For the past 80 years, if a business wanted to profit from growing marijuana in Connecticut, it had to do so illicitly, on the fringes of society.
Not anymore.
By mid-summer, four growers will have cornered the state’s nascent multi-million dollar medical marijuana industry, having navigated Connecticut’s rigorous regulatory waters and the federal government’s insistence that what they’re doing still is illegal.
The growers, some with no experience cultivating marijuana, will battle a complete lack of support from the banking industry, pricing competition from illegal drug dealers, and intense public scrutiny — all while needing to turn a profit.
“To me, this is Prohibition meets dot-com,” said Ethan Ruby, CEO and founder of Watertown marijuana grower Theraplant.
By the end of the year, Connecticut’s four licensed medical marijuana growers will employ about 100 people including growers, extractors, security, and front office personnel. Their exact size and revenue will be determined by how many patients use medical marijuana. Connecticut, the 20th state to allow the growth and sale of the drug for pharmaceutical purposes, has 1,990 patients signed up so far.
“At the beginning, we just want to start off simple,” said David Lipton, founder and managing partner of Advanced Grow Labs, which won a license to open its shop in West Haven. “As the demand increases and the patients register, we will hire as we expand.”
Raising Cash
As is the case with other states, banks are staying away from Connecticut’s marijuana businesses. No lenders are offering loans, and most are refusing to open basic checking accounts for growers’ payroll and other business expenses, Ruby said.
Bankers, Ruby said, are worried that manufacturing marijuana products, even for medical purposes, is still a federal crime, although the Obama administration has largely agreed not to prosecute legal drug dealers as long as they meet certain criteria.
Despite their forced reliance on private financing, Connecticut growers said they raised enough capital to meet their needs, indicating private investors are bullish on the state’s medical marijuana industry. Theraplant, for example, has raised $8 million, while Advanced Grow Labs raised $5 million. Connecticut Pharmaceutical Solutions in Portland wouldn’t disclose its figures, but President Thomas Schultz said it’s raised enough to cover all the company’s financial needs until it starts earning revenue selling marijuana.
“Connecticut’s regulations suggest to investors … that in a conceptual way, the reasons for this industry are pharmaceutical,” Schultz said. “Investors then think of this as a pharmaceutical market.”
CuraLeaf in Simsbury declined to comment for this story.
While the state’s $250,000 application fee and $2 million reserve fund requirement were major startup costs, Ruby said the majority of his funding is going to the construction and renovation of Theraplant’s 60,000-square-foot facility in Watertown.
State regulations require facilities to be built to exact specifications. The area where plants are grown and the drug is extracted needs to be separated from the rest of the facility and secured and monitored 24/7.
Growers must comply with other strict regulations. There’s a rule, for example, that forbids employees who enter growing or extraction areas from wearing pocketed clothing. While other businesses are arranging for laboratory wear and medical scrubs for their workers, Advanced Grow Labs is putting all its employees in soccer uniforms, in order to keep them cool in the humid growing environment. Each uniform comes with its own jersey number and a pair of Crocs.
“Everybody has to be very comfortable,” Lipton said. “We figured this was a way to be a little bit different.”
The state’s regulations, which also include required testing of all marijuana before it is sold to patients, may seem burdensome, but as long as growers operate efficiently, they still should be profitable, said Ruby.
“These rules are really set up to protect the patient … That is why I have chosen to come to Connecticut,” said Ruby, whose partners closed down their Colorado operation to focus on the Nutmeg State. “Connecticut regulations are the best in the nation.”
The Department of Consumer Protection (DCP), which oversees the medical marijuana industry, modeled its regulations after those for other pharmaceutical companies, said DCP Commissioner William Rubenstein.
“The process we are going through didn’t just spring up right away out of the statute,” Rubenstein said. “We have taken a very careful approach to how this program will be developed.”
Pricing Wars
A key issue growers face is correctly pricing their cannabis. Growers say they don’t want to be more expensive than the street price of marijuana because patients will be more likely to buy their drugs illegally. Growers also don’t want to underprice their product, as that could encourage patients to sell their legally obtained drugs illicitly for a profit. Medical insurers won’t pay for patients to buy marijuana, so all the cost will be borne out-of-pocket.
According to the crowdsourcing website Price of Weed, an ounce of high quality marijuana sold illegally in Connecticut costs about $350, which is enough to roll 60 joints.
“We want to make it affordable so people can buy it,” Lipton said.
Connecticut growers won’t directly sell marijuana to patients. That role will fall to dispensaries, who can sell only products made by Theraplant, Advanced Grow Labs, Connecticut Pharmaceutical Solutions, and CuraLeaf. DCP is expected to announce dispensary locations by the end of March, in time for them to start selling marijuana by mid-summer.
Growers will produce marijuana for smoking and vaporizing. The drug may also be infused into food like cookies and brownies.
The growers will also cultivate several different marijuana strands, each meant to cater to patients’ different ailments. Advanced Grow Labs plans to start with five to 10 different strands and then expand as the market grows. Strands high in tetrahydrocannabinol (THC) are good for pain relief while those with high cannabidiol (CBD) compounds are better for treating diseases like cancer and epilepsy.
The growth of the marijuana industry in Connecticut will lead to more investigation into the plant’s medical benefits, Ruby said.
An institution like UConn could become a global leader in marijuana research, Ruby said, given the proper motivation and analysis of patient responses.
“The understanding of the health benefits of this medication is still in its infancy,” Ruby said.
Differing Motives
Unlike Ruby who is passionate about the benefits of marijuana, Schultz of Connecticut Pharmaceutical Solutions decided to open a growing facility because of the moneymaking opportunities and the challenge posed by creating a new industry. Schultz’s professional background is in pharmaceuticals, having served in senior executive roles at several skin care companies, including most recently as vice president of East Hampton-based American Distilling, the world’s largest producer of witch hazel, a lotion used to treat sores.
“For me, it is primarily a professional challenge,” Schultz said. “Putting together a transaction like this requires a certain task-oriented focus … and that looked interesting.”
Advanced Grow Labs’ Lipton said he, too, is enticed by the potential business opportunity of growing marijuana.
“I myself have no experience with the cannabis plant,” Lipton said. “I have a garden in the backyard with a lot of vegetables. That’s it.”
Because of his lack of experience, Lipton plans to hire employees with horticulture backgrounds. Ruby, on the flip side, said he will teach techniques used at the Colorado facility and doesn’t need growing specialists.
Since they were announced as the state’s growers, Theraplant, Advanced Grow Labs, and Connecticut Pharmaceutical Solutions have received an overabundance of resumes. Theraplant has 10 employees now and plans to expand to 35; Advanced Grow will start with 15 by mid-summer; and Connecticut Pharmaceutical Solutions will have 25 employees once the operation gets up and running.
All new hires must go through extensive background checks by their company and DCP.
Advanced Grow Labs was recently thrust under the public microscope when it was revealed its marijuana growing consultant had his Colorado medical marijuana license revoked. DCP ultimately decided not to revoke Advanced Grow Labs’ Connecticut license, saying it was pleased with the company’s response to the crisis and would prefer to work with growers on issues like these.
“We have to be so careful and so thorough with anyone we work with,” Lipton said. “We always have to learn and keep evolving.”
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