The hand offering the plate had dirty fingernails.
“Do you want to buy these for your store?” was the question that followed.
Glancing over the individual standing before me in the 530 Collective lobby, I couldn’t help but notice that his overall personal hygiene was on par with those fingernails.
I politely declined his wholesale offer.
How could this be a viable distribution model?
Yet, this was exactly how California had decided it wanted its cannabis industry to function. While fundamentally flawed and full of inconsistencies, from 2009 through the middle of 2017, the supply chain and distribution worked like this: As a medical cannabis patient myself, I was lawfully permitted to form a medical cannabis collective (530 Collective). The collective was then in turn allowed to possess and reallocate to its members amounts of cannabis tied in aggregate to its member base. For example, if state law permitted each medical cannabis patient to possess eight ounces of cannabis and the collective had one hundred members, then the collective could keep a maximum of fifty pounds of cannabis on its premises to reallocate to its other members. This cannabis would come from patients who had cultivated their allowed number of plants at their home, harvested said plants, and then determined that they had a surplus of dried cannabis flower. This surplus could be made available to any cannabis collective (synonymous with “dispensary”) of which the patient was a member for a monetary value or reimbursement.
While an absolute disaster of a system in almost every way, the system was fantastic in that it was incredibly easy for me to obtain product to stock the store’s shelves. Nearly 100 percent of the products were grown and produced locally, and when supply ran low, it was a simple matter of calling “Joe,” or whoever else was on the store’s list of internally approved patient-cultivators, to see when he could bring more of that stellar Blue Dream that the patient-customers were so crazy about. He would usually have it on my doorstep within the hour. Yes, the holes in this system were chasmic, but replenishment was easy.
While California’s vote to enact the nation’s first medical cannabis law was to be applauded for its pioneering effort to change the cannabis stereotypes and allow patients alternative health-care choices, California was also the poster child for a failed commercial cannabis industry up until 2015.
The patient-to-patient model also had several less-than-charming quirks aside from wonky distribution. All operators were required to structure as a not-for-profit entity—not a tax-exempt entity, God forbid, but a fully taxed mutual-benefit corporation or similar.
Additionally, although the state law acknowledged that a loose framework for commerce was implied, operators could not call the exchange of money a sale or a transaction. Instead, it was a reimbursement: a patient shopping in the store was “reimbursing” the store its costs of acquiring the product, and the store was conversely “reimbursing” a grower for their time, effort, and expenses in producing a product.
The store was required to obtain a seller’s permit from the California Board of Equalization and was also required to collect and remit sales tax to the state. But under California’s oddly structured lawful medical cannabis framework, what I was doing could not be called a sale. That would’ve been illegal. This meant that all records had to reflect the proper terminology. Terms like “sales,” “revenue,” and “profits” were replaced with “receipts,” and “accounts payable” was replaced with “reimbursements.”
This was a silly game of semantics, but it mattered in the eyes of California’s legal system, and I was vigilant with regard to any level of compliance, particularly because any sort of state guidance was so scarce.
California’s patient-to-patient distribution model left the supply chain inherently limited, unstable, and weak. For the first seven years 530 Collective was open, third-party distributors didn’t exist as they did not fit within the confines of California’s medical law. The patient-to-patient model worked more like a farm-to-table model with the growers bringing their products directly to the retailers themselves. The traditional, third-party-distributor model didn’t come into play until 2015 when it was first championed into legislation—to no one’s surprise—by former alcohol industry executives.
Without mainstream distributors and without significant cultivation operations of its own, the store’s shelves were completely at the mercy of whoever and whatever walked through. My then-husband John’s two-light setup in his closet helped stock the store shelves every three months, but that was hardly a commercial facility, and even that was not consistent.
In Shasta County, there was no shortage of cannabis cultivation; in fact, there’s no shortage of cannabis cultivation anywhere in California or any state. Quantity was rarely an issue. Nearly every day, and depending on the time of year, sometimes multiple times a day, patient-vendors would show up at the collective with their wholesale offerings: outdoor-grown flower, indoor-grown flower, concentrates (available as either hash or kief), and edibles, which at the time consisted primarily of baked goods.
The person to whom it fell to evaluate the quality of the cannabis flower samples was John. The man knew his cannabis flower, and he was in charge of reviewing (read “smoking”) the flower samples left by the patient-cultivators, a job that, he often joked, sounded much more fun than it actually was. Grain of salt taken, it was easy to see, even through the eyes of a nonsmoker like me, that the quality of the samples coming into the store varied dramatically. He kept track of what he sampled and made notes on which products passed muster and which didn’t. That list allowed me to keep the store shelves stocked with what he had determined were quality flower and concentrate products. Without testing standards or recognizable brands, the quality the store offered was in the very subjective hands of the buyer, and John, being the cannabis connoisseur that he was, did an outstanding job.
The closed-loop, patient-to-patient requirement also affected whom the store could hire. In order to receive the state exemption from prosecution, any individual working in the establishment was required to be a medical cannabis patient. In 2009, in a rural part of California with higher unemployment rates and lower-income demographics, finding good help was a challenge even for regular businesses, or so my local business colleagues had told me. I would struggle against the subsequent reduced labor pool for the next seven years.
Limited legally on one hand by California’s closed-loop system and on the other by applicants who thought that working in a cannabis store meant that they would get paid to smoke weed all day, building a stellar team in those early years was rough, the revolving door of employees ever in motion. That you will find yourself drafting company policy prohibiting employees sleeping in the break room while not on break so that you can then enforce fair disciplinary action against said employees was one of the fine-print items I must have missed in my Cannabis Store 101 class. Oh, wait; I was living that class.
Quirks of California cannabis law aside, the operations of the cannabis store were relatively uncomplicated in those preregulation days and functioned with a deli-style sales model that is still used in some states.
The first version of the sales floor in the 530 Collective was frighteningly small, but other than that, it looked like any other retail space. The six-foot display case had a shelf for edibles and concentrates; the bottom of the case held several jars that could hold up to a couple of ounces of the flower. A digital scale set on top of the end of the case and the cash register completed the setup. It was small, simple, and decorated with contemporary furnishings from Ikea.
The jars could be pulled out of the case and opened for customer inspection, as the purchase was often based as much on the visual appearance and aroma of the product as on its effects. As the flower sold and the jars emptied, the “shake” (the outer leaves from the buds that had fallen off in the jar-handling process) would accumulate in the bottom. The shake would then be rolled into joints that the store sold individually. During the slow periods, the staff set up the joint-rolling station in the back office and made productive use of that time. I sat and rolled with them.
Now, I may not ever want to smoke one, but in all the years that we hand-rolled those joints, no one could keep up with me. Seriously. I was really fast. Using a little hand roller and papers purchased from the convenience store across the street, I busted out perfectly rolled joints faster than the seasoned smokers, much to their chagrin. I was constantly amazed with how popular those joints were. The customers loved them. We couldn’t keep them in stock and eventually had to purchase bulk flower for the sole purpose of rolling them into “Js” since the jars weren’t producing shake fast enough.
When the team came to me in 2015 and wanted me to buy them the $4,500 Tommy Chong–sponsored Knockbox, a clever little device that could produce one hundred perfect joint cones in about two minutes, I looked at them like they were crazy. Why couldn’t they just roll faster? However, I rarely denied my staff anything they asked for, and I eventually bought it. The return on investment on that little machine was about three weeks.
In 2009 when I first opened, 530 Collective’s jars could hold only a couple of ounces because that was all the store could afford to buy of any one flower strain in the first year. We were such a tiny operation in those days in comparison to others in the industry.
When the patient-cultivators came in to leave a sample or discuss business, they had their flower preweighed into one-pound units, usually packaged neatly in turkey oven bags. We had to explain that the store wasn’t looking to buy a pound of anything; our budget simply didn’t allow for it. Often the patient-cultivator seemed surprised, and some would pack up their bags and walk out. Sometimes, especially right after harvest, these guys came in with a giant duffel bag. They would toss it up on the counter, unzip it, and ask if I was buying “units.” Gray-market cannabis at its finest! I knew those bags held up to ten one-pound bags of cannabis, and there I was, barely able to buy ten one-ounce bags.
I never even looked at what they were offering. I would just smile and tell them they were in the wrong store. They always left looking somewhat offended.
In those first months, the store might not even see ten customers over the course of a day. The four-figure capital investment involved in launching the operation had been divided pretty much equally between the attorney who set up the corporation, the first month’s rent for the building, a few pieces of decor and equipment, and a smattering of product; there were no reserves. For a couple of months, the store couldn’t pay rent until the fifteenth. Given how generous Kristine had been in letting me have her beautiful building, I felt terrible repaying that generosity with late payments. This guilt was completely self-inflicted since Kristine never complained, never made mention of it. She had been a lifelong entrepreneur herself, and I guess she knew that the road of any new business can be rocky, particularly at the beginning. Her relaxed attitude gave me confidence and strength. Sure, I was terrified and had many bouts with insomnia over those slow days, but I always found a way to pay the bills, and knowing that I wasn’t going to be hounded for the rent helped me stay calm and just keep on.
In those first sixteen white-knuckle months, the gross receipts were under $100,000, well below expectations. The store was technically operating in the black, covering its own expenses, but every extra penny that came in was reinvested back into the operations, primarily into more products, both greater quantities and more diversity. None of the revenue went toward wages.
The bills at home were getting paid initially by John’s income, then later by his state disability payments, and money was tight. So tight, in fact, that in 2010 when John faced unexpected legal challenges from his ex-wife, there was only enough money to pay his attorney or the mortgage, but not both. The attorney won, and the mortgage went into default; the house would ultimately be lost to foreclosure.
Opening the store in September was, in many ways, a poor strategic decision as it was right on the cusp of the cannabis harvest season (meaning that anyone growing their own cannabis had all they needed), but the city had green-lighted the business, and I’d found a willing landlord, so it was then or never. In 2009, most of the cannabis patients in Shasta County were growing their own supply as there had not previously been stores available to provide them access to medical cannabis. With the onset of harvest season in October, the demand for cannabis flower from the collective dropped as patients simply harvested what was growing in their backyards. However, having a store in town was a novelty, and we had one thing their backyard couldn’t supply: variety.
The retail consumer psychology that is deeply rooted in all Americans, that expectation of vast variety no matter what we are shopping for, had begun to manifest in the cannabis customer for the first time. A customer who had grown their own OG Kush in their backyard would come in for some bubble hash, something they couldn’t make for themselves. During their visit, they might mention how great their harvest had come out and how happy they were with it. But then they would notice on the store’s menu board that we had in stock Sweet Island Skunk that they remembered from “back in the day” as well as some indoor-grown Blue Dream, the strain everyone was talking about. Feeling nostalgic and adventurous, they would, of course, have to purchase a gram or two of each in addition to the hash they had originally come in for. Even though that customer had plenty of their own product at home, they suddenly found themselves spending seventy-five dollars at the collective simply for the sake of variety. It was absolutely fascinating to be on the ground floor watching this change, this psychological shift, take place.
The shift happened rapidly to the store’s tremendous benefit. By 2011, the gross revenue skyrocketed to just under $300,000. Employees were hired; the edibles line launched; and the store was able to finally pay consistent wages to both John and me. While it was a relief to feel like the store was out of the woods, I wasted no time reveling in it. I was way too busy!