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The ins and outs of owning a retail marijuana store

Rocky Mountain Remedies became the first legal marijuana retail store in Steamboat Springs, on Jan. 8, following a state-wide sales kickoff Jan. 1.

SEAN STANLEIGH

Rocky Mountain Remedies became the first legal marijuana retail store in Steamboat Springs, on Jan. 8, following a state-wide sales kickoff Jan. 1. Co-owner Kevin Fisher, 37, ran the business as a medicinal pot dispensary prior to receiving approval from the state and city council to sell recreationally to adults 21 and older.

He recently sat down with The Globe and Mail to discuss the months of preparation and investment involved, the reaction the revamped store has received, and coming changes to the competitive landscape. The interview has been edited and condensed.

Q: Start by telling me a bit about yourself: Your background and how you got into this line of work.

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A: We opened this business about four-and-a-half years ago. My business partner and I, Ryan Fisher (no relation), had been working together at Steamboat in food and beverage, but we were trying to do some other business together. We both come from educated backgrounds, but had determined at some point that we wanted to keep living in Steamboat. I didn't want to go back to law school and live in a city. But at the same time I didn't want to pull beers for the rest of my life.

We saw a change coming in Colorado: a few (medical) dispensaries were popping up but at the time there was no regulatory framework like we have now. They were operating just under the caregiver model. As the CDPHE (Colorado Department of Public Health and Environment) was vague on whether a caregiver could be an entity that solely provides cannabis for a patient or has to also do breakfasts and things like that, it was still kind of grey for us. In August, 2009, CDPHE made a ruling that providing cannabis for a patient was enough to be a caregiver, and it allowed for the development of a medical marijuana model.

That's the entrepreneurial side. I'm not trying to draw sympathy, but there's a personal aspect as well.

My mom battled cancer off and on for 13 years and she passed away when I was 22, pretty young. My father was in the service and all of my family on both sides were military, police chiefs, things like that. Throughout her therapies, which were pretty cutting edge – bone marrow transplants when people didn't really have them, for example – she wouldn't touch cannabis. And as I got older and I kind of knew what cannabis might be able to do for her, I started pressuring her a little bit more.

She said 'no, it's illegal, how do I know what's in there,' meanwhile she walked around with a morphine pump. In the last year, it was the wasting that got to her. I wasn't thinking cannabis was going to cure her cancer but it might help her eat a meal, and she just wouldn't touch it.

I had seen friends who had melanoma and the old adage that pot gives you the munchies is true, it stimulates your appetite. So there was an aspect to it of 'hey, if we can do this and we can do it right, and we can provide a safe environment with clean medicines that are tested, then maybe people like my mom, who might have otherwise not thought to use cannabis, would.'

Q: Were you the first medical marijuana dispensary in Steamboat?

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A: Yes. We got in ahead of a moratorium. Two other entities caught a whiff of what we were doing, and went and filed paperwork over at planning, and the next day city council placed a moratorium. So we were the only game in town for a little bit, but it wasn't too long after that D&C and then Natural Choice opened as a co-op shortly thereafter.

Q: What types of inspections did you have to pass before you were licenced under the new law?

A: I also sit as the chair of the marijuana industry group, so I've spent a lot of time over the past two or three years helping to craft a lot of the rules and regulations that we have here. We believe strongly, and I think it's starting to show on the national and international level, that here in Colorado, unlike California, we want a strong, centralized regulated system. It's shown people that this isn't a bogeyman, we can do this safely and effectively . ...

More so than the state agency this time around, we saw local law enforcement and other local governmental representatives come through with two or three page checklists.

There are a lot of state regulations, including labelling and cameras, along with other aspects of our local ordnance like, is the safe secured to the floor? It was pretty exhaustive and we have everything in line, and the approvals were made. The rules constitute 150 pages, with the local ordnance and the checklists, and other pages. But when you put it all together – medical, amendments, legislation and the associated rule-making - you're looking at 500 or 600 pages of regulations that we had to comply with.

Q: What kind of costs did you incur on the regulatory side?

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A: Licensing alone approached $100,000, which is very significant. Even when you look at health-care fields, like dialysis centres that are heavily regulated, they pay a $50,000 licence fee but their revenue annually is multiples of what we have. We paid a lot of fees, and there's a lot of money that goes along with the camera systems, the security systems, the proper POS (point of sale) systems, the new MITS (inventory) tracking system that the state has in place … and really the largest single expense outside the licensing was the additional man hours.

I have a compliance officer I've had for a number of years, and he can't even keep up with the compliance end now. We have multiple people doing compliance and that's a day-to-day thing. The medical day, with the same hours that we have now, ends at 6:45. They could show up at 9:15, and people would be out of here at 7:15. Now it's show up at 7, leave at 8 or 9, every day, lots of compiling. We have 50 employees. Our payroll is very healthy, into the six figures every month.

Q: What types of products are you selling and where do you source them?

A: All of our cannabis and extracts we cultivate in house and we have for a long time. There's a 70/30 rule in Colorado (stores must grow 70 per cent of their marijuana in house and sell no more than 30 per cent of what they grow to other vendors), but for a while we'd been cultivating all of our own meds. For the first retail sales week, we made a large, one-time transfer as allowed under state rules.

If I had anything (containing) 100 milligrams or less that was an infused edible product, I could switch that over. And we had a pretty wide array. Now we've run through that inventory, even though we thought we had weeks and weeks' worth it lasted less than a week.

Now we're stuck with maybe three or four vendors in the state that do have their edibles adult-use licences. We're purchasing from them. We do infused products, we do concentrates, we do RemPen, which is probably the first vaporizer device with any real potency available in the state and it's spawned a lot of copycats now. We have plenty of stock on that, we have plenty of stock on cannabis, but it is tough right now to get the edibles on the shelf.

We do see, from a sales perspective, because of the novelty of the experience, the out-of-towners make up a larger portion of their purchase from infused products than you see with the medical customers.

Q: So where do you do your growing?

A: We have a number of grows [operations] around town. We used to have a couple in Boulder, which we've shuttered. We do all hydroponics, we do different methods of hydroponics, but we have plans for a greenhouse this summer and we will go dirt there, but for indoor cultivation hydroponics is where it's at for us.

Q: Do you provide your customers with any guarantees?

A: We always provide guarantees, especially on RemPens and things like that. But we must be careful, the state statute is very clear that you may not possess on premises anything that has evidence of being consumed. So if you have raw flower that someone just didn't like, you can use that, but I can't take a burnt joint back. We're always been just like any other business, one of the reasons we have been so successful is that we have great product, we have great cultivators, but the patient experience, which is what we first built, and now the customer experience is hugely important, we understand that's what keeps people loyal. You don't want it? Exchange it, refund it, whatever it is.

Q: Do you and your staff test the products before you sell them?

A: We do test the products, just for cannabinoid levels … I've been a medical marijuana patient for four years and any member of our staff who is a medical patient is entitled to cannabis on the house. Anyone on staff wants to use it, not on site or on the job of course, they're welcome to consume, that's not something we have an issue with.

If we're bringing on a new line, someone on staff will offer to see what something is like if a vendor offers a sample. We usually do that. Sometimes there's just enough patient demand, something we might not have heard about and someone will ask, 'why aren't you carrying this?' We'll just carry it.

Q: You said you were a medical marijuana patient, do you mind if I ask why?

A: I used to paddle kayaks for a living, and I've always been very athletic, so lots of stuff, top to bottom, has been broken. Maybe two-and-a-half years ago, city council put on the ballot a repeal initiative for medical marijuana, so we're open and they're saying 'we're going to put it back to the voters and you might be shut down.' I ran a pretty exhaustive campaign, we ran it in house, and we won (at council) 65-35, but going into the last week I had a number of big-time debates – I had a newspaper debate, I had a rotary debate – and we had a very active opposition … they were there at every turn.

And I go out for one final weekend of riding motorcycles in the desert and I break both hands and my jaw, right before the debates. That was a Sunday and the debates started on Monday. I'm in the ER and I tell the doctor 'you cannot wire my jaw shut until after these debates.' He said 'okay I won't.' So I did the debates for the week with a broken jaw and I got wired up afterward. When you live an active lifestyle you're bound to have issues. I've got arthritis in every joint, my back's been broken.

Q: How many people are you serving on day, would you guess, on average?

A: Between the two sides (medical and retail) 200 to 300 people. Hours are 10 to 6:45, and that's one of the toughest things for people to understand. I'll go down there (to the sales floor), and those first couple of days we had two-hour lines, and I'd tell people around 4:30, 'if you're in line right now, there's a chance you might not get served. You can gamble, but the state has access to our sales records. If I make a sale at 6:46 my license is gone. This isn't last call where we can push it off.' Almost every night we have to turn people away.

Q: That's not a bad problem for a small business to have. Who are your typical customers, and on average, what would each of them spend?

A: I'm not going to give what they spend, because then somebody could put together how many people come through here and what they spend, so we try to stay away from hard revenue numbers. The demographics out here on the retail side pretty much mirror what we see on the medical side. Our median-age patient is 46. We're not required under state law to keep any records of the people making purchases on the recreational side.

Some centres choose to retain that information, we respect the anonymity that a lot of customers want to have. You have a 21-year-old, you have a 62-year-old. You have a 35-year-old, you have a 51-year-old. All walks of life. The person you'd think would be shopping there with the dreadlocks shops there. The person who's an ex (politician) that you don't think shops there, shops there as well. It's everyone.

We know that in Colorado, self-reported marijuana use over a 30-day average stands at about 6 per cent, give or take, and that's one of the higher ones in the country. I think Massachusetts is the only one that beats it. We look at the number of tourists in town and who we see through here, we've seen about 10 per cent, one in every 10 tourists comes through here. The tourists are certainly not being turned off.

Tourists come by at a higher rate, it seems, than locals. I think it's only going to do positive things for Colorado's tourism industry. I would consider a tourist anyone who's not local. If you're up from Denver I consider you a tourist. And I'd say tourists are about 85 per cent of our customer base.

Q: What's the best-selling product on the retail side?

A: The flower is always the best seller. But like I said, we have been surprised by the demand for edibles, so that's good news for the infused-products manufacturers in the state. Our RemPen is probably one of our hottest sellers. … If you're up here and you're in a condo where it's not approved to smoke, or if you're in a hotel, what are you going to do? Vaporizing is a great solution. You're in a private place, there's no law about clean air act when it comes to vaporizers, so you can consume knowing that you're not breaking the law.

Q: I know you said you don't want to talk about revenue, but a lot of people anecdotally have said you must be raking it in. Is that the case, or do things like taxes eat significantly into your profits?

A: Our effective tax rate because of (tax code section) 280E last year approached 60 per cent. I have a huge staff. We do not print money over here. One day maybe, sure. This is more about building a business with a loyal following and maybe one day there's a value to the business. The idea that we're printing money is so wrong.

If I was a plumber putting in the hours that I'm putting in, I'd be making pretty close to what I make. We're profitable on both sides. The problem is because we're 100 per cent in house, it's not like we weren't net very positive this year, but that goes into reinvestment, into increasing the grows and things like that. There's no bank lending to it, so it has to come from within. We started this with $40,000 worth of credit-card debt. I'm not complaining about it, we do fine revenue.

Q: How significant is your security, and how much of a concern is security?

A: We enjoy the fact that we're in Steamboat Springs, and that we're two blocks from the sheriff's office. If you go to Denver, there are a lot of places with buzzer-bolted doors, a lot of security on staff. We're awaiting notification of provisional licencing awarding in Massachusetts, and one of the localities we have there is Brookline, which is right near Boston metro. And there, every minute the door is open there will be live security on site.

Here it's cameras, it's panic buzzers, the cops are right down the road, everything's bolted, locked up. The fact is, like most businesses, if you're a total pro from the movie Heat, you're going to get us. If you're some low-end criminal, you're not going to get much. There's not real cash in the drawers, the safes are 1,000 pounds and bolted to the ground, and we make daily deposits. There's never more than a day's cash on site.

The only issue when we first opened medically, we're required by law to grind our waste and make it unusable, but people were still trying to break into the dumpster, like bending off the metal bar and cutting the lock. You can't even use what's in there? You think I'm going to throw away something that has value?

Q: Have you had any problems meeting demand?

A: We haven't. Right now, on a day-to-day basis, sometimes we cap purchases at a quarter ounce, some days an eighth of an ounce. But if you're a single individual, an eighth of an ounce is plenty to get you through the day. Come back the next day and buy it again. You could see some other centres charging as much as $35 (U.S.) a gram, or $100 an eighth. Instead of limiting the demand by gouging, we leave the prices fair, our pricing is almost exactly what it is on the medical side plus the new taxes, and we place our own restrictions on purchase price so there's enough for everyone.

Q: What is the tax rate exactly?

A: We have a 15-per-cent excise tax, a 10-per-cent special sales tax, and then here locally when you add in all the taxes that's another 8.65-per-cent sales tax.

Q: If you go to a bar you can be too drunk to be served. Can you be too stoned to be served here?

A: We reserve the right to refuse service to anyone. ... Is it my job to regulate this in the first place? It's not like alcohol where this person is going to do physical damage to his or her self. The indicators are very tough. A perfect example is (comedian) Jim Breuer, I mean look at the guy, everyone thinks he's stoned all the time but he's never smoked pot. So what am I supposed to say to people down there (on the sales floor)? If someone was overly drunk and falling down I'd be more likely not to sell them cannabis than trying to figure out if they're too stoned.

Q: How much education did you have to provide for your employees? They must get asked questions constantly.

A: It's never ending, ongoing. The toughest role for us – we have great flower, award-winning flower – really is that the customer interaction is most important. We had to add a lot of new staff and that was a nervous moment for Ryan and I because when we first started we grew it, we trimmed it, we sold it, everything. Then we brought in our girlfriends who also have great customer service and it was the two of them with us. Then we brought in his brother.

So everyone had a vested interest in the business and we kept it with just those people for a very long time. We then started adding a few more, four or five new people, and they've all worked out great. They started training on the medical side, about two to four weeks of training before they're on their own. Every day we have a meeting to talk about products, to answer questions. People do come in, and especially on the medical side when you have 25 types of cannabis, 30 different types of concentrates, 50 different products, people have questions about every one of them.

Q: How competitive is the market on the retail side in Steamboat?

A: Until the other guys get their licenses it's not competitive. We're the only game in town right now. I suspect that one of the entities located right near us, like out the back door, his business with the medical is less than ours. He wants to make a nice living for his family, provide medicine for his patients, but it's almost like an appointment-based business he's got over there.

The other entity will try to do as much business as it can. We've found that ramping up for supply issues and all that is something we've invested in and we're hoping those investments are greater and smarter than the competition and we'll remain where we are. There will only be three retail licenses in Steamboat unless they change the law. Two others have applied and I think they've both been approved locally but they're still waiting on state paperwork.

There's the same number of operators as medical, there are no new operators that will be coming to town. But it's not about curtailing competition. We did make a significant capital investment in this business with the laws being what they are, and when you look at the number of retail liquor stores in town (eight) and the number of people that self-report consuming alcohol, we actually have a higher density with three dispensaries.

My contention is: let's see how it plays out. If you feel like the people coming to town are not being well served, then issue more licenses, but for now we're happy with the way it is.

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About the Author
Sean Stanleigh

Sean Stanleigh is the product manager of Report on Small Business. His goal is to make ROSB the primary destination for readers in search of information and compelling stories about Canada's small-business community, which continues to grow in size and influence. Mr. More

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