Alaska’s cannabis industry generates tens of millions of dollars in sales each year. After all, the state has the most retail cannabis shops per capita in the country.
So it might seem like there’s plenty of cannabis consumers’ cash to go around. But insiders say the industry is very competitive and cannabis entrepreneurs have to be shrewd to keep their businesses alive.
A recent story in the Anchorage Daily News looked into that competitiveness.
And ADN reporter Zachariah Hughes says some factors impacting Alaska’s cannabis industry are unique to the state.
The following transcript has been lightly edited for clarity.
Zachariah Hughes: One of them is just purely historical. And that’s that Alaska didn’t have a medical cannabis industry prior to legalization and the recreational industry standing up in 2016. So some other states, you know, notably California and some other West Coast states, did have a medical apparatus. And when legalization happened, decriminalization happened, the medical cannabis businesses sort of transitioned or there was at least some infrastructure in place. We didn’t have that in Alaska. So the industry here was built from the ground up. But some of the other nuances that we have, there’s no cap on licenses in Alaska. In other states, there are caps, and that makes the price of a permit a lot more valuable, since there’s a ceiling on how many people can get involved. I talked to one attorney who handles a number of cannabis clients who mentioned Arizona, where there’s a really firm cap in place and permits to cultivate and sell cannabis can go into the eight digit figures, which I was blown away by but is true. The other thing that we have that not a lot of other states have is a very firm residency requirement in the form of you have to be a PFD recipient in order to be out of business license and be part of the cannabis business. And so there’s not a lot of out-of-state money that can come in legally and prop up businesses. In other states, there’s a couple of very large multi-state business entities that have gotten involved in the cannabis sector and growing and selling. And we don’t have that.
Casey Grove: How are some of those things that are unique about Alaska affecting the industry now?
ZH: Well, according to a report in Politico, we have the highest number of cannabis retail shops per capita of any state that they looked at. They were looking mostly at Western states where the market really is kind of the biggest, but we have a, you know, we have more pot shops per resident than anywhere else. There’s a number of cultivators, there’s a number of manufacturers, but we have you know, upwards of, it’s in the neighborhood of 140 or 150 retail shops. I would almost call it like a Wildcat type industry patchwork here, you know, there’s a lot of independent small operators, and they’re working together, and they’re competing for market share. But there’s just a lot of small companies, very small companies, some of them are literally mom and pop or a family run businesses, and not too many of them are that big, there’s only a couple of businesses that have, you know, multiple sites for retail.
CG: And I guess there’s some thinking that to stay profitable in the future that some of those businesses need to get bigger, right? And to vertically integrate, I think is what you said in your story, huh?
ZH: Yeah. And that was a trend that I’d heard about from the beginning that, you know, there is this kind of race, when businesses started opening, to vertically integrate. That basically means you’re controlling all of the different steps involved from seed to sale. So you have a business that might have started out, you know, growing cannabis products, and then it gets into manufacturing, and then it gets into retailing, and plenty of them did this in different orders. But you’d basically be able to grow your product, refine it, manufacture it, and things like edibles or concentrates or flower products that you’d then sell at your retail location. And that was always seen as a way of giving businesses more flexibility. The thing is, it’s quite expensive to vertically integrate. Cannabis businesses are pricey to operate anywhere in the country, and that’s certainly true in Alaska. And one of the byproducts of the costliness is that you need a lot of cash to open new businesses, because cannabis is still federally illicit or illegal or kind of this shady gray zone. Banks won’t lend to these people. So to start new businesses, you need to have your own cash. It’s a very cash-intensive business, particularly because there are so few financing options for people like you would get, you know, in other sectors. The other thing is, it’s a very regulated business. And what I have heard from a lot of people is that a lot of businesses are not making it. They are operating on razor-thin margins, there’s intense competition among growers and retailers over price points. And I think we’re probably going to see more businesses go under, and that’s a long process. That’s a, you know, a year minimum to get a license to cultivate, manufacture or sell cannabis. It’s very costly. And we’ve seen dozens of businesses that in the five years since the industry got off the ground have already folded because it’s just not a very profitable business at this point, given how open the market is.