In this April 2022 episode of Meadow Memo, our CEO David Hua sits down with Marie Montmarquet to get her first-hand perspective on the current crisis that the California cannabis industry is experiencing.
The unsustainable combination of high taxes, 280E tax burdens, the lack of retail outlets, the unregulated market, a series of robberies and dropping cannabis prices means much of the industry is hanging on by just a thread.
As the co-founder of California-based MD Numbers, a vertically integrated family-run company formed in the Bay Area in 2010 (spanning cultivation, distribution and delivery), Marie shares some of her huge depth of knowledge.
The most alarming thing Marie said: “It’s not equity that’s broken, it’s this entire industry that is broken.” (31:46)
Yeah, it’s really that bad.
It’s no secret the California cannabis industry is in crisis.
To quote the Save California Cannabis campaign:
- The current regulatory environment threatens the viability of California’s legacy cannabis operators.
- The harms inflicted upon Black, Brown and Latinx communities by the War on Drugs remain unresolved.
- The opportunity to create a robust legal market has been squandered as a result of excessive taxation.
- The illicit market threatens the health and safety of medicinal patients and consumers.
- The State has failed to fulfill the intent and purpose of Proposition 64 as mandated by California voters.
In the interview below with Marie Montmarquet, we unpack the struggle to regulate cannabis in California, which she has witnessed and navigated through since 2010.
Meadow’s cannabis retail software has powered Marie’s Deliverables since 2016. We’ve been in the trenches with Marie throughout the six years we’ve known each other, and California cannabis has been a bumpy ride, to say the least.
(Read more about Meadow’s rollercoaster journey as the first @ Y Combinator-backed cannabis startup in the Hustle Fund).
Highlights of Our Conversation:
- Why Marie loves cannabis and thinks compliant cannabis in California is one of the most interesting things in the world (3:01)
- Why Marie’s farm just increased its footprint by taking over a neighboring space with plants in the ground by operators who had over-expanded in these dismal market conditions (6:04)
- How the price pendulum swings of cannabis flower creates extinction events (6:48)
- Why 85% farmers today are trying to decide if it’s even worth replanting, and why Marie thinks the canopy tax needs to be switched to a flat rate percentage gross tax based on harvest or eliminated completely (8:08)
- Why industry economics are unsustainable: the cost of labor, construction, taxes, gas, rent and operations are going up, but the price of cannabis is going down (9:25)
- Why growing high-quality greenhouse flower that looks like indoor has kept the MD Farms business alive (11:29)
- Why current tax structures at every piece of the supply chain are unsustainable and unbearable (12:01)
- Why California cannabis is the hardest market to operate in, for every license type, especially for small businesses (13:23)
- Why the California cannabis culture and lifestyle can’t be replicated (14:46)
- Why Marie’s lack of formal capital investment has actually been a good thing (15:26)
- Why buyers need to hold the floor on cannabis flower prices (18:00)
- Why the industry switched from making money under prop 215 to raising money under prop 64 in the “green rush” era (19:00)
- Why teams need to be agile, pivot quickly, and operate more like a nimble jet ski and less like a slow barge (19:42)
- Why excess inventory, the lack of retail outlets, and insignificant enforcement on the unregulated market (both in CA and other states) has compounded industry issues (21:30)
- Why unbranded outdoor flower is getting crushed, why more consumer education around THC potency and terpenes is needed, and why solventless fresh-pressed live rosin is currently a good way for outdoor cultivators to survive (22:22)
- Why taxes are killing the industry & why there’s some hope for tax relief in upcoming bills from Senator Bradford & others (26:38)
- Why most people transitioning from the legacy market into the licensed, compliant market are trying to avoid equity programs (30:25)
- Why we need to create other license types to serve small businesses & other equity opportunities beyond just ownership to give back to people affected by the war on drugs (31:20)
- Why there was more strain diversity on dispensary menus under Prop 215 & why cannabis sold outside of the compliant market is often better and fresher than what’s sold in the licensed market (33:45)
- Why an “asset-light” model with white labeling and licensing deals can open up opportunities for the equity community and new brands who don’t have the capital to cultivate or own a license themselves (36:00)
- Why customers are the #1 thing new cannabis companies should be focused on growing (37:51)
- Why vetting business partners and avoiding predatory partnerships is key (38:27)
- Why Meadow isn’t successful unless retail operators are successful (39:34)
- Why a software’s ability to keep up with regulatory changes influences retailers' ability to thrive (41:29)
- How Marie’s consulting company Legacy Coterie can help operators get licenses and plan go-to-market strategies in undeveloped cannabis markets (43:30)
- Why cannabis is still a golden opportunity and how strong relationships will allow us to persevere (44:44)
One of my favorite things we heard Marie say:
“I kind of equate Meadow to the iPhone. There’s definitely a robustness to certain things, and then there’s a beauty to simplicity and things working. All I want to do is sell weed and sell a lot of weed and do it really well. And I never thought that technology would play such a huge role in me selling weed...to make my customer experience as fluid as I want it to be. Technology is everything. The future of cannabis: good weed, and after that, it will be won and lost by technology.”
Thanks for exploring this Meadow Memo on the state of California cannabis. If you found this content useful, please subscribe to this monthly LinkedIn Newsletter and share with a friend in the industry who is part of a retail, delivery, or vertically integrated team.
Learn more about Marie's vertical business: MD Numbers, Inc.
Hire Marie to consult on your new cannabis business: Legacy Coterie