But I’d never written a business plan.
I wouldn’t get my friend’s money unless I did. So I went to the library, read up on some models of what these plans looked like, went back to my apartment in Seattle, and cranked one out in a weekend.
I got the money and ran that ice cream business for five years before selling what I had grown into a three-store local chain.
It wasn’t until later, when I was working for a start-up mortgage bank, that I finally grasped what kind of information investors needed to hear in order to close the deal. The institutional investors I was dealing with were serious. There was little room in their cosmology for passion. These guys weren’t investing because they loved real estate. Their jobs were to deploy this capital and get the anticipated return, and if I wanted them to take me seriously, I had to speak their language.
Following a brief introduction to the concept of the investment, we would provide them with an information memorandum (IM) that explained the proposed investment in great detail. IMs are the cheat sheets of the business world. They give a detailed description of the nature of the investment, the management team, financial projections (historical as well as forward-looking pro forma financials), risk factors (like the drug cartels mentioned earlier) as well as a host of supporting exhibits—the operating agreement, subscription agreement, investor questionnaire, and so on. The intention is to provide investors with all the information they need to make an investment decision in as few pages as possible.
In my new life as a ganjapreneur, I was beginning to see that I had a leg up on so many of my competitors. They were growing weed because they had been in the business before it went legit, or they had gotten hit by the recession and were looking to do something else. But they didn’t have business backgrounds. All they knew was that cannabis was fun and looked to be a hell of a lot less stressful than the rat race they’d just fled. Some of the owners of these dispensaries thought it distasteful to hustle and grow their business. They wanted to take it easy. Perhaps they even regarded cannabis as the slow path to a comfortable retirement. Many had gotten in early with dollar signs in their eyes. They imagined arising each morning to a new sack of cash being delivered to them by magical fairies, only to wake from their dream state to realize that the marijuana business was as complicated and competitive as any business out there.
The trouble was, the industry was constantly changing.
At this time, everywhere I turned, people wanted to take a meeting to talk investment opportunities. I was doing meetings with longtime Colorado residents, meetings with out-of-towners, meetings with rich guys who were looking to set up their sons or daughters in a business that they wouldn’t screw up, meetings with semiretired country clubbers who wanted to brag to their friends that they still had skin in the game and were shifting their portfolio beyond boring blue-chip stocks.
In some of those meetings were polished individuals who worked for the Big Tobacco companies. They were watching the cannabis industry very closely. For now, they were prevented by law from investing in the marijuana business in states like Colorado, but those restrictions would lapse soon enough, and these companies would descend upon our market with their entire arsenal. They had everything they needed to succeed: lobbyists, politicians amenable to their cause, farmers willing to grow the next big crop at a moment’s notice, and a shitload of money. One guy I talked to let slip that his tobacco company already had an outdoor grow facility in the Southeast, just waiting for marijuana to become legal there.
It did not shake me up at all to think that someday you’d walk into a 7-Eleven and be able to buy a pack of joints as easily as cigarettes. That was inevitable. It troubled me more that these guys might possibly take an industry that prided itself on growing with integrity—cleanly, naturally, organically wherever possible—and turn marijuana into a pesticide-heavy crop. Most of the growers I knew denied that such a thing would ever happen, but I could feel it in my bones. Like it or not, brutally efficient capitalism will eventually transform what has been until now a very mom-and-pop, feel-good industry.
The numbers also suggested that the cannabis industry was already constricting. In our state, the number of licensed retailers had declined by 40 percent in the first few years. That suggested that people were rushing into the business, losing their shirts, and not being replaced. If your cannabis company was not growing, you already needed to start thinking about who you might sell to as an escape strategy.
Many of the dispensary and grow owners I’ve met have been lucky to attract money from outside investors, but they are ill-equipped to deal with the ramifications of that new obligation. I am still surprised when I meet people who are running successful cannabis companies who don’t understand the difference between getting a loan and selling equity in their business. I’m not being facetious. They don’t understand that they are selling a portion of their company, and maybe even control of the company, in exchange for a much-needed infusion of capital. I finally had to take one friend aside after he shared an agreement he had signed with a “lender” and say, “Dude, you understand that they own a piece of your company?”
“No, I’m just going to pay him back and then give him like twenty grand or something for his help.”
“No, this agreement gives him equity ownership in your company, and if you fail to make a payment to him, he can take control of the business.”
I didn’t know what to tell him. Welcome to Business 101, maybe?
Still, I looked forward to describing our opportunity to more sophisticated investors. I had internalized the examples of a couple of good role models.
I admired Ben & Jerry’s greatly. Have you ever noticed that customers aren’t just loyal to the Ben & Jerry’s brand? They’re loyal to the flavor. I’ve overheard arguments between people over what flavor they should get at the supermarket to take home tonight. Chunky Monkey? Cherry Garcia? Hazed & Confused? New York Super Fudge Chunk? Phish Food? People swear by those flavors, and they know they can’t get them from any other brand. Think about how unusual that is. You might well love coffee, but are you loyal to French roast? I believed we could get people loyal to SkunkBerry, Ghost Train Haze, and Hells OG Kush.
The other thing I admired about Ben & Jerry’s is that it transcended what the average corporation was supposed to be about. Companies aren’t supposed to have souls or personalities, but Ben & Jerry’s always did, even before it was fashionable.
Starbucks is another company that inspires intense brand loyalty. Yeah, I know—not everyone loves its coffee; not everyone loves that the shops are on every street corner in America. But you cannot deny that, for many people, that first sip of Starbucks was their first inkling that coffee could be a luxury product, a cut above the swill served in most fast-food locations in America until that time. Howard Schultz, the CEO who took Starbucks to the next level, is one of my role models in this regard, a classic Wall Street capitalist who managed to excite enough investors to raise the billions he needed to literally grow a store a day.
I wanted to create the same public passion for marijuana.
I wanted to grow the company in an honorable way.
I wanted Green Man Cannabis to be different from other marijuana out there. I wanted to win the minds, then the hearts, and finally the wallets of marijuana product and lifestyle consumers and become the most recognized brand of legal marijuana in the world.
Bold? Yes. In front of me was a great opportunity to achieve everything I had ever wanted. This was Green Man’s moment, and I was completely committed to capturing it. And I was going to do it in a way that was meaningful.
As soon as the recreational-use referendum passed, I started getting calls out of the blue from potential investors who were eager to get in on the ground floor of the marijuana industry.
I was grateful. The first phase of our Cannabis Ranch construction required about $25
million in capital. A guy who needs money for his business can’t afford to pass up any opportunity to get someone to write him a check.
But this newfound attention quickly became a double-edged sword. I had underestimated how much education would be involved in wooing investors. When I was in real estate, I didn’t have to teach people what real estate was, or how it was “made,” or what we did with it. Everyone knew the score. God made land, and he wasn’t making more of it.
Legal cannabis was different. My typical song and dance with a potential investor started with my monologue about the industry. They had tons of questions: How profitable is it? Can I get in? What are the pluses? What are the downsides? And finally: What’s an opportunity with you look like?
Individual investors came to us with a lot of curiosity and passion. They wanted to make money and look cool in front of their friends. Institutional investors were curious, too, but they checked their passion at the door. They were all about the dollars. Would the cannabis industry lead to profits—or was it a waste of time?
Both types of investors had to jump through our state’s legal loops. Direct investors had to be permanent residents of Colorado. That eliminated most of the people I talked to, but there were always some surprises.
An attorney friend of Mr. Pink’s called me once, asking if I wouldn’t mind spending some time talking to her about the Colorado cannabis industry in general. She had clients who were thinking of investing, but she knew nothing about the industry at all. Her approach was guarded, but she was willing to learn in order to be better able to advise her clients. Would I be willing to talk?
We had a single, hour-long call in which I gave her the lay of the land. I described where I thought the industry could be in five or ten years, purposely keeping my own fund-raising need out of the conversation. I was doing Mr. Pink a favor; calls like this were about educating a serious party, not making a pitch.
In the end, though, she didn’t think the risks of the marijuana business were suited to the client she had in mind. She then asked if I knew of any other deals in the marijuana industry. I told her about ours, but she didn’t think ours was right for her client, either. But there was another client of hers, a basketball player, who she thought might be a potential investor.
“He loves the idea of the marijuana business,” she said. “He just can’t get into it right now. He’s still playing.”
I knew what she was talking about. I had already met with a number of athletes who were in the same situation. Most of their contracts and sponsorship deals carried serious morality clauses. This was intended to make sure that these athletes projected a squeaky-clean image before the public. They couldn’t be caught doing anything illegal. They had to stay clear of marijuana.
Here’s where the hypocrisy of this stuff comes in. An actor, athlete, or other celebrity can be more easily forgiven by the media and public if he is TMZed dancing drunk and naked on a friend’s roof than if he is busted with an ounce of marijuana intended for personal consumption. Our current political and cultural landscape is out of sync with reality and in need of reform. Which sometimes puts me in the ridiculous position of marijuana investment career counselor to the stars.
“You probably want to wait until you retire from the NBA,” I told one athlete. “Whatever you could make from investing in our company is not worth losing your shoe deal over, not to mention your career.” He reluctantly agreed.
Well, I finally met the ball player whom I’ll simply describe as Mr. Tall. He didn’t waste any time telling me how much he loved marijuana but never touched the stuff during the season. There was actually only a three-month window every summer when he could happily smoke weed without having to worry about a drug test from the NBA. Like a lot of athletes, he used weed for a variety of reasons. It didn’t cloud his head the way alcohol did. If he was hurting from an injury or just looking to comfort some aches, the drug’s analgesic properties worked wonders. Above all, it helped him relax and sleep in a way that alcohol never would.
Mr. Tall was a state resident. And I liked him, so much so that we ended up working out a deal that will get him involved when he retires. But he’s itching to do so now. In fact, every time he hears we are having some kind of event, he tells me how much he wishes he could be a part of it.
It was just his pain-in-the-ass multimillion-dollar basketball contract that was keeping him from being a part of our day to day. “Chris, man,” he likes to say. “I tell you, as soon as I retire, I’m going to be there for you and Green Man. Anything you want. The Cannabis Cup, any event you’re at, I’m there. I’m going to be lighting bongs for people at the booth.”
The musician known as Redman gave me a big hug when he entered the room and settled into a couch to start our meeting. I knew him only by reputation. He is a legendary figure in hip-hop, a Jersey-born rapper who has cut numerous records with his partner in rhyme, Method Man.
We met in Denver at the office of a mutual friend. Redman wasn’t a Colorado resident, but he was passionate as hell. He and Method Man were often photographed smoking fat joints or displaying Ziploc bags filled with monster buds.
We got down to business. The conversation took its twists and turns but finally got around to the real reason we were meeting. Redman was looking to capitalize on the cannabis business. He’d liked what he’d seen of our operation, and he wanted in. There was just one thing that would clinch the deal for him.
He wanted us to name a strain after him. And he wanted it available for his fans to buy by the time his next album came out. That would be tricky.
“I don’t have a problem naming something after you,” I told him. “We could rename something that you yourself love. The bigger problem is, the only fans that would be able to buy it are those who live in or visit Colorado. That’s probably not worth it for you. You’re looking for a national platform. Plus you can’t make money from it. That would qualify you as an owner, and you don’t qualify for that because of your residency status.”
“How do we get it outside Colorado?”
I shook my head. “We don’t.”
“You can’t mail it?”
“Not without breaking a dozen different federal laws, no.”
“Oh.”
The guy I’ll called Señor Duffel was also excited about the cannabis industry. He’d seen our name around town, and he was ready to jump in feet first.
“I could probably invest a million to start.”
“A million dollars?” I was impressed by how casually and assuredly he said it. A million dollars was always welcome. It would speed up my capital campaign enormously.
“One catch,” he said. “It’s a million cash. We’ll deliver it to you in a duffel bag. But you’ll have to be responsible for laundering it.”
Oh shit.
“Laundering? Uh, no,” I said. “It doesn’t work like that. It has to be completely legal. We have to file an affidavit for every single dime we take in. We must be able to trace this back to a legitimate source.”
“You mean to say, you’re, like, completely legit?”
“That’s right.”
“Oh.”
The guy I’ll call Boris was a millionaire many times over who owned and operated mines in various locations in Eastern Europe.
He wanted to invest. But he also wasn’t a resident of Colorado. In fact, you could say he wasn’t a resident of anywhere. This oligarch traveled by private jet to reach his various mining enterprises and the meetings he took all over the world.
He spent a lot of his life on that plane, smoking his way through copious quantities of marijuana at 33,000 feet.
“What does the Bible say about this?”
I was sitting with a group of investors, all of whom were devout Christians. They were open to these new opportunities, but they weren’t sure the Bible condoned marijuana.
Some activists have argued that marijuana actually appears in the Bible as the “aromatic” or “sweet cane” mentioned in the Old Testament. Some say that cannabis is one of the ingredients in the holy anointing oil used by ancient Hebrews and early Christians. Naturally, traditional biblical scholars dispute these assertions.
I always try to be respectful about this topic. I’m not devout in the traditional sense, but many people in my extended family are. My aunt is a fundamentalist Christian, and my study of this topic grew largely out of my desire to explain my business motives to people like her.
“Have you read the Bible or the Torah? Do you believe in its guidance?” I usually ask. Nearly always, religious folks say that they have read one of these books and that they find its guidance meaningful.
“Yes, of course,” they might say.
That’s when I refer them to the words the Lord spoke on the Sixth Day, quoting Genesis 1:29:
Then God said, “Behold, I have given you every plant yielding seed that is on the surface of all the earth, and every tree which has fruit yielding seed; it shall be food for you . . .”
I had two large investors interested in helping us build the Cannabis Ranch. One was William, the Wichita investor I mentioned earlier. Another was a private equity firm based in New York City. Their firm had about $4 billion under management. If we were going to get the Cannabis Ranch built, I needed these two investors to come in as partners in the larger real estate deal. They would buy the land, build the facility, and lease it to us. By acting as our landlords, they would neatly sidestep the state law preventing non-residents from investing in marijuana businesses. They would never own a share of the company, but they would share in our success by renting to us.
For much of 2014, I was immersed in visits and conference calls with my attorney and accountant and theirs. One of those parties still had issues with the numbers.
Big Weed Page 18
