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As state officials begin accepting applications for processing and transport licenses in the growing medical marijuana industry, executives on the cultivation side expressed doubt that processing will generate much business.
The Arkansas Medical Marijuana Commission (MMC) is now accepting applications for the two new licenses, according to Arkansas Department of Finance & Administration spokesman Scott Hardin. The state constitutional amendment that legalized medical cannabis did not set a limit on the number of licenses in the transport and processing specialties.
“Amendment 98 did not establish a limit on the number of these licenses,” Hardin said in an email. “The application fee is $5,000 with a $100,000 bond required for licensing.” There’s no competition for the licenses, he added, and no deadline for submitting applications.
The commission will consider applications as they come up at regular commission meetings.
But since there are no requirements for cultivators or dispensaries to use transport or processing companies, demand for the services is questionable, two cultivation company officials told Arkansas Business.
“Currently all cultivators are doing their own processing, so short term I don’t see it being a big business,” said Robert Lercher, director of customer service for Bold Team LLC of Cotton Plant, which was the state’s first operational cultivator. “We want to pursue any avenue in cannabis and be more involved, so handing off any leg of this business doesn’t look to make sense for us.”
He’s willing to entertain all offers, but so far no processing companies have approached Bold, Lercher said.
Storm Nolan, who is opening River Valley Relief Cultivation in Fort Smith, sees more potential in transport than processing “given that transportation is not a core competency of the cultivators.” He could see cultivators outsourcing transport of their products to dispensaries, but says processing “could be a bit trickier.” “All of the cultivators so far have set up their own processing,” Nolan added.
“Given the current high pricing of wholesale flower and lack of excess supply, it would be hard for a third-party processor to buy bulk wholesale flower from cultivators, process it, and then resell to dispensaries at a competitive price,” Nolan added.
Also, he said, dispensaries aren’t growing enough flower to sell to bulk processors. “Processing in Arkansas dispensaries is rare given the low quantities of flower they’re allowed to grow. Moreover, they’re quickly selling the flower (retail to patients) that they do grow themselves. I could be wrong about processing, but I don’t think it’s going to be an attractive business in the near term.”
Robbin Rahman of Harvest Cannabis dispensary in Conway agreed. “It’s hard to see a real market for third-party processors, mostly because of how late they will be to the market,” Rahman said in an email. “For a processor to really be successful, they need access to large amounts of biomass. In places like Oregon or Washington, where there are tons of growers and a significant oversupply of cannabis, third-party processors are common because getting biomass is not hard. But Arkansas was built very differently and so they’ll have to convince a cultivator to sell them enough biomass to run their machines.”
He doubts they will be able to get that amount from any of the five currently operating cultivators because most if not all have made “significant investments in their own equipment and expertise to be able to process for themselves,” said Rahman, who oversees the Conway dispensary for his parents, who own it. “There really isn’t such a surplus of cannabis biomass that cultivators will be motivated to sell to some third-party processor at a price that would make any sense.
He said if these types of licenses had been available when the industry was taking off, they might have been more valuable. Still, he sees transport as a potentially more viable business.
“My observation is that transporting is not a revenue-center for any of the cultivators – it’s just a cost center. Plus, it’s an extra headache for cultivators to have to worry about the logistics and regulatory requirements associated with delivery – they have trucks on the road basically 5-6 days a week, going to all 31 (soon to be 38) dispensaries across the state,” Rahman’s email said. “So, I could definitely see one or more of the cultivators deciding to get out of that business and focus on what they do best.”
Ultimately, he expects some businesses to put up the $5,000 application fee and $100,000 bond. “Whether these folks have an understanding of this market or have actually put together pro forma financials to figure out whether they’ll be in the black … I can’t say. This industry tends to motivate lots of irrational exuberance and gold rush behavior.”
Lercher said he isn’t interested in transport services at all. “I can’t speak for the other cultivators, but we transport ourselves and don’t have any interest in changing that at this time.”