To hear Troy Dayton tell it, California is on the brink of a gold rush — or, more specifically, a green rush.
While insiders are working behind the scenes to put the question of recreational marijuana to voters on the November ballot, investors and business owners throughout the Golden State are getting ready to jump into the recreational pot business.
That business could be very, very big. Medical marijuana infuses $2.7 billion a year into the California economy, and market watchers expect the pot economy to more than double if California voters legalize adult use this fall.
“California is responsible for half of all legal cannabis sales in the United States,” says Dayton, chief executive officer of the investment and market research firm ArcView Group, which publishes the report “The State of Legal Marijuana Markets” and represents 500 high-net-worth individuals who have invested $70 million in the cannabis sector. “California is definitely the biggest prize in the union. We looked at California's current medical marijuana market. You can times that by 10.”
In addition to an increase in marijuana sales, where's all this economic growth going to come from? There are some surprising sources, along with the ones you would expect. Everyone from local government officials and almond growers to millennial tech execs and manufacturers of inventory-tracking systems are lining up to get their piece of the brownie.
—The San Bernardino County city of Adelanto is striving to become a cultivation mecca. City commissioners in this salt-of-the-earth community have approved 31 applications — which cost $7,000 apiece — to qualify as a marijuana grower. And the New York Times reported that the price of land has tripled in Adelanto and Desert Springs as parcels where pot-growing is permitted have been snatched up.
—Central Valley farmers are under attack from conservationists due to high-water crops such as almonds. Some farmers have held meetings in Modesto to consider removing almond trees and planting marijuana in their place. At a recent meeting of farmers and politicos at the Gallo Center for the Arts in Modesto, Stanislaus County Sheriff Adam Christianson received applause (and some laughs) when he told the crowd that the marijuana growers in his county produce some of the best pot around.
—Canna-tourism is very much a thing. Colorado tourism is up 8 percent since 2014, when pot became legal there. An 8 percent spike in California, where the tourism industry is many times the size of Colorado's, would have far greater financial impact.
—Inventory-tracking systems will see a spike in sales, because growers and retailers likely will have to maintain records on every plant from seed to sale. Currently, a Florida company makes the Colorado-required plant tags containing computer chips.
—Techie millennial executives in Silicon Valley are more likely to sink money into cannabis than their more traditional corporate counterparts, who may be hesitant to invest for fear of jeopardizing the company name.
“If it becomes legal, the same people who are in it now are going to invest,” says Osiris Santos, a green entrepreneur whose company, AmeriCann, works with dispensary owners on branding and marketing. “The new people who jump in are the people who were afraid to get in before.”
Santos works out of KushMart medical marijuana dispensary, four blocks north of the 10 freeway on South Hill Street. From his headquarters, the millennial with long, black hair pulled into a ponytail runs not just AmeriCann but also a separate company that trains dispensary employees on everything from the difference between THC and CBD to being kind and respectful to patients.
“I liken it to the dot-com boom in Silicon Valley or the entertainment boom in Santa Monica.” —Jason Thomas
Santos also points out that one of the biggest L.A. opportunities in cannabis will be real estate. Warehouses for cultivation are expected to be in high demand. That certainly was the case in Denver, where Jason Thomas, CEO of Avalon Realty Advisors, provides commercial real estate services to the cannabis industry.
Three years ago, just as Colorado was implementing adult use, warehouse vacancy rates sat at 6 percent and rent was $5 a square foot. Many warehouses were underutilized and set to be replaced with condos. That is, until Colorado's pot boom. Now the vacancy rate is 3 percent, and warehouse rent is $13 to $18 a square foot — if you can even find a place zoned for pot cultivation.
Denver warehouse sales in 2013 averaged $65 a square foot. Now the rate is $110, Thomas says. “I liken it to the dot-com boom in Silicon Valley or the entertainment boom in Santa Monica.”
Thomas says he's planning to expand to either the Bay Area or L.A. He currently pays a Sacramento lobbyist to educate legislators.
“Legalized pot creates opportunities across the spectrum,” says Taylor West, deputy director of the National Cannabis Industry Association. “When an industry of this size comes in, it impacts construction, retail, accounting, the legal field, food, food testing (of marijuana edibles), licensing fees, taxes, banking. California makes up 50 percent of the national market just on medical marijuana alone. If [recreational use] passes, it's going to mark a significant shift in the center of gravity within the industry.”
Steve Berg, chief financial officer of O.penVAPE, which makes cannabis oil products, says, “What escapes people from outside the industry is that our business needs everything a conventional company needs. It's a tide that floats a lot of boats.”
But it's not going to be a boon to every business. Defense attorneys won't have as much work as they once did, says L.A.'s top pot attorney, Bruce Margolin.
“People like me are going to be in trouble, because not many people are going to get busted,” Margolin says. “Judges keep asking me what I'm going to do when marijuana is legalized. I tell them I'm going to try some.”
Correction: This story has been changed to reflect that recreational marijuana has been legal in Colorado since 2014, not 2015. We regret the error.