Matthew Morgan emerged from humble beginnings in Montana to become one of the world’s foremost cannabis entrepreneurs. He rapidly expanded his vision to include multiple growing facilities and dispensaries across Montana, Arizona, and Nevada between 2013 and 2018. Morgan is currently prepping a global venture while lending his expertise to the industry’s brightest stars. With Ignite, Reef Dispensaries and Bloom on his resume, his latest venture OneQor focuses on health products derived from alternative cannabinoids.
You are the man behind some of the most successful dispensaries ever, but I’ve heard dispensaries weren’t even part of your original plan when you entered the industry.
True. When I first got into the industry, I came in through the cultivation side. I was a caregiver in Montana and the cultivator for a bunch of patients. There were no dispensaries in their model so I would supply my patients directly. But when I went into Arizona, there was no longer a caregiver model.
You had to have a retail store for the patients to come in to buy the medicine. In hindsight, I’m glad we had dispensaries because I could have never handled the volume otherwise. I quickly grew to a million a month in revenue at my first dispensary. That was within 10 months.
Did adding the dispensary component make it easier to scale as you did?
In the current market, should new investors still be looking to scale initially?
For a short term play, five years or less, there is still a lot of money to be made in the dispensary model. Anything over five years, I would be relatively nervous about being heavily invested in the dispensary model, especially without diversification.
As industries mature, things start to shake out and settle. With alcohol, you don’t have to go to a specialized liquor store in most states, but the rules do vary. I have feeling marijuana will eventually play out the same way.
Using alcohol as an example, individual states do require you to go to specialized stores to get certain types of alcohol. Others allow its sale everywhere. In some states, you can buy beer, wine, and liquor at the grocery store. Are there certain states that you would consider safer for starting a dispensary than others?
I would lean towards states that are heavy on states’ rights versus those that lean on the federal government. Legislators in states’ rights states are more likely to protect the interests of their local citizens invested in the cannabis industry.
The federal government always wins, but at least in those states, there is some protection. In my opinion, the federal government will ultimately place policy into the hands of the states.
IF the federal government ultimately places control over cannabis policy in the hands of the states, what would that look like?
I expect there to be a federal excise tax. I really don’t see interstate commerce working out. If you want to have a large conglomerate, you will need to have a different manufacturing plant in every state.
Colorado, which is the model, is making so much money through their marijuana program. They are not going to want to share that with neighboring states. Their neighbors have even tried to sue them and be completely rude about this whole thing.
But now look at how well Colorado is doing. Crime’s down. More money goes into public welfare programs. There are no black eyes on any of the politicians. If anything they are being praised for what they did as early movers because, in the end, they were the right ones. Now Colorado is cranking out revenue, it makes sense states that have similar paths don’t want to share that commerce.
Are their differences in the start-up of a dispensary or other marijuana business versus in more traditional industries?
Anytime you launch a startup, you want to have twice the funding you think you need. With that said you get a bit of a honeymoon period with cannabis because it’s new and exciting. No matter what business you are starting, have at least 6 months of funding, ideally at least 12 months.
Outside of lack of funding, what is one of the biggest mistakes a dispensary can make starting out?
Not understanding tax laws and code, specifically 280E*. I’ve seen a lot of dispensaries that are operating at a net loss and don’t realize it because they don’t understand the tax ramifications. Dispensaries are the most critical component of the tax equation because that’s where you really get whacked in this supply chain.
*Matthew is referring to a tax law stating expenditures in connection with the illegal sale of drugs cannot be deducted
What is a mistake you see new owners making in launching their dispensaries?
If you don’t understand the cannabis culture, you are setting yourself up for failure, its still a young industry driven by its pre-existing culture. The experience inside of the dispensary should reflect elements of this culture.
Whether its the right music, the right aesthetic, ensuring consultants and budtenders are using the right lingo and terminology with customers, having certain products on the shelves–even having the right influential people on the wall–it all matters to customers. Otherwise, it is like saying I want to be a pro basketball player, but I don’t know who Michael Jordan is.
Understand what you are getting yourself into. Understand that Steve D’Angelo’s of the world paved the way for the industry. Without guys like him, there wouldn’t be a whole lot to talk about right now, and customers are keenly aware of that. You should know why things are legal in the first place and why things are playing out the way they are now. You have to respect how far we’ve come in the evolution of the space.
If you don’t understand the history behind cannabis reform, you might not be getting [into the space] for the right reasons, and it’s definitely not going to be a fast way to make a lot of money without these understandings.
What is an influencer in the cannabis space?
We don’t have the Brad Pitts of the world in the space yet because of public perception. Their team doesn’t think its in the best interest for their brand. You are left with people like Tommy Chong, Seth Rogan and Snoop Dogg who have direct ties to fighting for cannabis reform. Influencers in marijuana aren’t just stars they tend to be activists. Over time we will see mainstream influencers bring their name to cannabis.
Right now influencers know the lingo, the strains, and the backstory so members of a company who are the forward-facing component should as well. Otherwise, it will alienate customers–send the message that they are just big business and don’t care about health. Remember most customers see marijuana as a health-giving substance. Customers get turned off by dispensary experiences that don’t reflect the culture, and they don’t come back. The demographic is extremely sensitive to authenticity, be authentic or risk getting your brand ripped apart.
You’ve become an influencer yourself, how did that happen?
People identified with me as I shared my underdog journey. They want to be inspired, and they want to relate to you. I think my first post on Instagram got 8 likes, but as I started posting content about my endeavors, my victories, and failures, it began to draw an audience. I wasn’t just presenting my nice cars and other disposable stuff, I centered my story around marijuana, my very real journey through the industry. As a by-product, people saw me with figures like Wiz Khalifa, but it was centered around a mission, not just a photo-op or a party. We were working.
Posting nothing but flashy stuff doesn’t last. Especially since so many people posting that stuff don’t have a pot to piss in. People watched my story. I’m not trying to look like a superhero.
If you can show the trials and tribulations of what you are going through when you are successful, people love that. Don’t be afraid to tell the story of your dispensaries come-up, show the good and the bad so people can root for you instead of resenting you. Entrepreneurs can be rockstars in the age of social media.
With states switching over from medical programs to recreational models, are the margins on cannabis flower different?
Cannabis is now sold to dispensaries by the unit, not the pound, which has reduced the profit possible for dispensaries. With the flower sold by the packaged unit, cannabis costs about the same to sell to the end user, but the margin has been reduced everywhere else due to taxes and production costs. In some cases, the MSRP has actually come down, but that’s not translating to profits after taxes.
A few years ago cannabis was typically sold deli-style. Budtenders would bag cannabis from bulk containers. I was the first to start pre-packaging because it minimized shrinkage. At the time, people were critical, but now it is required by law.
Are there certain products that now have superior margins to flower?
Now your edibles, vape pens, and concentrates should all have a better margin. The trim can be used. You can also buy hundreds of pounds of outdoor and call it biomass, and again, make a better profit than on flower alone. With that said, the highest margin area in the industry is the extraction laboratory for making oils and concentrates, but that getting into a different conversation from dispensaries. It’s a good idea to train budtenders to create add on sales of higher margin products.
In states where vertical integration is allowed, is that more profitable than a standalone dispensary? Is it a bad idea to open a dispensary if there isn’t funding for a vertically integrated model? A lot of mom and pop type situations can’t compete with big business in the same state, so are they better off just staying out?
It’s an extremely capital intensive endeavor, but if you can afford vertical integration, you should consider that model. Vertical integration can maximize return compared to a stand-alone dispensary. That doesn’t mean smaller groups should be afraid. As a mom and pop, if you have the opportunity to open a shop, it gets you in the door. If you don’t do it, the opportunities will never present themselves. Always take the chance.
What was one of your biggest mistakes in your dispensary career? I should mention that you haven’t actually been in the business for a while.
One of my biggest mistakes was deploying a ton of capital into a state-of-the-art-dispensary too early. The assumptions in my model were too optimistic, and it bled out cash flow for longer than it needed to. It was not timing the market right. When you are wrong on timing, you are wrong all the way around. My facilities were right, I should have just held off for several months. Hindsight is always 20/20 so you can’t beat yourself up too much over spilled milk.
This is true in life, business, and cannabis. Even if your assumption is right, if the timing is off, you were wrong. Timing in this space is extremely important right now. The only constant in the industry is change, so you really need to understand the landscape before committing. If you time things right your chances of success are improved exponentially.
There are all these cannabis micro-ecosystems around the country right now with different regulations that change constantly. If you are on the wrong side of that change whatever money and energy you put in are gone. I see people acting on assumptions all the time instead of understanding their ecosystem, and they pay the price for it. I would have allocated my capital differently knowing what I know now, then ten months later did the same thing. Once you get on the ride side of a change, that’s when you really accelerate things.
What’s one of the smartest things you did during your time owning dispensaries?
I was the first person that started doing text SMS marketing for my customers. I would keep a signup and blast them with deals one to two times a week. The other smart thing I did was connect with the right celebrities, the credible cultural celebrities, not who my grandma would like but the people who I knew were leading the movement. It identified that I understood the culture. Image is important.