Many CO pot business owners don't have mj backgrounds

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url: hMPp://www.denverpost.com/news/marijuana/ci_23520365/many-owners-states-pot-businesses-dont-have-marijuana




Many CO pot business owners don't have mj backgrounds



One is a former oil man. Another was the president of a company that produced baby sleep positioners.

There's a boutique real estate developer of an Aspen hotel and a 32-year-old former commercial banker who opened her own consulting company.
The names of some of Colorado's biggest marijuana moguls are not well known outside the industry — or in some cases, even inside it. Some like it that way, preferring a low profile in a risky business.

One thing those on the list share is a wealth of management experience in fields unrelated to marijuana, showing that making it in the legal pot industry today is as much about business acumen as it is about growing good weed.

"You will find that the successful ones are professionals," said Chris Walsh, editor of Medical Marijuana Business Daily, an industry trade publication.

"They'll wear a suit to a meeting. They understand their company's books and finances. ... These guys picked up pretty quickly that you've got to be professional in this."

Through information obtained in public-records requests to state regulators, The Denver Post has been able — for the first time — to identify several of the leading medical-marijuana business owners in Colorado. Because of new laws that give preference to owners of medical-marijuana dispensaries, these owners are well positioned to jump into the state's newly legalized recreational marijuana market.

Put another way: If Colorado's groundbreaking new laws on marijuana create pot barons, they could very well be these folks.

Most of the larger dispensary owners are guarding their business plans for post-Amendment 64 Colorado — or waiting to see what kind of rules municipalities adopt governing recreational pot shops.

"We have been discussing it since the morning after 64 passed," said Brooke Gehring, a member of a group that owns four dispensaries, some of which once teetered on the brink of collapse. "We see it as an opportunity for another new market that's opening up, and we're going to have the real estate, strategy and systems in place to continue to be an industry leader."

The list of owners provided to The Post comes with significant limitations.
One quarter of the state's roughly 500 medical-marijuana dispensaries don't have a state license but are instead operating under a pending license application. Colorado Medical Marijuana Enforcement Division officials, saying those applications are not public records, will not provide the names of the dispensaries' owners.

The list also fails to differentiate between current owners and previous owners who may have since sold their interests. The state says its computer database cannot make the distinction. The only way for the state to check who currently owns a dispensary is to look at the scanned copy of the documents the dispensary owner filed when applying for a license.

The Medical Marijuana Enforcement Division, though, recently lost some of those documents because of a computer-hardware failure. The state has not said how many records were lost but cited the computer problem in telling The Post that certain records requested could not be produced.

For four of the five largest dispensary ownership groups, The Post verified active ownership of the businesses through records and interviews. Records indicate the other owner, 42-year-old Shawn Phillips, has a stake in six dispensaries in Denver, Wheat Ridge and Central City. Phillips declined to be interviewed for this story.

The owner of another large dispensary group, Joseph Max Cohen, also declined an interview request. The records provided to The Post list Cohen as the sole owner of five dispensaries under the banner of The Clinic. The website of The Clinic also lists a sixth store that is "temporarily closed, reopening soon."

While The Clinic at times stakes out high-profile positions in the industry — for instance, by sponsoring a charity golf tournament to benefit multiple sclerosis research or entering its products in competitions — a representative for the company said it has decided not to attract any more attention to itself through the news media.

Many of Colorado's major marijuana players prefer to keep out of the limelight. Some fear publicity could draw scrutiny from federal law enforcement officials who view dispensary owners as drug traffickers.

Taken together, the records' limitations and the cultural secrecy mean the ownership of Colorado's medical-marijuana industry remains very much shrouded in haze. But the list of owners still offers valuable insight into the makeup of the medical-marijuana industry and provides hints of what the recreational industry could look like.

For instance, a number of owners and ownership groups have begun assembling formidable chains of dispensaries.

The list provided to The Post contains 585 names. Of those, 112 people are listed as owning more than one dispensary. Twelve people are listed as owning at least four, although some of those people are members of overlapping ownership groups.

The owner on the list with a stake in the most dispensaries — seven — is John Lord, 52, a New Zealand native who formerly was president of Denver-based Basic Comfort Inc., a manufacturer of baby sleep positioners and other products. Another company purchased Basic Comfort in 2008 for $6.5 million, according to a filing with the Securities and Exchange Commission.

At the time, Basic Comfort operated a manufacturing and distribution center in Denver and generated about $10 million in sales in 2007, according to an announcement of the transaction.

In branching into the marijuana business, Lord teamed with Benjamin Burkhardt, 39, in a company called Beyond Broadway LLC.

Lord and Burkhardt share a stake in six dispensaries in Denver, Colorado Springs, Lakewood, Garden City and Boulder, some of which operate under the LivWell name, records show. Lord has an ownership stake in another dispensary independent of Burkhardt.

Before moving to Colorado, Burkhardt was arrested on drug charges in Los Angeles County in 2009, court records show. In a plea deal, Burk-hardt was convicted on one felony charge and received a suspended sentence.

The charge was reduced to a misdemeanor in June 2011 after he completed his probation, records show.

Burkhardt said in an interview he was arrested for growing 35 plants in his home for a medical-marijuana collective. California laws governing marijuana are confusing, he said, and his case involved "the gray area of the law and politics of California."

Law enforcement officials in California have been far more aggressive in pursuing nonprofit marijuana collectives and growers than their counterparts in Colorado, where the business is tightly regulated.

In Colorado, convicted drug felons are prohibited, with some exceptions, from owning medical-marijuana companies.

Burkhardt said he provided his criminal record to the Medical Marijuana Enforcement Division when he applied for his license in the summer of 2011 after the felony was wiped off the books.


 
"I worked with MMED and did exactly what I was asked," he said.

Burkhardt and Lord declined to discuss their marijuana business.

Although the medical-marijuana industry has undergone consolidation over the past couple of years, it remains diverse.

Eighty-one percent of the names on The Post's ownership list are shown owning only one dispensary. Among those people are a professional magician and a touring poker player.

That most dispensaries are mom-and-pop affairs is evident in surveys that Walsh's industry publication has done of dispensary owners. Asked how much revenue they bring in annually, 60 percent of dispensary owners say less than $500,000. Fifteen percent report generating less than $100,000 a year in revenue, while 27 percent report generating more than $1 million annually.

Walsh said he believes a large number of dispensary owners in Colorado are just trying to keep their doors open until recreational sales kick in at the beginning of next year, hoping that will provide a jolt to keep their store running.

"Some are just hanging on by a thread," he said.

Many dispensary owners are heavily invested in their businesses. Walsh's surveys show that 83 percent of dispensary owners say they put up the money for their store from their own savings and personal debt. Another 10 percent said they got money from friends or family.

And that's not just the case with small players.

Elliott Klug, one of the founders of the Pink House Blooms chain of dispensaries, said he started the company with money he made by building and then selling a small oil company. Investment from family also helped.

Over time, Klug and his partners acquired more dispensaries. He is listed with two others — Jade Young and Nicholas Handloff — as owning six dispensaries, making them among the largest dispensary owners in the state.

Klug said Pink House has pursued a "nodal" business strategy, preferring to open several small dispensaries in varying neighborhoods rather than try to build one large Walmart of weed.

But, although the individual stores may be cozy, the business behind them has come to resemble that of a bigger company. Klug's title with the business is CEO. The chain has its headquarters in northeast Denver. There is a research-and-development lab where workers experiment with different methods of making marijuana extractions — an effort to create more potent products, but also a hedge in case state regulators ban one extraction method or another.

Pink House grows its marijuana plants — the company harvests 84 plants every week, Klug said — under innovative, water-cooled lights, in part to reduce electricity costs. The company recently bought a 3-D printer to make parts more cheaply for equipment that breaks. And Klug is in the midst of finalizing a health care package for his company's roughly 70 employees.

Even landscaping and upkeep at the company's dispensaries are taken into account.

"Everybody has been so focused on starting a business that nobody's thought about how to run it long-term," Klug said. "You've got to plan ahead. You can't just sit around and say, 'We grow weed, man.' "

In the summer of 2009, Brooke Gehring was in her late 20s and managing a commercial real estate portfolio for a large bank.

She noticed a new type of business owner looking at properties that had fallen into foreclosure in the down economy: marijuana entrepreneurs looking for dispensary and grow locations.

Seeing an opening, Gehring founded Live-Green Consulting, offering professional referrals, licensing and compliance guidance, and other services to medical-marijuana business owners.

Then, on the eve of a summer 2010 deadline for applying for state licensing, Gehring acquired an established dispensary and warehouse in Denver from an out-of-state owner who had to get out of the business because of the state's new two-year-residency requirement.

She raised money through savings from her own business, family and an outside investor. Then Gehring acquired Bud Med Health Centers, a dispensary in Edgewater. She was its third owner in a year.

"It all happened so quickly," said Gehring, 32. "But I had watched as other people had started into the businesses. I knew the barriers to entry. Being a risk-taker, knowing I had the entrepreneurial spirit, I wanted to figure out how to make all of this work."

The industry, she said, offered a combination of opportunities like few others — retail, manufacturing, relationships with patients and a chance to influence public policy governing how it is all regulated.

In 2011, Gehring joined with real estate developer Steve Szymanski and building contractor Michael Farley in forming a new entity and acquiring Patients Choice, which had one retail and two grow locations — and was on the verge of bankruptcy.

Two years later, their now-profitable business controls four medical-marijuana dispensaries and two cultivation facilities, Gehring said.

The business partners — and other dispensary owners of all sizes — face difficult choices with November's passage of Amendment 64.

The state adopted rules giving existing dispensary owners first crack at applying for recreational licenses, creating another crossroads for the entrepreneurial founders of Colorado's new green economy. With the bigger potential market comes both bigger opportunities and bigger risks.

"My hope is we don't become a big, large corporation," Klug said of the Pink House chain. "We don't want to become the machine. We're figuring out what this means, coming of age as the stoners of today.

"We're growing up."
 

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