Published

3/31/10
  • The Ripple Effect: Cannabis-related businesses expand—and profit

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    (Editor's note: This is the fourth piece in a six-part series on Oakland Local on the business of marijuana.)

    Not everybody breaking into the marijuana industry wants to grow plants or run a dispensary. In fact, entrepreneurs of all stripes are launching new efforts to cash in on the budding popularity of the cannabis business.

    Head shops may be the most common endeavor that comes to mind in this arena. Retailers who sell pipes, bongs and other paraphernalia have always been a mainstay of marijuana culture. Yet, as it turns out, that is much too narrow a lens through which to survey the cannabis economy.

    Yes, novelty shops, such as the Oaksterdam Gift Shop in downtown Oakland, that sell bud-heavy t-shirts and cups are popping up in storefronts and on the internet. Earlier in the series, we saw how mega-stores like iGrow are capturing the Home Depot-for-cannabis growers’ market. Yet other ventures are smaller in scale, like one young Oakland resident who created a marijuana-flavored artisan ice cream. He started doing it just for fun to bring to parties. Now he sells the treat in batches. Edibles may not be big business—they tend to be one-to-three person operations—but it is solid business.

    “Master Bong,” also known as the “MacGyver of Pot,” is cultivating an internet-based business model related to research and supplies. He attended Oaksterdam University in 2008 and compared the current bud business boom to the California Gold Rush.

    iGrow Materials

    “All the money was made by the people who provided the equipment, food and supplies,” he said, of those who kept all the starry-eyed gold diggers well stocked. A few lucky seekers did strike gold, but most didn’t, and the people who provided services made a steady income. Master Bong hosts a site he said is “all about the information.” He links to products and when customers buy them, he gets a percentage of the profits based on the number of clicks from his site. Meanwhile, viewers learn via tutorial videos on topics from cooking to smoking devices. He said he expects to scale up tremendously in 2010.

    In an economic environment in which one third of building trade workers are unemployed, the market signal that legalization is on the horizon might be welcome. Many, if not most, grow operators install their own lights, fans and other systems, and do the wiring themselves. However, as more people get into the business, and want a jumpstart on growing, professional services are increasingly in demand to build safe and to code.

    Some contractors already specialize in lighting, ventilation and electrical systems for cannabis growing, such as Oakland-based Green Thumb Consulting. The business helps clients design, troubleshoot, or install a range of systems, from low-tech, low-budget operations to high-tech, high-security.

    Co-owner Evan Rotman, who is a chef by training, said he has been a medical cannabis enthusiast for many years and saw the need for professional consulting services. His business partner KC Clausen has a background in boat building and general construction.

    "We're pretty out front about it. We specialize in cannabis gardening consulting, both indoor and outdoor," Rotman said.

    Starting in October of last year, Rotman said work has been steady.

    "So far, most of our work so far has been trouble-shooting systems people have put in themselves. We go and check out and make recommendations," Rotman said. "But as medical cannabis becomes much more main-streamed, it's going to be important to make sure grow room and gardens are up to code."

    He expects a massive increase in demand if the Tax and Regulate cannabis initiative passes in November, after which he expects his business will expand throughout California.

    iGrow - Bud Candy

    "The market will open wide up and we're poised for success," Rotman said.

    Others companies, such as Walnut Creek-based Good Green Building, are general contractors. Good Green Building bills itself as a “first of its kind general contracting company that specializes in the construction of indoor hydroponic grow rooms” for fruits and vegetables. It also counts as a percentage of its clients those who intend to grow cannabis.

    The use of such professional services might cut down on the number of fires that result from faulty wiring. Such stories make the news periodically, such as the last December’s fire in a closed Chinese cookie bakery in Oakland’s Chinatown.

    There are also the harder-to-measure indirect economic impacts, such as increased spending in nearby restaurants, cafes and retail stores. The blocks around Oaksterdam in downtown Oakland have seen increased foot traffic. Next door to the program, owners at Jimmy’s Deli said they have been able to open for an extra day on the weekends because of the demand for a quick, inexpensive meal.

    The final ripple effect of the “canna-biz boom” might be good news for the city of Oakland and other cities considering similar measures at the very least in terms of revenue. Measure F, Oakland’s Cannabis Business Tax law, was approved overwhelmingly by voters last summer. It created a specific category and levies $18 per $1,000 in gross receipts for all cannabis businesses in the city. Both Harborside and Oaksterdam were advocates for Measure F and testified on its value as a revenue generator to other city’s officials who are considering similar measures.

    “We expect to pay around $350,000 in 2010, and in all likelihood the city will see a total of at least twice that amount, maybe up to $1 million,” said Steve DeAngelo, founder of Harborside Health Center.

    That’s no chump change coming from a handful of businesses in a city facing a multi-million dollar budget shortfall this year.

    Posted by Ryan Van Lenning on 03/31/10
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