Medical Marijuana a Growing Business for Arizona Entrepreneurs

by Francine on December 10, 2010

Marijuana is the new hot startup “technology” in Arizona. A new law, just narrowly passed, makes up to 124 dispensaries of medical marijuana legal in the state, and while the governmental entities struggle with regulations around locations, zoning, and licensing, the players — in state and out — have already started massing on the ground. Everyone has figured out that the small number of available licenses may increase in value, and everyone is trying to position himself to obtain one. That is, almost everyone. Fifteen states have now legalized medical marijuana, and there are actually some entrepreneurs who are experienced at this game by now. (Disclosure: an acquaintance of mine from the Bay Area operated a dispensary and wrongfully spent time in prison for his entrepreneurship)

Because I am a connection to funding sources and a collaborator with entrepreneurs, I’ve had a unique opportunity to meet some of the likely players.

The first company I met with about this new “biz opp” is headed by a serial entrepreneur who has owned a chain of night clubs. His idea, for which he is currently raising money, is to open a nationwide chain of integrative pharmacies, upscale and complete. He’s an Arizona resident, and has been planning the business since the initiative (which has been passed in Arizona before but never implemented) got on the ballot. Because Arizona is broke and all the states are looking for revenue, it was a little easier for people to both understand and vote for the initiative this time. However, Arizonans had to wait an agonizingly long time for officials to count the votes, because at first it seemed the initiative would lose. Surprisingly, the measure passed by a very slim margin. With all the aging Boomers in Arizona eligible for prescriptions, I would have thought it would be a landslide.

As soon as the measure passed, a retired doctor friend of mine (and some of his buddies) began talking to a group of younger people who were raising money for a dispensary and thought it would be a good idea for doctors to invest in the dispensary and then participate by going back into practice and examining patients to write prescriptions. When my doctor friend realized how difficult it might be to comply with the regulations, he and his friends decided to sit back and let the first wave pass them by. After all, they no longer practiced actively but they still didn’t want to run the risk of losing their medical licenses. My guesses is that younger docs will be more apt to participate, although I doubt that docs will invest. It’s complicated enough prescribing an MRI when you own an MRI facility. Weed? Not so fast.

A third group, Kind Clinics, wants to open a chain of dispensaries in Arizona and California and is holding seminars for potential participants/investors. This group has an idea for a secure vending machine for prescriptions. The machine, however, doesn’t exist yet. They are taking $25,000 refundable deposits, in exchange for which they will help you get your license. Apparently, they have some experience in California obtaining licenses. However, Arizona is not California, and I’m not sure the Arizona government has even written the regs yet. Because these are tech entrepreneurs, their approach is very professional. I worry about their domain expertise. Probably the night club entrepreneur has them beat:-)

The fourth entrepreneur, who actually operates two dispensaries in California, does not want to get into the fray in Arizona. He has been through these wars, featured in the Wall Street Journal, and called upon (harassed) by local police many times. Although he hasn’t been shut down, he has become fast friends with more attorneys than he ever thought would be necessary. Talking to him made me feel the other groups I had spoken to were naive.

According to Dan Halbert, it will take the local governments in Arizona years to figure out where they fit in vis a vis the state and Federal law, not to mention protecting their own constituencies from unwanted neighborhood traffic. During that time, dispensary operators will face many challenges. Having invested his life savings in the California dispensaries and fought these battles, he believes education is necessary well before the law is implemented.

So he has established a separate company, Greenway University, to educate people who want to participate in the surge of medical marijuana entrepreneurship that everyone knows will be nearly nationwide, on how to do everything from grow crops without pesticides to read a cash flow statement, to follow local laws and ordinances. He established the university in Colorado, and it is licensed and regulated by that state’s higher education authority. From the company’s press release:

Greenway University , the industry’s leading medical marijuana educational provider, has received formal state approval from the Colorado Department of Higher Education for its medical marijuana cultivation courses – making it the first and only such state approved and regulated medical marijuana cultivation courses in the United States. Greenway University is renowned for its compliance driven medical marijuana educational services in California, Colorado and the western US.

Want a laugh? The phone number of the university is 888-my420ed. I know what it means because I was a foster parent.

Any entrepreneur has to have a mixture of domain expertise and business acumen. I figure I can align with all of them on the education side; I’ve already learned a lot. All of these entrepreneurs are raising money, so I guess they can’t afford to pay me in cash. Should I take equity? Or….

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