Alaska’s cannabis industry has spent the last few years getting off the ground, but a handful of marijuana cultivators have already shut their doors.
Cultivation facilities in Homer, Houston, Nome, Sitka, Soldotna, Wasilla and Willow surrendered their state licenses or let them lapse last year, according to the Alaska Department of Revenue.
“We are starting to see some cultivators with expired or surrendered licenses, going out of business,” Kelly Mazzei, a supervisor at the department’s excise tax group, said in an email.
The closures weren’t so much about supply or demand pressures, said Alaska Marijuana Industry Association executive director Cary Carrigan. Rather, he said, they are the result of attrition that would happen with any nascent sector.
“There wasn’t anything that was a market force issue that closed them down, like there were too many retailers or not enough product or the taxation structure was so bad that it drove them out of business," Carrigan said. The cannabis industry also has unique challenges layered on top of what other businesses face, including a reliance on cash.
The cultivators whose licenses officially expired at the end of August last year, according to the state, were: Lazy Mountain Harvest in Houston; the Farm in Willow; Alaska Cannabis Propagation in Wasilla; Talisman Farms in Homer; Gudlief Organization in Nome, and Terra House in Soldotna. Another, Green Leaf in Sitka, more recently surrendered its license, said Mazzei.
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Those businesses may have stopped operating before their licenses officially expired, she added. A license for another cultivator, Kush Kingdom in Anchorage, expired in 2017.
Mazzei doesn’t think cultivators have closed for a reason like an overabundance of product on the market, pointing to applications for cultivator licenses that are still being approved.
“I don’t want to think the market is saturated yet, there’s too many applicants,” she said.
In Nome, Gudlief Organization ended its grow operations in August. There was no retailer there to sell the product when the business started, said co-owner Robin Thomas, and Gudlief’s retail operation didn’t start until later.
“The plan was to, you know, grow some product and ... try to sell it, but there was no other retail store popping up right away in Nome,” he said. “I had the product I was storing up and I still had my electric bill every month and no one was buying the product.”
When any industry starts, there are going to be entrepreneurs whose business models don’t work, said Carrigan. Marijuana businesses have plenty more to grapple with. One example: They are required to have a lease on a property before they can get a license, “which is crazy” because of the up-front costs that ensue, Carrigan said.
“You have to have the anticipation that this is going to take you a year to get up and running,” he said. “It’s not like you can rent a space, put up a sign, open the doors and go. There’s a number of different factors to contend with, and one of them is time.”
Because the number of marijuana licenses isn’t capped, “it is reasonable to expect that at some point the supply will become greater than the demand and the price will fall too low for some businesses,” Alcohol and Marijuana Control Office director Erika McConnell said in an email.
“I’m not sure we are there yet, but it is hard to know.”
At Alaska Cannabis Propagation, co-owner Steven Nicol cited challenges with getting the business license renewed, and also a competitive market.
“We had good product, too, it’s not like we were growing bad weed,” Nicol said. “But people already had their foot in the door.”
Much of the industry is cash-only. Most financial institutions are reluctant to serve businesses dealing in a product that is still federally illegal.
Mazzei, with the state’s revenue department, said she’s heard from some cultivators about challenges they’ve faced.
“For instance, if there were any thefts or vandalism or burglaries, that sort of thing, some just couldn’t recover from that,” she said. “Some of them I think it was just a cash flow issue, they’re marijuana businesses and can’t get loans like regular businesses. Startup costs are so expensive.”
As Nicol put it, everybody wants a piece of the pie.
“It doesn’t matter how big you are,” he said. “Your landlord, everybody. I don’t know how small businesses can stay afloat with that.”
In November, the most recent month the revenue department has data for, Alaska marijuana businesses owed the state $1.4 million in marijuana excise taxes ($1 million of that was paid in cash and some is still owed). That amount was down from October, which saw a spike.
With more hopeful entrepreneurs continuing to apply for licenses, Mazzei said she and others in her division wonder how long growth in the industry will last.
“When are we going to hit saturation and how many businesses can we get into market and have consumer demand still?” she said. “But it really doesn’t seem to be slowing down.”