From seed to sale: What Canada can learn from Colorado’s billion-dollar green rush

From seed to sale: What Canada can learn from Colorado’s billion-dollar green rush
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DENVER, CO. John Lord steps from his SUV and into his giant cannabis factory, near this citys deserted stockyards. Cattle once dominated commerce in the Colorado capital, but marijuana is the prized commodity now.

Before Colorado voters defied the U.S. governments longstanding cannabis prohibition and amended their states constitution in 2012, making the drug accessible to any local resident or visitor aged 21 or older, Lord used the expansive warehouse to manufacture baby products. His child car seats were sold in major retail stores, such as Walmart, Target and Toys R Us.

Now hes a pioneer in whats being hailed as a lucrative green rush. And hes got some advice for politicians and stakeholders in Canada, in their efforts to legalize recreational pot: Keep the rules simple, he says. Dont over-regulate, or the whole effort might fail.

All over Denver, one notices the sweet, pungent fragrance of pot. Its not always the smell of marijuana being smoked, either. Its the scent of healthy, growing plants. After Colorados recreational pot laws came into effect in 2014, Denver became a major marijuana production centre, with dozens of indoor growing operations.

Entrepreneurs have invested hundreds of millions of dollars into raising bushels of high-potency pot. A transplanted New Zealander, Lord grows what seems like an endless number of plants inside his 140,000-square-foot facility. He wont divulge the precise number he has under cultivation at any one time thats a proprietary secret, says the diminutive businessman but he claims there are enough to make his facility the largest licensed grow-operation in the entire United States.

And its still not big enough. Lord is planning to expand his factorys footprint by another 70,000 square feet.

His is a vertically integrated, plant-to-sale operation. With the help of some 500 employees, Lord grows and then processes his green gold into dozens of different products. They range from perfectly trimmed dried flower (or bud) to powerful concentrates such as oils and wax, to cannabis-infused candies and chocolate. He is also making cannabis vaporizers the discreet, smokeless devices are considered the new big thing in pot.

Lords products are intended to give consumers a heady buzz or a relaxing body stone, known among aficionados as couch lock. Other concoctions derived from specific marijuana strains are meant simply to help induce sleep or relieve pain, without any psychotropic effects.

His privately owned company, LivWell Enlightened Health, sells its home-grown cannabis from 14 retail stores it also owns and operates, in and around Denver. It also offers wholesale cannabis and custom-label edibles to retailers around the state. LivWells busiest shop, says one of Lords executives, sells US$200,000 worth of processed marijuana every week.

I underestimated the market when I first got involved, Lord says. I had no idea how widespread cannabis use is in society.

Other Denver-based entrepreneurs share the sentiment. A few miles south of the LivWell facility sits a nondescript, 10,000-square-foot former mini-blinds factory. Its now a thriving grow-operation, one of several in a stable co-owned by former high school biology teacher Tim Cullen and Ralph Morgan, a former medical device salesman.

Their cannabis venture, Colorado Harvest Company (CHC), produces about 700 pounds of high-grade marijuana every month. Thats a lot of pot, but not enough to supply their four retail stores in the Denver area. The company has to buy wholesale marijuana from other producers just to meet customer demand.

Cullen and Morgan have expanded their operationsand their horizons. In addition to forming separate companies that produce high-potency cannabis oils and vaporizer products, they are looking at further expansion and investment opportunities. Annual revenues from all of their operations grew 1,200 per cent in 2014, another 400 per cent last year, and are now between US$50 million and $100 million, says Morgan. CHC has 80 employees, including five scientists with PhDs. And theyre just getting started.

Across the state, where the first legal, recreational marijuana stores opened on Jan. 1, 2014, revenues are exceeding almost everyones expectations. In 2015, total revenues from Colorados 432 licensed cannabis shops rang in at US$996 million. This year, that figure is expected to reach about $1.2 billion. State-imposed cannabis license fees and levies amounted to $135 million last year, a decent return for taxpayers.

But dont be seduced by the juicy figures. Running a successful, plant-to-sale marijuana conglomerate, even in free-market Colorado, is a high-risk, capital-intensive enterprise filled with legal requirements and regulatory hurdles that keep changing.

Keeping in line with Colorados marijuana laws is a costly headache, Lord grumbles. We employ 45 people in our compliance department alone, he says. Compliance regulations are the biggest barrier to entry in this business, and the toughest on the small, mom-and-pop operations. There have been 141 regulatory changes in the last year alone.

Cullen agrees that the rules could be less onerous. Legalization was sold to voters as something to be regulated like alcohol, says Cullen. But its not even close. We have purchase limits, unlike alcohol, and pretty stringent advertising, packaging and labeling restrictions. All of our ingredients must be declared, including whats been sprayed on the plant. The bar is set high.

Complicating matters even more is the states two-tier system, one for medical marijuana, the other for recreational pot.

The state legalized marijuana for medical use in 2009, and continues to tax that product at a rate three times lower than the 22-per-cent rate applied to recreational pot, at the retail end of the supply chain. And at all times, during their cultivation, processing and sale, marijuana intended for the medical and recreational markets must be kept separate.

Whatever their intended use, cannabis plants are notoriously high-maintenance. Vulnerable to pests, mould and mildew, they require a massive amount of care to reach their maximum buzz-worthiness.

Were still learning how to improve something that people used to do secretly, hidden in a closet, Lord says. And were doing it on an industrial scale.

At Lords cannabis factory, everything starts in a petri dish. LivWell uses a method of tissue culture to grow pot. Cannabis cells are extracted from selected female, flower-producing plants there are countless varieties, or strains and placed on a piece of gel. After one or two weeks, the fledgling plant is transferred to a more robust growth medium, a coconut-fibre mulch, and then into a nursery room. After more time there, the potted plants are placed in a warm, humid and brightly lit spring room.

There they are fed a proprietary solution of water and nutrients, and receive 24 hours of light every day. Lord says his team has developed a highly efficient LED lighting system to replace conventional, high-pressure sodium bulbs, thus reducing his factorys electricity bill by about 33 per cent. Even so, he spends a staggering $150,000 a month on electricity.

Once the plants are a certain size and ready to flower, they are moved to yet another growing room, with heat and lighting systems set to mimic the cooler, shorter days of late summer and autumn. Large buds begin to develop; once they become full, solid and fragrant, it is time for the harvest.

Over at CHC, the growing process is slightly different. The company eschews tissue culture and starts with simple plant cuttings, also known as clones. Like LivWell and every other licensed marijuana grower in Colorado, all of CHCs plants have their roots in the black market there was no other source for cannabis when the state legalized medical and recreational pot, so producers had to take genetic material such as cuttings and cells from what had been illicit weed.

We had to start somewhere, shrugs Cullen. The important thing is that every plant thats grown now is in the regulated system.

Under Colorados new pot laws, all plants grown in licensed facilities are assigned and tagged with unique identification numbers, which are recorded and shared with state regulators. This allows them to be closely traced, from their brief incubation period through to harvesting. Processed products are also assigned tracking numbers. This manifesting procedure is meant to prevent marijuana and marijuana products from leaving Colorado and entering the black market. (None of Colorados immediate neighbours allow the cultivation and sale of recreational marijuana.)

And of course, every marijuana plant and product meant for the medical and recreational markets is taxed by the state, through every stage of production. Manifesting allows regulators to keep close tabs on what is being produced, and on revenues generated through their sale.

We have to keep track of every frickin gram we produce, Lord says.

Even those parts of the plants that arent sold must be removed in a state-approved manner. Stems and so-called fan leaves the large leaves below the flower are collected after harvest and weighed. Then the waste is mulched and mixed with the used coconut-husk medium, then bagged and removed to local landfills, like regular trash.

Producers can also expect random visits from various officials, such as fire, building and insurance inspectors. Potpreneurs such as Lord, Cullen and Morgan keep their facilities sparkling clean. Floors are bleach mopped every night, machinery is wiped down, and staff are instructed to keep themselves looking tidy.

Lifecycle of a plant

Its the same story inside their retail operations. Budtenders receive several weeks of training before they start work behind the sales counter; they are expected to understand how their products differ, according to their strain and potency. They are also trained to give proper advice to customers looking for specific results.

Retail competition is fierce. Local zoning regulations determine where recreational pot shops are located, which means they tend to cluster in certain areas. Along a strip of Denvers busy S. Broadway corridor south of the downtown core, for example, 17 pot shops are squeezed into a mile-long strip.

CHCs flagship store was among the first shops to open on the so-called Green Mile.

There was a three-hour wait to get inside, when we first opened in January, 2014, recalls Cullen.

The lineups are much shorter now, and non-existent outside the busy hours. But no matter the time of day, no matter the location, every potential marijuana customer in Colorado must provide identification before being allowed to enter a retail outlet and inspect any products for sale.

In most stores, the selection and variety is impressive, the budtenders courteous and knowledgeable.

As for the customers, there are all kinds. In little more than two years, Lord says, marijuana has become normalized. I thought our typical customer would be a 20-something guy. But its a real melting pot. Youll see a guy in a suit, then a guy in dreadlocks who will be holding the door open for grandma.

Theres something for everyone inside, he says. Lord likens his product range to the sort of beverage products one might find in a local liquor store. From low-calorie soda to whisky, weve got it covered, he smiles.
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