Arkansas joint ventures
With dispensary and cultivation applications pending, hundreds of Arkansas entrepreneurs are sitting on go for a medical cannabis gold rush. How will it pan out?
By David Koon
There are several decades of data to suggest that the coming of medical cannabis to Arkansas will bring relief from pain and freedom from over-reliance on dangerous opiates to residents suffering from some of the most debilitating and life-threatening diseases known to medicine. It’s anybody’s guess, however, how the dollars-and-cents side of things will gel up, as dispensary and cultivation licenses are awarded and ancillary businesses like delivery services and testing labs boot. Like it or not, medicine is a business, and that includes medical cannabis.
What is known is that a lot of people are looking to get involved. Though the application process had been open since June 30, most of those seeking a license to operate one of the state’s 32 dispensaries and five grow centers waited until the Sept. 18 deadline to apply. When they did, the paperwork came at the state in an avalanche: 322 applications, most of them highly detailed and routinely over 1,000 pages long. Some prospective retailers and growers waited overnight outside the offices of the Alcoholic Beverage Control Board in lawn chairs, camped out like they were waiting for concert tickets, so they could be the first to drop off their papers on deadline day. Each dispensary applicant paid $7,500 just to apply. Potential cultivators paid $15,000. Of those fees, half the money will be refunded if the application is rejected. The state now suggests it may be spring before it can work through the often-gargantuan applications and decide who gets a spot in the vanguard of the state’s green gold rush.
All applicants can do is wait and hope. Seeking to get their business plans as concrete as possible so as to wow the state’s minty new Medical Marijuana Commission, the applicants already have big-ticket items like real estate and key personnel locked down and waiting out in the state. Many we talked to are sitting on piles of cash, waiting for a phone call from the MMC, which may or may not come, so they can pull the trigger on equipment purchases and new hires
Those who have studied medical cannabis rollouts in other states — as well as the often treacherous labyrinth of banking and taxation pitfalls that come with growing and selling a substance still considered an illegal narcotic by the federal government — caution that the start-up years may not bring the flood of new jobs and quick fortunes many may have envisioned. That doesn’t seem to be stopping entrepreneurs from trying to get in on the ground floor, however.
Storm Nolan is the president of the Arkansas Cannabis Industry Association, which was established in March. It’s one of two medical cannabis trade groups in the state; the other is the Arkansas Medical Marijuana Association. On Dec. 6-7, the ACIA will host the region’s first cannabis-related trade show, bringing speakers on medical cannabis and over 50 businesses that serve all areas of the industry to Little Rock’s Statehouse Convention Center.
Nolan said his group has fielded “a deluge” of questions from both patients and would-be entrepreneurs so far, especially since the application period ended. Until the Medical Marijuana Commission makes its decisions, however, answers are scarce. “Now it’s kind of hurry up and wait,” Nolan said. “Everyone who applied for those is just kind of sitting around with the real estate tied down, and are just anxious to hear back early next year about how the commissioners graded everybody.”
Nolan said his group estimates there will be 500 new jobs in the state directly related to the cultivation and dispensaries pretty much as soon as licenses are awarded. It’s a number he expects to grow exponentially from there, in addition to hires for related businesses like delivery companies, potency testing labs, cannabis-focused law and accounting firms, security firms and the like. “For Arkansas, that’s going to grow into a fair little industry,” Nolan said.
One of the primary goals of his organization, Nolan said, is educating those looking to get involved. That has included educating Arkansans on a major potential stumbling block: the Internal Revenue Service’s Section 280e. Enacted in 1982 to help convict high-volume cocaine dealers in federal court, 280e, in a nutshell, says that those directly involved in the creation and selling of narcotics, including marijuana, even if it’s legal in their state, may only deduct from their federal taxes the “cost of goods sold” — solely those expenses directly incurred while creating the product. Cultivators, Nolan said, won’t be hit as hard by 280e, because they’ll be able to deduct expenses like water, seed, fertilizer and the like. But dispensary owners can deduct almost nothing when tax time rolls around, including most of the cost of staff, brick-and-mortar storefronts, warehouse space, all the way down to printer paper, paperclips and pens.
“For dispensaries, much less percentage of their expenses can be attributed to cost of goods sold,” Nolan said. “That’s where it really hits. Even if on paper you’re showing $100,000 profit, that doesn’t mean you still don’t have a tax bill on top of that.” Though 280e doesn’t apply to ancillary businesses like delivery services or doctors who certify that patients have a condition that allows them to purchase medical cannabis, this very expensive regulatory quirk has caused many dispensary and dispensary related businesses to fail in other states, the owners socked with a huge tax bill they can’t pay.
“People will get excited about owning a dispensary and starting a dispensary,” Nolan said, “then 280e is just one of those kind of coming-to-reality moments. You realize that, sure, there’s probably going to be a lot of revenue there. But when you cover all your expenses and then on top of that have additional income taxes that you can’t deduct, it just makes being profitable that much harder.”
One of those hoping to avoid the pitfalls involved in getting in on the ground floor of medical cannabis in Arkansas is Corey Hunt. The co-founder of a group called Natural State Healthcare, which has applied for a dispensary license, Hunt came to Arkansas from Oklahoma in 2007 to help expand his family’s cell phone repair business in the state. He started looking into cannabis as medicine in 2013, when his girlfriend’s mother died of breast cancer. Eventually, he took a trip to Colorado and met with patients being helped by cannabis treatments.
“I met a little 4-year-old kid who was taking cannabis oil, and it was treating his cancer. I started meeting other patients — patients with PTSD, little kids who were having hundreds of seizures a day and then they didn’t have seizures any moreafter taking cannabis oil. I said, ‘Something has to be done about this.’ ”
Soon after returning from Colorado, Hunt started a website and Facebook group called “Illegally Healed.” The Illegally Healed Facebook group is now the biggest cannabis patient-focused group on the social media site, with over 400,000 likes. There and at Hunt’s website, he publishes interviews and short video content about medical cannabis. This month, Hunt also launched a new print magazine called Ounce, which will focus on medical cannabis in Arkansas.