Upscale Delivery Service Points To The Future Of The Cannabis Industry
Flow Kana and Auntie Dolores are California startups helping shape the direction of the marijuana industry over the next few years
With recent measures approved to legalize recreational marijuana in California, Nevada, and Massachusetts, the cannabis industry has been preparing for life under new regulations. PSFK talked to Flow Kana co-founder and head of business development Adam Steinberg, whose company produces small batch sustainable cannabis in California, and Julianna Carella, CEO of Auntie Dolores, a San Francisco-based cannabis gourmet foods producer, to learn about the challenges the industry faces and what to expect in the next few years.
How will Prop 64 passing in California and similar measures in other states affect the industry?
Steinberg: Prop 64 (and similar measures) will exponentially expand the legal market, offering exponentially more legal distribution channels and legal buyers for producers to develop relationships with. There is also a belief that the passing of these measures will have a huge impact on breaking down the stigmas that still persist surrounding cannabis. I believe many people who can really benefit from cannabis, but have not yet tried it, will feel more comfortable giving it a shot. In addition, if not most important, many of the recent measures passed will enable individuals with past convictions/records related to cannabis to apply to have their records expunged. Individuals currently incarcerated for cannabis related offenses will have the ability to apply for release and to have their records cleared.
Carella: The recent developments in the California recreational use regulations have been long-awaited as we have been essentially self-regulated since Auntie Dolores was founded in 2008. We welcome sensible regulations that will allow our businesses to thrive just as any other business outside of the cannabis space. We have always felt product like ours would fit nicely in the recreational use market, and in California there are thousands of cannabis enthusiasts that would love the opportunity to purchase our products without a doctor’s note.
Why are some producers against the legalization?
Steinberg: I can’t speak for producers and other industry participants that I am not familiar with but what I can say is that some small producers have concerns about Big Marijuana coming in and squeezing them out, and rightfully so. We are working with our network of small farmers to help ensure they have a place in the industry for years to come. We are helping our farmers set up agricultural cannabis cooperatives which will enable them to come under one common roof to pool resources, expertise and buying/negotiating power. Together, a group of small farmers can create co-ops to compete on a larger stage with some of ‘big guys’ that will come into play. Add in centralized processing (similar to coffee co-ops in South America) and you’ve got a winning formula.
Do you expect demand to increase significantly in 2018 when cannabis is sold recreationally in California? What might happen with prices?
Steinberg: No one can predict the future, but I think it’s safe to say that we will see a significant increase in demand come January 1, 2018 when recreational sales come online. No one can really predict what will happen with prices, but looking at other states, it’s likely that we will see a dip in prices over the next few years. For us and the farmers we stand for, co-ops and centralized processing is going to be key to achieve success in this new market.
What challenges do cannabis businesses face?
Carella: There are always challenges when it comes to running a cannabis business; the challenges we face are disproportionate to other businesses and some of these challenges include the very basics of running a business, i.e., banking limitations, tax-related provisions only cannabis businesses are subject to, to name a few. None of these challenges disappear with new state regulations; being compliant with state-wide regulations does not remove the federally mandated obstacles. Along with these challenges, we can also expect to be under disproportionate scrutiny with regard to all levels of regulation from seed-to-sale tracking and proposed compliance with use of pesticides. We hope that the final regulations are reasonable and fair, and if they are not, that we are able to comply with them regardless.
Understanding the market in California means knowing where we came from and mapping out strategically where we are going. With this there will certainly be growing pains. Manufacturers, like cultivators in California have historically captured the leanest margins, as dispensaries have taken the approach of offering the highest quality medicine in the world for the lowest prices on earth, while still capturing their desired margins. When California producers are required to abide by various practices that will likely drive up prices, i.e., mandatory distribution, the challenge will be to get our shops to effectively sell our products while supporting the manufacturers who produce quality products that California cannabis enthusiasts want.
What might we expect to see happening in the industry within a few years?
Steinberg: Like we have seen with the rise of locally sourced, organic foods, I think we will see a similar trend in cannabis. Consumers will want to know where their cannabis is coming from, who grows it (and the values the producer instills in his-her production), and how it’s grown. As we’ve seen with the rise of the millennial generation, I think we will see consumers continue to show more and more support for the companies they believe in by way of their wallets.
Carella: The upside of regulation is safer, better quality medicine and accountability of producers, the downside of regulations is price increases. Auntie Dolores plans to remain a leader in this new regulatory environment, without having to sacrifice quality or consistency.