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Weeding Down Arkansas’ Cannabis CultivatorsLock Icon

7 min read

Growers hoping to produce marijuana for ailing Arkansans could eventually harvest up to 30,000 pounds of cannabis annually, but in the year since medicinal pot was legalized, they’ve delivered only a ton of paperwork.

The state’s new Medical Marijuana Commission, seeking proposals for five cultivation sites, drew a deluge of 95 applications of up to 1,000 pages. Nearly 230 applicants are also competing for 32 dispensary sites across the state.

The state charged fees of $7,500 for dispensary applications and $15,000 for a shot at becoming a grower, and applicants had to submit three paper copies and a PDF, said Storm Nolan, president of the Arkansas Cannabis Industry Association.

Weeding down those hundreds of thousands of pages will be the first step in birthing a new agricultural industry.

“First, the five commissioners have an enormous task,” Nolan said. Redacted cultivation applications will go to the commissioners on Dec. 15, but no formal deadline exists. “So when will the cultivation and dispensary sites be picked? The short answer is we don’t know.”

The commissioners — two physicians, a pharmacist, a lawyer and a lobbyist — might review only a few applications a night, and even a springtime decision might be optimistic.

But Nolan, whose nonprofit advises the nascent industry, doesn’t think the state is dragging its feet. Neither does David Couch, the Little Rock lawyer who authored Amendment 98 and led medicinal pot to victory at the polls.

“Everyone, including the commissioners, is hoping that the most meritorious applicants win,” Nolan said. “We hope it’s completely fair, and that the five cultivators are well-funded, able to move quickly and set to grow the strains that patients need. We want safety and a product that’s 100 percent tested, because this is all about helping patients.”

As an untested venture in Arkansas, legal marijuana farming will face unknowns and catch-22s even after the five growers are selected.

Many Unknowns
How big will grow sites need to be? Will they be unwelcome in some communities? How many customers will they supply, and what are likely profit margins? Nobody knows, but the 27 other states with some form of legalized pot — plus the District of Columbia — offer hints.

“Each cultivator will need to produce somewhere between 2,000 and 6,000 pounds of medical cannabis a year, but even that is based on assumptions,” Nolan said. “We don’t know what demand will be. We don’t know pricing, which is going to affect demand.”

Darrin Potter, chief horticultural officer of GrowHealthy, a Florida medical cannabis company, says cultivation sites often cover 50,000 to 200,000 SF, including laboratories that distill therapeutic cannabinoid compounds and commercial kitchens creating edibles.

Arkansas grow sites will be smaller, Nolan predicts, perhaps 20,000 to 100,000 SF divided into grow rooms of 1,200 to 4,000 SF to prevent cross-pollination and allow for different lighting schedules.

Growing It All Indoors
Quality-control needs basically dictate that all Arkansas medical marijuana will be grown indoors. “You don’t want contamination from animals, birds, bacteria or molds and fungus,” Couch said.

Potter, who oversees a 200,000-SF facility in Florida and provides advice to Couch, also said sites must be secure, fenced and equipped to record everyone who comes and goes. “There’s not a square inch that’s not under video surveillance,” he said.

Arkansas’ crops are likely to come from grow-lighted warehouses or specialized greenhouses employing dozens of workers. “At a 100,000-SF facility you could easily have 20 people in cultivation, not counting more in the laboratory and working security,” Potter told Arkansas Business. “I like to keep two security people on duty at all times.”

Cultivation sites and dispensaries will need some 500 workers right away, Nolan predicts, and Couch thinks they’ll eventually employ 1,500, many with college degrees. Peripheral jobs are coming, too, according to Greg Duran of the Cannabis Patients Alliance. “Labs, chemists, botanists, construction people, people putting up greenhouses will all be put to work,” Duran told KNWA-TV in Rogers. “We have to look at this as a big picture.”

Couch also expects medical marijuana to generate millions in new tax money.

“We could see maybe $100 million to $120 million in sales annually when the program is full,” Couch said, guessing that 65,000 Arkansas patients will get doctors’ notes to treat the 17 or 18 qualifying conditions. (The state’s early estimates predict 30,000 patients.) The state’s regular 6.5 percent sales tax will apply, along with local sales taxes, “and the Legislature applied a 4 percent excise tax every time the cannabis changes hands,” Couch said. Each dispensary will be allowed to grow up to 50 of its own plants, and selling that product will cut out one round of taxes.

“If you put taxes at 10 percent, and figure $100 million in sales, you’re talking $10 million in revenue,” Couch said. The Department of Finance & Administration expects far less from state sales taxes: $2.5 million a year, all going to the state’s general fund. The state will also generate $50 from every patient getting a cannabis card and annual fees of $15,000 from each of the 32 dispensaries and $100,000 from each of the five cultivation facilities. “That’s $980,000 in license revenue, and if you have just 50,000 patients that’s $2.5 million. So the fee revenue of nearly $3.5 million should cover the cost of the program,” Couch said. He noted that the state can authorize three more grow sites and eight more dispensaries to meet patient demands and competitive needs.

“The excise tax will sunset after two years, but it could be extended,” Couch said. “Property taxes will apply to these multimillion-dollar grow facilities, and that’s going to make a few school districts very happy. Ancillary businesses will be selling everything from lights to copy paper and vape machines. The economic impact is going to be enormous.”

Exacting Standards
That doesn’t necessarily mean growers will harvest quick, huge profits. “Let’s say you get a cultivation license on March 31,” Nolan hypothesized. “You have building plans, but you have to get a permit, find a contractor, build a facility, and that takes three to six months. Then the ABC inspects and clears you to start cultivating. I will still take two to three months to grow the plants, if you can get the seeds or clones.”

Growing medical strains to exacting standards and producing extracts, oils and edible products are daunting business challenges, and the application process awards points in several categories, including business plans. It offers extra points for facilities in economically depressed areas, leading to an outpouring of proposals from Jefferson County, home to Pine Bluff, and Jackson County, Couch’s native turf.

“There’s qualifications, which people equate with previous business experience, and then there’s ability to operate a cultivation facility, which relates to having expertise,” Nolan said, pointing out one of several catch-22s. “The law requires 60 percent ownership by Arkansans, but people also hope to win points by adding experienced people from places like California, Colorado or Washington. So you need Arkansas owners, but you also need expertise in growing medical cannabis, which hasn’t been legal in Arkansas.”

Another hurdle will be obtaining starter stocks of marijuana. Plants are grown from seeds or cuttings called clones, but they can’t be bought legally in Arkansas or legally transported here from cannabis-friendly states. “The state essentially says it will look the other way, but there are risks,” Nolan said.

Another catch is money. Financial disclosures require applicants to prove they have the capital needed for survival. “In less-regulated states, some growers ran out of cash and failed,” Couch said. “We wanted to come up with a system that found the right middle ground.”

By granting just five growing licenses, Arkansas requires each cultivator to produce a significant amount of product, Nolan said. “You’ll need a bigger staff, a bigger facility, bigger everything, so you need a financial cushion.” Most potential growers he talked to hoped to have $5 million to $7 million in ready capital.

Major Expenses
Big startup expenses will include real estate, construction, lights and HVAC equipment and lab items. Electricity, payroll and strict humidity control will be continuing big-ticket costs.

“If you don’t control humidity and cooling, you’ll get mold, and that means crop loss,” Potter said. “It’s easier to control conditions in a warehouse, but you have greater costs for lights. Greenhouse growing is less expensive and more environmentally friendly, but security goes up because it’s easier to hop a fence and get into a greenhouse.”

Inventory control is also crucial, Potter said. “You need a good chain of custody from cultivation to lab to dispensary. We apply bar codes and track every plant through the process. This not only helps reduce diversion to the street, which is a big concern, but it helps in any horrible circumstance of product contamination, because we can recall products and fix problems.”

Still, Potter said that excellent facilities and equipment won’t ensure success. “You need executives with strong business skills; the greatest failures in legal cannabis have come from a lack of business acumen. Guys who came from a strictly growing background didn’t know how to budget, plan for expansions, or how to invest in infrastructure or staff.”

Legal cannabis is a $3 billion to $6 billion market in the United States, Potter said. “But the black market is $55 billion. The more we can take from that black market, the safer we are, because we are providing a safer, tested product, and taking the proceeds away from drug cartels and gangs and putting them into schools and jobs and taxes.”

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