It’s a scenario that most business owners can only dream about: the state limits your competition to just two other companies and unlicensed opponents end up behind bars. On top of that, customer demand is growing by leaps and bounds.
Welcome to the medical-marijuana industry.
Eighteen companies are vying to become the first state-sanctioned, medical-marijuana distribution center, with a decision by the R.I. Department of Health expected in March. The department heard testimony on the proposed centers last week. And while it could authorize a center next month, officials caution the department could decide none are qualified, like it did in September after receiving 15 applications.
If the department does select a center, the anointed company stands to tap into a market that one applicant, Summit Medical Compassion Center, says could reap it $23.4 million annually. Most of the applicants say their centers would also sell associated products that could deliver millions more to their bottom lines.
And while the state law authorizing at most three centers requires they be nonprofit, investors stand to gain under many of the business plans laid out in applications submitted to the health department. To provide the cash needed to start the so-called compassion centers, investors are offering loans from their personal wallets, and, in most cases, asking for interest.
For example, The Chronic Pain Management Centers of Rhode Island Inc. cites $450,000 in “noninstitutional loans” that carry a 15 percent interest rate. Michael Follick, the principal officer of the Institute for Alternative Therapeutics Inc., is ready to lend $500,000 for an 8 percent annual return. Cuttino Mobley, a former University of Rhode Island and NBA basketball player, would pump $500,000 in equity to Summit that does not have to be repaid but would also offer a personal loan of $3.5 million that would carry a 6 percent annual interest rate after two years.
Other potential investors include lawyers, doctors and a former police chief, among others. Some bring lengthy resumes and others are relative newcomers to the business world. But, in their applications, all say that they can raise the capital needed to open and operate a center.
“People seem to think there is money to be made,” said Golini, who has proposed a center in North Kingstown and a cultivation facility in Cranston.
Golini, 31, said interest is fueled by a combination of factors, including the desire to be first on the medical-marijuana scene and clinch the first customers. While state law allows registered caregivers to grow marijuana for patients, the center promises a controlled environment, consistent quality and set prices, Golini said. Some investors also see the government someday legalizing marijuana, and the first centers would be well-positioned to tap into the market.
For now, the centers are limited to serving health department-approved patients, whose ranks have been growing since the state opened registration in 2006.
In September 2009, the health department had 980 people on a registry for approved medical-marijuana use. A year later, that number soared to 2,250. As of Feb. 3, there were 3,154 patients and more joining every week, health department spokesman Peter Hanney said.
And, like sellers of disposable razors, medical-marijuana centers stand to benefit from repeat sales as patients return week after week. Hence, the product is particularly enticing for business-savvy people, said Clifford Schaffer, editor of the Marijuana Business News website and a prominent national advocate for medical marijuana.
Centers selling medical marijuana have ballooned in California and Colorado, and people are rapidly finding ways to make money despite a requirement the centers be nonprofit, Schaffer said. (Centers are also allowed in New Mexico and Maine.) Some center owners are finding success in establishing a career, though Schaffer said trying to define a reasonable wage for the center staff is difficult at best.
Investors are flocking to the industry. Schaffer met one man recently who has established a business of opening and selling centers, much as investors flip houses. The man also has a habit of skimming thousands of dollars off the sales.
“The fact is, this is a multibillion dollar business by anybody’s standard. … Saying all sales … are going to be nonprofit, well, good luck,” Schaffer said.
One medical-marijuana user, James Livingston, said he hoped that would force centers to align prices with actual expenses, not the going rate on the street. On the street, marijuana – which remains illegal under federal law – can sell for $400 or more an ounce, according to Carl Preston Packard, a consultant who operates Medical Marijuana Services Rhode Island.
Livingston, from Pawtucket, encouraged the state to demand that the center hold down prices, something he said the applicants largely failed to demonstrate a willingness to do.
“Can you imagine if the companies that sell OxyContin said we can sell it for $12 a pill, $20 a pill because that’s what it goes for on the street?” Livingston said.
Applicants have proposed a range of prices for marijuana sold at the centers depending on the variety and potency. But most seem to peg the cost at around $300 an ounce.
And some say that their services will extend beyond just sales of the leafy plant. Follick, from the Institute for Alternative Therapeutics, said he sees the center as a way to fundamentally rethink how the medical field treats chronic pain. The psychologist envisions developing a slew of treatments that – used in conjunction with marijuana – treat chronic conditions more efficiently and cheaper than current therapies.
Follick also owns the Cranston building that would host the proposed center. Filling the vacant medical-office building with a marijuana center makes sense in a downtrodden real estate market where medical tenants are hard to come by, he said. But the real emphasis is to create a whole new business, Follick said.
Such a goal is not unusual, said Schaffer. The people he sees opening centers in California and Colorado more often than not are well-established and well-financed individuals looking for a new opportunity.
“The people who get into this are not the old people that were selling [marijuana] off their couch,” Schaffer said. •
