and mar­i­juana is one of the key driv­ers. The in­tro­duc­tion of a new le­gal vice opens up a world of op­por­tu­nity for en­trepreneurs be­yond just grow­ing and selling the plant.”

CHRIS­TIAN HAGE­SETH, AMER­I­CAN CANNABIS PART­NERS

Newspapers in English

Newspapers from New Zealand

© PressReader. All rights reserved.