By Rex Crum Mercury News
WWR Article Summary (tl;dr) Rex Crum takes a look at the state of the Cannabis Industry in California through the eyes of one entrepreneur. Entrepreneur John Oram's experiences are quite informative for anyone who is looking to get into the cannabis market today.
It takes a lot of courage to start your own business.
Taking an idea from concept to reality, and dealing with everything from finding a location for the business, keeping up with inventory, learning about distribution and making payroll can test the mettle of the most-confident entrepreneur.
Now, consider doing all of that in a nascent industry that is dealing with all kinds of new governmental regulations, trying to shed a public stigma and is, well, known for the aroma of a certain type of plant.
If you can do that, you might have an idea of what business is like for John Oram, president and chief executive of NUG, an Oakland-based vertically integrated cannabis company located in 200,000 square feet of factory space in East Oakland.
"The industry is trying to normalize itself," Oram said during a recent interview at NUG's headquarters. "Our No. 1 tagline at NUG is to normalize the cannabis experience. So, with everything we do, we think about how can we make that experience, this product normal."
In addition to showing what a room with 9,000-square-feet of marijuana plants looks like, Oram spoke about the changes in California's cannabis industry, how taxes and regulations are affecting industry growth and what kind of advice he would give to someone looking to get into the cannabis market today. His comments have been edited for length and clarity.
Q: You started NUG in 2014. How did you get into the marijuana, or cannabis, industry?
A: I had some friends in the industry, and one of them knew I had a background in science and engineering. He had a hard time securing product, so I consulted with him, and we did a couple of cultivation sites. At that time, you would cultivate just for your own store. The next thing that came up was about quality assurance and how we could be quantitative about that. And that's where my science really kicked in. We started the lab, and we started testing products and understanding what quality means, what does potency mean, how can we test for yeast and mold and bacteria and pesticides.
Q: Not to make fun of things, but when you'd test for quality, would you just set some guys up in a room with some products and give them a bunch of Fritos and Taco Bell when they got the munchies?
A: (Laughs) Ha, no! We're chemists and biologists and bought a ton of very high tech equipment and built a foundational science to test for cannabis at the time. But, we were going to producers and dispensers and saying, "Look, let us test your product, and here's what we can do for you." And they would just laugh at us. There was no regulatory need for it (testing). They weren't required to do it. And they would just come back and say, "Hey, I've got Joe, who sits in the back all day and he tests it for me." So, it took a while for people to be educated on why they need testing, and now it's a huge part of the industry.
Q: Here at the NUG plant, what actually takes place?
A: We have cultivation, manufacturing of infused goods, we do edibles, drinks, Popsicles and things like that. This is also where we run all of our distribution out of. Totally finished goods that have been tested, package and are ready to go to market. This is also our corporate offices.
Q: What are some of the challenges you see in normalizing the cannabis industry?
A: California was making a lot of progress early on, say in the 2010 to 2015 period, even into 2016 and 2017 in normalizing cannabis. Newer brands were being established, they were more sophisticated, stores were popping up in normal retail corridors. And then, Prop. 64 passed -- this was the adult-use legalization -- and the regulations that came with that on Jan. 1, 2018, were extremely burdensome, and the taxes are extremely high. So, what we have seen is a shutdown of the industry over these years. Back in 2017, there were about 3,000 retail dispensaries across the state. In January of 2018, when those regulations went into effect, that number went down to about 250 to 300 left in the state. And two years later, we only have about 550, maybe 600 stores licensed across the state. We've seen a constriction of the regulated retail market. But the demand is still there, and we're seeing a huge boom in the illicit market. That's our No. 1 challenge.
Q: From an outsider's view, it seemed like the idea was to legalize pot, tax it and it'll be out in the open. When it comes to the taxes and such, wasn't this expected to some degree?
A: When regulations were being drafted around 2017, the industry was booming. All-cash businesses. Stores across the state. That was the peak of California cannabis. They (regulators) said ,"Look at this. There's a huge industry here. We have an opportunity to grab a lot of tax revenue." And I think they set their expectations just too high. The tax rate is effectively 28% now. The state-level tax rate. And the municipalities can have a 5% or a 10% added on there, and then you get sales tax, and at the end of the day, the consumer is paying about 40% in taxes at the point of sale. I don't think the regulators and the industry gave enough thought about what that was going to do to the consumer.
Q: So, while the state legalized cannabis, don't the local communities, in effect, have the right to overrule that legislation?
A: Right. And that dynamic has been tough and cumbersome. Any time you have that type of dynamic in place, it's difficult to steer the ship back.
Q: You also have NUG retail stores in Sacramento and San Leandro. Have you found anything challenging on the retail side by doing your own stores as opposed to putting your products in other stores?
A: Oh, yeah. If I ever thought retail was going to be easy, I was mistaken. But the stores are doing well, and for us, it's not just about the cash flow of the stores, but about the brand experience. These stores are just big billboards for us. Here's our brand, come see it and experience it.
Q: Would you have any advice for anyone looking to get into the cannabis industry today?
A: Don't bite off more than you can chew. If you love retail, just do retail. If you like manufacturing or making chocolate bars, just do that. I do see a lot of opportunity in distribution and retail. The reason I see a lot of opportunity in retail is because we are still at about a 10th of where we need to be with retail stores around the state. It's not going to be easy to open retail by any means, but I do know we need more retail.
Distributed by Tribune Content Agency, LLC.