Less than a week before the World Health Organization declared the coronavirus to be a global pandemic, West Coast Cannabis Club held a grand opening party for its newest facility in Palm Desert — a sunset soiree replete with food, music, and hundreds of cannabis enthusiasts.
It had taken years of planning and renovations at the 31,000-square-foot building on Melanie Place to create the company’s third dispensary plus a warehouse, manufacturing, and cultivation space that would position the company for growth.
Now, more than five weeks since California implemented broad stay-at-home orders, it’s a bit surreal for West Coast Cannabis Club CEO Kenneth Churchill to re-watch the highlights of that March party roll across his Instagram. “We had so much really incredible momentum coming out of that grand opening,” he said. “To walk right into this, it’s not helpful.”
With dispensaries deemed essential businesses, Churchill has been able to stay open, and his Palm Desert location has become a convenient hub for the exploding delivery business that now makes up a greater share of sales. Overall, though, business is down due to the lack of spring tourism that usually makes March and April the busiest months of the year.
Churchill and other cannabis entrepreneurs cannot avail themselves of many aid programs being offered to other businesses. With marijuana still illegal under federal law, the cannabis industry can’t readily access traditional financing from banks. And cannabis companies can’t get the same emergency federal loan assistance as other businesses that are struggling during this time.
At West Coast Cannabis Club, the pandemic means new protocols to physically distance customers and keep employees safe. And employees have been given a $5 hourly raise to help them get by as their spouses and roommates lose jobs, and as some staff are unable to take the health risk of going to work.
“That’s not coming from any benefit we’re receiving from the government,” Churchill said. “That’s something we were able to do to help our individual employees get through this.”
‘Here to stay’
Before the pandemic hit, the flow of money building up the nascent legal cannabis industry was already slowing down.
Business was clipping along in many spots, but it wasn’t the “green rush” some had predicted. Stocks for some publicly traded cannabis companies were plummeting. A still-thriving illicit market in California made it tougher for new legal operators to compete. Investors were starting to become more selective and the big chunks of capital that could fuel large-scale improvements and building booms were getting harder to find.
Richard Acosta, CEO of Beverly Hills-based cannabis real estate investment company Subversive REIT, has invested in two properties in the Coachella Valley. After the pandemic started, Acosta said, investing has come to a virtual standstill, as investors in many sectors are watching and waiting to see what the economy does.
“They’re building war chests for investing in the coming months and quarters,” he said.
Alongside California, more than 20 other states that have legalized cannabis to some degree have designated dispensaries as essential businesses. Acosta said the essential classification is a positive development for the industry, “a blessing” that gives businesses a hope of staying afloat.
“This is our moment as an industry to really prove this an industry that’s here to stay,” Acosta said.
With state and federal lawmakers considering a range of relief and stimulus programs for the economy, some in the cannabis industry see an opportunity to score some regulatory victories.
Last fall, the House of Representatives passed the SAFE Banking Act, which would allow big banks to work with cannabis companies and give them more access to money. The legislation has been awaiting action in the Senate, but some lawmakers have floated working the parameters into a future coronavirus stimulus package.
Karen O’Keefe, the director of state policies of the advocacy group Marijuana Policy Project, saidin addition to hampering long-term financing efforts, the current restrictions to banking make credit and debit card usage difficult for cannabis businesses. That renders the industry largely cash-only, with some cannabis companies in the valley and elsewhere having to pay taxes with heaps of cash.
“Not allowing access to banking simply makes people less safe and less healthy,” O’Keefe said. “This made no sense before, but particularly at a time when we’re all vectors of a potentially deadly virus, why do we want people exchanging cash?”
Requests for relief
In California, multiple companies and advocacy organizations are pushing for immediate relief that will help cannabis businesses with cash flow so they won’t have to close up for good.
On March 31, dozens of cannabis industry companies including major brands like Mammoth, Caliva, and MedMen wrote to California officials to ask for a deferral of annual licensing fees, citing financial difficulties in the face of the pandemic.
Such fees can be well into the six figures, based on a company’s estimated upcoming gross revenue.
“Based on discussions with a large number of California cannabis operators, we know that a significant portion do not have the resources to pay these licensing fees without impacting the money for staffing, and that requiring to pay these fees as scheduled will put them at risk of additional layoffs, or even shutdowns of key operations,” the letter said.
The Bureau of Cannabis Control as of Friday hadn’t issued an official response, and Gov. Gavin Newsom has not issued any executive orders specifically related to the cannabis industry.
On Thursday, more than a dozen legal cannabis and social equity advocacy groups wrote to state government officials to ask for temporary tax relief.
An eighth-ounce of cannabis on the legal market may cost customers $67 to purchase from a store, or $25 to $35 from an illegal operator, the letter said, and lowering taxes will keep operators competitive.
“At a time where unemployment is at a record high, the legal industry is seeing its customers flock to lower-priced cannabis products in the illegal market regardless of quality or safety,” the letter said.
The letter said the relief is especially important in a moment when the cannabis industry can’t access the same federal loan programs that are being rolled out for other businesses, due to the classification of cannabis as Schedule I substance.
Though cannabis employees may be eligible for unemployment insurance like those in other industries, many workers come from low- to medium- income levels and from disadvantaged communities, the letter said.
“By providing this relief to social equity businesses, you are helping minority-owned businesses that provide low income and minority community members with job opportunities,” the letter said.
Adapting to new realities
Kial Long, the vice president of communications for Northern California-based CannaCraft — which manufacturers products for brands including Care by Design CBD products and Absolute Xtracts vape cartridges — said the pandemic has shown how inconsistent the regulations on cannabis are.
“Cannabis has been designated essential during this time, so there is some importance placed on it,” she said. “But it is just at odds with the regulations and limitations that we face as a business in general with banking, finance and even being left out of the stimulus package.”
For CannaCraft, staying in business right now means streamlining manufacturing to their most popular products, with a focus on those that may help with anxiety and sleep. And they put off the launch of new products and associated hiring.
“We really focused on the products that we know people rely on for their health and wellness,” Long said.
CannaCraft also converted a portion of its manufacturing space in Santa Rosa to make hand sanitizer, Long said. So far, they’ve made about 30,000 units that they’ve distributed to nonprofits and law enforcement in Sonoma County — including a police department that conducted a high-profile raid of their facility in 2016, Long said.
And while the company anticipates it will continue making its products for the foreseeable future, it doesn’t know how demand will change. Some in the industry are optimistic that customers, even facing income losses, will continue to purchase cannabis. Or people could cut back their purchases, leaving the California companies already trying to find their footing in a newly formed marketplace without much of a revenue stream.
“We’ve seen high demand the past few weeks,” Long said. “It’s hard to tell whether that was stockpiling in panic, or if that’s on track with elevated stress and people having more anxiety around the pandemic and looking for ways to unwind.”
Data from cannabis analytics firm BDSA shows that while there was a spike in cannabis sales in late March as people began to face the realities of stay-at-home orders, sales were starting to decline.
“The recession is starting to impact the cannabis industry, just like it is impacting every other industry out there,” said Micah Tapman on a BDSA webinar.
Shoppers are alsomaking fewer trips to dispensaries; BDSA data show they’re buying more at one time, a change in purchasing habits that may reflect people’s desire to limit trips outside their home
‘You could lose millions of dollars’
Steve White is the CEO of Harvest, a publically traded cannabis company that grows its own cannabis and has a line of dispensaries, including one on Palm Canyon Drive in Palm Springs that opened last fall.
He said cultivation facilities are especially vulnerable during the pandemic, given the rigid schedules needed for staff caring for plants. Even a shutdown of a few days could mean big losses, he said.
“If you had an outbreak at a facility, and people couldn’t come to work, all of your plants are going to die, and you could lose millions of dollars,” White said.
To mitigate the chance of coronavirus transmission, Harvest’s grow facility workers have been split into two teams with different shifts who all get their temperature checked before entering the building.
As of early April, there hadn’t been a case among Harvest’s 1,000+ employees, but White wondered when that might change, and was already prepping for the possibility.
“We can do the best we can as an organization to keep people safe, but even in light of that, the odds dictate we are going to have an issue somewhere at some point,” he said.
The company’s stock hovered around the $1 mark in the third week of April,down from around the $3 mark in the weeks before the pandemic hit. But White still sees an opportunity for the cannabis industry in this moment, and is still advertising job openings for about 90 positions.
He said the cannabis industry could be part of the country’s economic recovery — especially if given the same opportunities as other businesses.
“We have a growth industry that appears to have consistent demand, even in the throes of the pandemic,” he said. “Let us help society recover faster. In order to allow us to help, there are certain things you gotta do to let us work just like any other business.”
Melissa Daniels covers business, hospitality, and economic development in the Coachella Valley. Reach out at (760)-567-8458, email@example.com, or on Twitter @melissamdaniels.
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