Popping the lid off pot | Dispensaries bring medical marijuana from the shadows to Main Street

Leo Trudel has written hundreds of business plans during his 25-year career in business and economic development. But the hardest was the one he prepared earlier this year for Safe Alternatives, the medical marijuana dispensary he wants to open in Fort Kent this fall.

Trudel, an assistant professor of business at the University of Maine Fort Kent, says conventional business plans are moot — a medical marijuana dispensary is not a typical business. In his application to the state, which has licensing authority over Maine’s fledgling dispensary industry, Trudel had to include proprietary information that he knew would be made public — disclosing startup costs, expected revenue and elements that could weaken his competitive advantage.

Financing through conventional means also was not an option. For one, there’s confusion about how to classify the industry. Is it a pharmaceutical business? A farming venture? A retail store? “I’m just shy of a Ph.D in finance. I understand how the system works. It’s risky business,” says Trudel. “And the funny thing is in two years, whomever is left in the industry will probably be doing above average, and that being said, instead of them going to the bank, the bank will be coming to them to give them loans.”

And, never far from Trudel’s thoughts, is marijuana’s stigma. He put in writing his plans to sell a product — with names such as AK-47, Mendocino Madness and Hawaiian Snow — that, in the eyes of the federal government, is an illegal schedule 1 drug, on par with heroin, ecstasy and LSD.

Regardless of the federal government’s position, 14 states have legalized medical marijuana, including Maine, while a dozen more are considering similar bills. Medical marijuana has been legal in Maine since 1999, allowing patients to grow their own or assign a caregiver to grow marijuana on their behalf. But voters approved an amendment in November 2009 that establishes conditions for the use of medical marijuana, a patient registration process and fee, and added storefront dispensaries to allow easier access to the drug.

Trudel’s business plan was one of 28 submitted, each with a $15,000 application fee, to the Maine Department of Health and Human Services to secure one of eight permits the state offered for medical marijuana dispensaries. On July 9, Maine’s DHHS approved six dispensary permits: Trudel’s Safe Alternatives; Augusta-based Northeast Patients Group (which won four of the permits); and Remedy Compassion Center in Wilton. No applications to open dispensaries in Down East and York County met the minimal criteria to receive a permit.

The three nonprofits have a tough job in front of them: to take a business model — the cultivation and sale of marijuana — from the shadowy world of drug dealers and move it to Main Street. Along the way, they’ll fight the stigma of selling a product some demonize while trying to gain customers by promoting its medicinal benefits to doctors and patients.

And they’ll have people across the country watching. Economists are observing with interest as legitimate medical marijuana industries pop up around the country, trying to gauge the economic impact of the drug. Medical marijuana advocates and policy makers are also watching Maine. While 14 states have legalized medical marijuana, Maine is the first to experiment with writing medical marijuana dispensaries into its laws. “Maine has been so proactive to get the law enacted and get it off the ground,” says Rebecca DeKeuster, CEO of Northeast Patients Group, which with four permits is the largest medical marijuana organization in Maine. “The speed and diligence with which the Legislature and DHHS has worked to implement this program is unique, so unique.”

In places like California and Colorado, dispensaries are an organic outgrowth of patient and caregiver groups, but not actually referred to in state laws. Their prevalence has escalated since February 2009, when U.S. Attorney General Eric Holder said federal drug enforcement officials would no longer raid dispensaries that were in compliance with state law. Within the past year, Denver has had nearly 250 medical marijuana dispensaries open in the city.

Portland isn’t going to be overrun with storefronts dispensing medical marijuana anytime soon. Maine law caps the number of dispensaries at eight, one for each of eight health care districts in the state. It has also mandated that dispensaries operate as nonprofits — unlike Colorado and California, where dispensaries can be for-profit entities — and has limited the drug’s use to patients suffering from a few conditions, including glaucoma, AIDS and cancer.

The restrictions and close scrutiny by the state will likely limit the number of people interested in opening dispensaries. “I would hope that anyone getting into this business would have seen the benefits of medical marijuana rather than seeing dollar signs,” Trudel says.

Medical marijuana as ‘job creator’

The amendment passed last fall will be “the biggest job creator we’ve ever seen,” says Jonathan Leavitt, director of the Maine Marijuana Policy Initiative. “In one broad stroke, this will create more jobs in one vote than any legislation or citizens’ initiative that has ever passed.”

Leavitt is one of medical marijuana’s leading advocates in the state and does not shy away from making predictions about its potential impact on Maine’s economy. For one, he claims marijuana is already the number one cash crop in Maine and intricately tied to small-town economies throughout the state. He says the new medical marijuana laws simply allow those people to become legitimate members of Maine’s business community. “You go into any town and you know all these people are connected in one way, shape or form to the economics of marijuana,” Leavitt says. “That’s the reality in Maine. This is just formalizing what’s already been in place. If you went around arresting everyone involved in the economics of marijuana, the towns would stop functioning.”

The dispensaries will create good-paying jobs and will help caregivers — the independent marijuana growers who supply medical marijuana to patients — emerge from the shadows, says Leavitt. “These folks [opening the dispensaries] are committing to jobs that are paying between $30,000 and $40,000 to employees, along with benefits,” he says. “How many companies can come into Maine and make that commitment to the state? That’s a great model for any business.”

As for customers, Leavitt believes Maine will have 10,000 medical marijuana patients in two years, and 50,000 in five years.

In terms of jobs, Maine’s cap of eight dispensaries will limit the economic impact. According to the six successful applications, the operators expect to directly create about 67 jobs by their second full year. But Leavitt, who predicts the cap will eventually be lifted, estimates the new law could add as many as 700 jobs by the end of the year, and that’s only the beginning. “In a couple years, this economic framework will be the backbone for a couple thousand jobs,” Leavitt says.

Others disagree. Jeffrey Miron, an economist at Harvard University who has studied the economic impact of legalizing marijuana, says claims such as Leavitt’s are overblown. Asked what economic impact the new law in Maine would have, he says, “My short answer: Not much.”

“The size of the marijuana industry is not that huge,” he says, citing estimates that only 5% of the population uses marijuana on a regular basis. Since that number contains recreational users, the population that will emerge to buy medical marijuana at dispensaries will be much smaller.

Nationally, the marijuana industry is often pegged at between $20 billion and $40 billion, but because of its illicit nature, a firm number is hard to pin down. Miron isn’t aware of any reliable numbers that separate the legal medical marijuana market from the black market, but he assumes that in states where medical marijuana is legal, medical marijuana is close to 80% of the market.

A look at the business plans of the Maine dispensary winners gives a snapshot of Maine’s potential market. By the end of the second full fiscal year, ending June 30, 2013, the six dispensaries combined estimate they’ll have 2,219 patients. (These numbers don’t reflect the two unsecured dispensaries in Washington and York counties.) On average, the price per ounce of marijuana will be $330, slightly lower than the black market rate. Maine’s law allows a patient to buy 2.5 ounces of marijuana every 15 days. If a patient buys 1.5 ounces a month, a conservative estimate, then he or she would spend approximately $5,940 per year on medical marijuana. Multiplied by the 2,219 expected patients, annual sales of $13.2 million are projected for the six dispensaries.

Maine’s medical marijuana industry will funnel some money to the state. The state will collect 5% sales tax, which equals $660,000 a year.

“If I was an economist, I would be looking at this as a grand experiment,” says DeKeuster, of Northeast Patients Group.

The business of dispensing pot

For the nonprofits that received permits in early July, the hard work of actually getting these dispensaries off the ground is upon them.

“I want to go back and sit with my team. We want to do this smart and do it right,” says DeKeuster, who plans to open a dispensary in Cumberland County, two in the midcoast area and one in central Maine. “All eyes will be upon us, not just in the state but nationally.”

The organization has plenty of experience to draw from. It was founded by two directors — DeKeuster and Tim Schick, a Maine native — of the Berkeley Patients Group, a successful medical marijuana dispensary founded in 1999 in Berkeley, Calif. NPG plans to incorporate much of the model used in California.

A big part of that model — and something Maine took into account when reviewing applications — is giving back to the community. NPG’s Portland dispensary expects to post $3.3 million in revenue its second full year in business and use $1.1 million of that income for community support, such as donations to local charities and groups that serve the same patient base, like adult literacy programs. Trudel’s business plan for Safe Alternatives also includes community donations as a major outlet for its income.

Looking to other states as models, NPG estimates that Maine will have 1,000 registered medical marijuana patients within 12 months of opening the first dispensaries, and 5,000 registered patients within five years. DeKeuster says the use of medical marijuana starts slow and then increases as doctors recognize its medicinal benefits and become more comfortable recommending it, and as patients attach less stigma to its use and are more open to asking their doctors for a recommendation. (Because it is not recognized by the federal government as a legitimate drug, medical marijuana is not covered under prescriptions plans.)

NPG expects its Portland location to employ 12 people and have 418 patients by the summer of 2013. The price point — only slightly lower than what someone could find on the street corner — reduces incentive for people to buy it at a dispensary and sell it for a profit on the black market.

One of the major challenges facing the dispensaries is combating the stigma associated with their product. According to Maine law, a patient must get a recommendation from a doctor they have a “bona fide” relationship with. This isn’t always easy to do.

Leavitt says doctors are behind the curve when it comes to recommending medical marijuana and he will lobby to expand the ranks of health care workers who can make recommendations for its use, such as nurses, nurse practitioners, physician’s assistants and herbalists. “Doctors seem to be the last group to see this reality and see [marijuana] as the medicine that it is,” he says.

What lies ahead

After the dispensaries operate for a year, Catherine Cobb, director of DHHS’ division of licensing and regulatory services, will report back to the Legislature, which could decide to lift the cap or widen the conditions.

Leavitt will lobby hard to loosen restrictions, including getting rid of the eight-dispensary cap, mandatory registration and fee for patients, and expanded authority to recommend medical marijuana. Those restrictions hold the drug to a different standard than other medications. “This state should play no role in who can get medicine and who can’t,” he says.

As for the cap, Leavitt expects it to be lifted simply because the size of the state means patients need more accessible options. “To ask people to get in their car and drive six hours doesn’t make sense,” Leavitt says of the current arrangement.

But Leavitt doesn’t want looser restrictions to go too far. He fears the more the industry is opened, large businesses looking to move into the market will push the small guys out. “We don’t want this to become another commodity that traditional business structures can exploit,” he says. “Our job as activists is to create a framework so they can’t do that. No one wants to see Potmart come in.”

And Maine’s business community as a whole will face challenges. How will employers reconcile a zero-tolerance drug policy with legal medical marijuana use by employees? So far, precedence has supported the employer. Courts around the country have backed up employers in states where medical marijuana is legal who fired medical-marijuana-using employees for failing drug tests.

If Maine follows the lead of states like Colorado and California and lifts the dispensary cap and loosens restrictions, it could see an explosion of dispensaries filling up empty storefronts. But first, the organizations blazing a trail for this new industry in Maine have to demonstrate that medical marijuana dispensaries can successfully integrate into Main Street.

“What happened Friday” — says DeKeuster, referring to the day DHHS announced the winning dispensaries — “was the end of one chapter. Now the real work begins.”

Whit Richardson, a writer based in Yarmouth, can be reached at editorial@mainebiz.biz.

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