The Cannabis Situation in San Jose: How Thriving Companies Are Finding Their Way

Wow, things have changed dramatically for cannabis companies in California. This was really evident when I attended the Silicon Valley Business Journal’s “Business of Cannabis” event earlier this month in San Jose. Two years ago, at the same event, the questions centered around setting up a business, trying to figure out what the federal government was going to do, and considering how to take advantage of recreational rules before they took effect in January 2018.

Now, businesses in our region are in the thick of it all and finding their way—and while the market has moved in a more positive direction, navigating it is not always easy. In going after the potentially fruitful business of cannabis, companies are in the midst of uncertainty that won’t let up anytime soon—from ever-evolving regulatory changes to shifts in the competitive landscape, among others.

Offering guidance at this event were experts in professional services—a key resource that cannabis companies will continue to need in these still early days. Speaker Sean Kali-rai, expert lobbyist and founder of the Silicon Valley Cannabis Alliance, stressed how far the city of San Jose had come in a few short years, even giving hints that the city was going to possibly double the amount of licenses that currently allow 16 companies to dispense cannabis. Kevin Haller, a senior consultant with Akene Consulting, noted the importance of having a strong compliance plan to ensure approval by the local government and having access to professional insights to run a first-class operation.

On a more micro level, Mark A. Heyl, shareholder/partner at law firm Hopkins & Carley, and Sharmi Shah, founder and principal of Sharmi Shah, Attorney at Law, dug into the activity related to mergers and acquisitions. It is safe to say that it’s been a busy time! Recently announced deals include MedMen Enterprises’ acquisition of Buddy’s Cannabis, a company known for their goat logo (they work with artisan farmers) and for being the first microbusiness to sell recreational marijuana in California. Many early entrants and advocates were in the audience including former San Jose mayor Chuck Reed; Larry Thacker, the number-two person at cannabis dispensary Caliva; as well as various financiers, executives and those looking to get into the cannabis industry.

These are my key takeaways from the discussion:

  1. The prevalence of the black market will be decreased by the establishment of more retail establishments (once again, the answer depends on licensing issues).
  2. A company’s focus on compliance issues is a must, from the controls you have in place through meeting environmental compliance requirements.
  3. It makes smart business sense to get more involved in the industry by joining associations that promote the health and safety of cannabis.
  4. Positive outcomes are likely to arise out of the recently passed 2018 Farm Bill, which legalized hemp, thereby making a distinction for the cannabis plant that does not produce a high. The bill is predicted to bode for a bright future for CBD, which is poised to become a massive market. The details depend on any regulatory changes California makes in response to the federal bill.
  5. The industry is having a major impact in San Jose, which has some of the toughest compliance rules in California. The industry contributed $13 million in tax revenue last year—an almost 25% jump from 2017—and that figure is expected to go higher this year.

What really struck me was the shift in energy at the SVBJ event compared to a couple of years ago. There’s less handwringing about trying to survive. It’s a more exciting time as the focus has shifted to more doing—rather than planning. It is clear that the cannabis companies that are in good shape are past their initial growing pains, and gearing up for the wild ride ahead!

Chris Vane is Director of Business Development at Kukuza Associates, where he connects fast-moving companies with the right finance solutions and builds our ecosystem of strategic partnerships. Chris can be reached at [email protected] or (510) 509-1454 x104.