Ramping up for our State of Marijuana 2015 event in Santa Monica, we take some time to highlight one of our key panelists, Giadha DeCarcer, CEO, of Frontier Financials Group. Giadha has years of experience under her belt as a successful entrepreneur and her company has done extensive research on the rapidly evolving marijuana industry.
In this Q&A, Giadha offers her insights into the future of the cannabis business and provides key advice for entrepreneurs and investors looking to enter the market.
You can learn more about the cannabis industry by purchasing New Frontier Reports here and use special discount code: STATEOFMJ for 30% off!
Tell us a little bit about New Frontier Financials and how you came about starting the company.
New Frontier’s mission is to bring transparency into the cannabis industry by leveraging data-based research and sophisticated analytics, to ultimately accurately predict trends for operators, foresee pitfalls for legislators and identify opportunities for investors. We take Big Data, turn it into smart data that our clients can use to make better decisions, and finally combine it with actual solutions geared to hedge and mitigate risk in this exciting but still nascent space. Our products and services include monthly analyst reports, quarterly industry overviews, interactive visual and analytical tools, as well as a leading customer relationship management and marketing solution, all under the umbrella of our Risk Management Platform, Equio. New Frontier provides data-based quantifiable answers to imminent questions, thus supporting key players in the sector as they grow and lead the industry in a healthy and transparent manner.
In May of last year, a friend of mine was looking for support with a business plan geared at leveraging the fact that Maryland was about to put out medical marijuana licenses. I agreed to look into the market as a whole in an effort to help refine the size of a potential opportunity. I did what I always does, I looked for industry reports to learn more about the segment, but found none. I then looked for any authoritative research in the space, and again found little to none. I finally tried to get some data from folks in my network and learned the extent to which data was sparse, fragmented and overall unavailable to current players in this already massive space.
As a business owner in the cannabis industry, what challenges do you face that might be different from your previous experiences?
The Cannabis industry is not only an extremely young industry, it is also an exceptionally unique one, so there really is absolutely no roadmap or model one can follow. Navigating the waters of a nascent market is challenging as there are few historical trends from which to draw predictions and light the way ahead. Beyond that, the Cannabis space brings together three powerful elements that make the industry truly special – on one end you have the much talked about second prohibition wave due to Cannabis’ recreational applications, on the other you have a plant that appears to have dramatic medical implications across a wide range of conditions, and to top it all, enters hemp, one of the most industrially cost effective crops known to date. It goes without saying that there has never been any industry with a recreational, medical and industrial massive applications – and all stemming from one crop and potential future commodity. This is in fact one of the reasons why I felt launching New Frontier and beginning to collect and aggregate data in a sophisticated manner is so critical, not only for decisions being made today, but also for better planning ahead both on a micro level (impact to businesses and individuals) and on a macro level (impact to states, the nation, and the global economy as a whole).
For people that know nothing about the cannabis industry, what do you think is the most surprising thing someone might learn about it?
There are very savvy, seasoned and sophisticated players in this sector, in fact an increasing number of ‘non-stoners’ enters the space every day, so the assumption that folks in the cannabis space just sit around and get high all day is quite wrong and far from the mark.
What advice would you give to entrepreneurs looking to build a company in the cannabis industry?
Think on your feet, don’t dilly dally, surround yourself with very smart folks, and get ready to run, because while it may appear to be a clean canvas today, the cannabis industry will become a highly competitive space in no time.
What advice would you give to investors looking to participate in the cannabis industry?
Get your facts and numbers, and then assess the strategic vision and plan forward of the company you are investing in. While that is true of any investment opportunity, it is especially critical in this industry. There are quite a few operations that have and are showing huge revenue streams for a variety of reasons that may not necessarily translate into sustained profits or scalable businesses. The industry has seen an interesting move of illicit operators turning legal as well as success from those who jumped into the green rush early on. Neither of those groups necessarily have the experience, nor the skill set to grow a business once the environment becomes more competitive and complex. Beyond that, I would also consider investing in a mix of companies touching the plant and ancillary operations as a method to hedge against potential regulatory setbacks and energy-based operational risks on the plant side of things.
What are the most important political factors that cannabis entrepreneurs should be aware of?
· Changes in public opinion: Not only has support for marijuana legalization doubled across all age groups in the past 20 years, 67% of voters under 30 support legalization. This suggests support will only continue to increase over time.
· Growing political support for medical marijuana: While many in Congress remain resistant to adult use legalization, support for medical marijuana has increased dramatically over the past five years. This groundswell of political support is leading to growing calls for rescheduling of marijuana to a Schedule II, the easing of restrictions on medical marijuana research, tighter restrictions on Federal Department of Justice marijuana enforcement in states where it is legal, and support for medical marijuana use by veterans.
· Federal law still trumps state law: While the risk of federal intervention in businesses operating in compliance with their state’s marijuana laws is low, the federal government does still have final say on which cases to pursue and prosecute. For businesses that touch the plant, ensuring strict compliance with all state regulations is key to minimizing exposure to federal investigation.
· Changes in a state’s political dynamic can result in disruptive changes to state law: Montana offers a good case study in how changes in state law can dramatically change a legal marijuana market. In 2011, following a wave election that swept a large cohort of conservative lawmakers into the legislature, lawmakers became concerned at the pace with which the state’s medical marijuana was growing, and by the industry’s lax regulation. In response they enacted new laws to tightly restrict the number of qualifying patients and participating physicians. As a result of the changes, the number of participating patients fell by over two-thirds from over 30,000 to less than 7,000 over an 18th month period. This dramatic contraction of the market was very costly for businesses in the space, highlighting how exposed operators can be to changing state policies.
What do you predict will be the most significant political and economic impacts in the United States for the cannabis industry in 2016?
Marijuana as a presidential campaign theme: With candidates who support marijuana legalization like Rand Paul, and those strongly opposed like Mike Huckabee (and presumptive candidate Chris Christie) the issue of medical and adult use legalization will be an important theme in the 2016 presidential election. Not only will candidates be forced to declare their positions, but the campaign will likely spark a substantive national debate on the future of federal marijuana policy.
Change in the IRS code for marijuana businesses: As the number of medical and adult use businesses increase across the states, pressure on Congress to change the tax code to allow legitimate marijuana businesses the same tax rights and obligations as other businesses. This issue may finally be resolved in 2016.
2016 will see falling pricing but higher revenue: Prices in Colorado, Washington and other markets are falling, driven by rising production capacity, and increased competition. The fall in prices is increasing consumer demand as the legal market becomes more competitive than the black market. This fall in prices is will continue into 2016, putting increased pressure on cultivators to improve the efficiency of their operations and lower their production costs.
New state ballot initiatives: As many as eight states could vote to legalize marijuana in 2016. The most significant is California, which, with its large population and high rates of illicit marijuana use, will double the size of the national marijuana market. Other important states to watch include Nevada, which is poised to becoming the leading marijuana tourism destination; and Florida which, as the third largest state in the country, would be a very significant medical marijuana market.
What are you predictions for the future of the cannabis market in California?
· We expect to see some important developments in California in the next 18-24 months:
o Very heavy investment in a ballot initiative to legalize adult use in 2016.
o Effort by the state legislature to increase the level of regulatory oversight of California’s medical marijuana market. The lack of strong regulations is a key reason for the continued aggressive federal enforcement action in the state.
o Greater coordination of federal and state law enforcement resources to locate and destroy illegal grows on public lands which are having devastating environmental impacts
o Further displacement of marijuana from Mexico with higher quality marijuana grown in the state, potentially escalating competition among the cartels and illegal distributors for the shrinking black market.
What other useful information can people expect to find in the New Frontier Financial reports?
· New Frontier’s reports examine a broad range of issues in the industry including:
o Key social and economic factors that have led the market to where it is today.
o Insights into the effect of marijuana tax rates on the state revenues for medical and adult use marijuana.
o The impact of marijuana’s price elasticity on competition among cultivators
o Key considerations for investors exploring opportunities in the medical and retail markets.
· Future reports will explore areas including energy use in cultivation, trends and opportunities in the hemp market, and developments in key states including Ohio and California.
Any exciting plans for the future of New Frontier Financials?
Yes indeed! The industry is moving at the speed of light, and so is New Frontier. We have found that while data is in very high demand from investors, legislators and researchers, operators need better tools to manage and capitalize on their own data. We are therefore in the process of incorporating a suite of plug and play solutions that will support operator’s ability to manage their day-to-day operations and improve their sales and marketing efforts. The tools will range from our free CRM solution which is already available, to more specific cost savings and revenue-generating solutions around PEO, patient management, and sales tracking.