I’ve spent countless hours over the last year arguing with dispensary folk on Twitter. If you follow me, you already know this. Jodie Emery compares herself to Gandhi, I show up to crack out the laugh track. Kirk Tousaw says it’s time to stop busting dispensaries, I ask whether he’d be okay with me practicing law without a license.
I do it, mostly, because it’s fun, and because, while I don’t doubt dispensaries should exist in a well functioning industry, I don’t think they should be run by any old ne’er-do-well who takes out the sub-lease on a store that usually sells fireworks, and fits it out with $180 of Billy bookshelves and mason jars while calling themselves a ‘wellness collective.’
Dispensaries would have already been a legal thing, in my opinion, if not for the actions of the Emery clan, who opted to not wait for legalization, and instead tried to open 15 dispensaries across the country, in the hope they’d be grandfathered into the upcoming system. Likewise, the law would already have been changed if Vancouver Mayor Gregor Robertson hadn’t allowed 140+ dispensaries to spring up, more or less unchallenged, across the city in an effort to hide his ongoing commercial real estate rental crisis.
Dispensaries should exist, and they should be run by smart people who understand retail, and who have passed through security clearances and can chart where their source material comes from, and can track what effect it has on users, and will run their facilities like Apple Stores rather than Uncle Muscles’ House of Weed. And all of that should be doable, legally.
Realistically, dispensaries should be owned and operated by LPs, using the material they grow, in malls across the country, with known brands at the heart of them. Abcann (ABCN.V) should have kiosks in malls. DOJA (DOJA.V) should have tourist resorts that combine the founders’ vineyards with their growhouse.
But right now, that’s not what the scene looks like. Dispensaries are a hodgepodge of well meaning folks, not-so-well meaning folks, self promoters, weed enthusiasts, the occasional gang member who never got caught, and entrepreneurial gamblers.
In a few months, we’re likely to hear what the new federal rules will be, and that hodgepodge will either:
- Sell up
- Apply for licenses
- Continue to trade unlawfully and eventually go to jail
As an investor, I don’t want to wait for those rules to show up, because by that point the profits have been realized. If you’re an investor in Emblem (EMB.V) on the morning the rules switch to “all weed can only be grown by Emblem,” congrats, you’re rich. But if you wait until that hypothetical rule is announced before you invest, tough break, you missed it.
So you want to figure out where the wind is going to blow before it picks up, and get ahead of that transition.
Personally, I think dispensaries will be a thing in BC. The Vancouver city council can’t afford to shut down the dispensaries and leave streets of broken retail leases in their wake, so they’re all for it. The province has a new government which isn’t anti-weed, so they’re unlikely to get in the way. And the feds are more or less leaving things to the provinces, so while Ontario may hand it all to their unionized pals at the LCBO, and the prairies might put their hands over their ears and yell “LALALALALALA” in an effort to pretend it isn’t happening, BC is likely to have a dispensary component.
That component may not involve the people currently running them, as it’s far easier to police a handful of large players than any dude with a card table, and when you press the current owner/operators about their legal record, some get a little nervous.
So let’s assume:
- There will be dispensaries
- Most of those out there now won’t be allowed to continue operating
- Those that are to be closed, will sell up to those who are okay to continue doing business
Q: If that turns out to be the case, who will get through in the current dispensary crop?
A: Not many. You’d need to narrow your focus down to those doing business with city permission and permits granted, those who focus more on health and not head rush, those who operate their stores in a way that tracks customers, suppliers, finances and taxes paid, and those who have established brands and personal connections that make them the closest thing the dispensary world has to good corporate citizens.
Recently, I learned of one dispensary chain that is doing strong business on Vancouver Island and sees itself as having set up for exactly this sort of transition: Either being accepted and regulated going forward, or not accepted but being abundantly sellable to someone who might be.
That chain is the Trees Dispensary group, which has been touring the city’s brokers and financiers looking for someone who will put together a deal for them, at least in LOI terms, to either go public, or sell up, when the rules allow. That deal will almost certainly happen, and there’s no shortage of groups who’d like to put it together.
This is the time for those discussions to be had, because by the time such a deal is finalized, you’ll be weeks from that final federal government decision and, at that point, every idiot will be looking for a deal.
I like the Trees guys. According to discussions I’ve had with them, they’ve set their business up to transition as smoothly as possible from grey market (with city thumbs up) to white market (hopefully with federal thumbs up). And if that can’t happen, they’re okay to sell to someone who has an inside run, albeit for a pretty penny.
Another dispensary recently sold their patient list, I’m told, for upwards of $550 per user. Trees has 15,000 users, or so they say. That’s an $8.2 million asset right there, regardless of future business permits.
When I talked to the man behind Trees, he was sniffing around the edges of the market,asking for advice. Two weeks later, I was bumping into him in investment banker elevators and he knew his stuff.
But even though I think someone will make great money out of Trees, I’m not necessarily going to jump on that because, by the time it gets to you and me for our investment, the big dogs will have already taken their chunk. Their chewing on it right now.
I want smaller. Earlier stage. And maybe with some management that have a better understanding of non-enthusiast retail.
I’d happened to meet one Walker Patton, former RBC Wealth Management advisor, at an investor panel I did at the Vancouver Club a few weeks back, and he talked up something he was involved with – The Village Dispensary, near Vancouver’s Granville Island. I didn’t give him a lot of time, to be honest, because a LOT of people wanted to talk after that panel. Weed investing continues to be one of the most evolving spaces and there are a lot of folks with big ideas out there.
But Walker persisted. He wanted to chat, and bought me lunch, which is a good way to get me to shut up for an hour.
Walker is working with The Village Dispensary to bring their company into the sort of shape that, like Trees, could either quickly move into a public financing model (when legal to do so), or a quick and profitable sale (should that be necessary), or some sort of joint venture (should the laws allow for it).
That means getting the books in order, the back end software in top shape, making sure the facility is top notch, that the business plan is en fuego, that the staff are clean and the management are class, and that the city is completely happy with the operation and that the branding is fantastic.
Here’s their promo video:
I hit him with questions for two hours. The only one he couldn’t answer to the fullest satisfaction was, “what it the government says no dispensaries,” but after a little back and forth we found, between us, a really solid plan B (that I’m not sharing here) that would allow things to continue regardless.
Here’s the kicker: The Village is doing a raise. Rather than go to the financiers, they’re going to their customer base and allowing the users to buy into the business, to finance growth of the chain.
[pdf-embedder url=”https://edwf2rfws4u.exactdn.com/wp-content/uploads/2017/08/Pitch-Deck-The-Village.pdf” title=”Pitch Deck – The Village”]
TVD is raising $2 million at a $3 million valuation, which I think is right on point. Not too greedy, not too ambitious. Management include Jeremy Jacob, who is the current President of the Canadian Association of Medical Cannabis Dispensaries, which reps the industry to government and strives for high standards of practice, and retail design expert Andrea Dobbs.
With a focus on women, older clientèle, and a premium product for a user accustomed to paying for high quality, the group has managed to get themselves picked as the city’s number one dispensary and brand by the readers of The Georgia Straight, against quite the competitive lineup.
I’ve been bitching to dispensaries for a long time now that they’re doing it wrong, that they need less Marc Emery dabbing with teens and more shiny Apple Store. I’ve been asking “where’s your supply come from” and hearing all manner of hems and haws that it’s ‘good people’, who just happen to be illegally selling their medicine.
Walker answered those questions. He admits it’s a grey market business, and that the cops could kick in the door at any time, but counters that his group is permitted by the city (most still are not), inspected on the regular, that the customers are returning in droves, that the staff are beyond knowledgeable and want feedback from customers regarding their experiences so the data can be used to fine tune going forward. He told me, again and again, “The intent is to make this business one of the few that will be given the okay, as an industry leader, as a team player and responsible corporate citizen, as a business that sets high standards that others must ultimately copy or be consumed by.”
I talked to Rosy Mondin, CEO of Quadron Cannatech (QCC.V), about the situation, because she’s been back and forth to Ottawa for years helping the feds figure out what smart legislation might look like, and though she and I have often tangled on the topic of dispensaries, she’s always said, “They’re coming,” and she ain’t no fool. She also knows, like, everyone in the business.
I said to her, “I’m thinking of buying into a dispensary because I think they’re best of breed,” and she said, with no hesitation or prompting, “Oh, The Village? It’s The Village, right? They’re the best. You should.”
I’m buying in.
Now, I know that there are folks out there who will chortle and say, “PARRY IS BUYING INTO A DISPENSARY?!”, and that’s okay, because I’m not just buying into any old piece of crap with a neon leaf in the window and a pretty girl banging the drum on Twitter, I’m buying into a business that, in my opinion, will be legal by the time the ink on the stock certificates is dry, and which will be front and center when the biggest players in the business are given the go-ahead to buy or start their own dispensary operations.
I don’t think The Village will exist, in it’s present form, in nine months, and I don’t think I’ll profit from their revenues in the time leading up to that. But I do think someone will pay us/me a pretty penny for my stake very soon.
The investment makes sense to me. I’m in.
— Chris Parry
FULL DISCLOSURE: Abcann, Emblem, DOJA, and Quadron are Equity.Guru marketing clients. The Village is not. If you’re interested in making an investment in The Village’s raise, the PP docs are embedded below. Do your due diligence, speak to an investment advisor, don’t invest anything you can’t afford to lose, and don’t eat bananas right before you go to sleep.