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Out-of-stocks could leave Washington pot buyers bummed

July 8, 2014

Marijuana makes its debut as a legal high today in Washington State and big crowds are expected. The problem is that the 24 stores selling the herb already know demand will outweigh supply as most of the 79 growers licensed by Washington will not have their crops ready for shipment until later in the summer.

Amber McGowan, manager of Cannabis City, the first pot store to open in Seattle, told KING-TV that its first shipment of 2,265 two-gram bags, sold at $54 each, will not last long.

Ms. McGowan's concern is understandable when you see that customers are camping outside the store to be among the first to buy legal pot.

Deb Greene, a 65-year-old retiree, showed up outside Cannabis City with food, water and a sleeping bag.

"I voted for it, and I'm just so excited to see it come to be in my lifetime," Ms. Greene told The Associated Press. "I'm not a heavy user, I'm just proud of our state for giving this a try."

Discussion Questions:

How long do you think it will be before traditional retail store operators get into marijuana retailing in states where it is legal? Do you see legal marijuana expanding to other states in the near future?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How long will it be before a traditional retail store operator opens a marijuana shop in a state where sale of cannabis is legal?

Comments:

The laws are way too tangled up for traditional retailers to get into marijuana retailing. Don't forget, it's still a federal crime to possess or sell it, and as such, banks are really hesitant to even accept deposits from the stores who do sell it.

Trouble is, I don't see this situation changing any time soon. Our Congress would have a very hard time justifying marijuana legalization to its constituents and assorted PACs (including for-profit prisons, which house an abundance of convicted drug users and sellers). So it will remain a small niche market.

As an aside, from what I understand, selling two grams for $54 results in a price of $756 per ounce, which is apparently about double the street price. At those prices, the legal side of the business won't stay burgeoning for long.

Will legal marijuana make its way to other states? Probably once other states see the windfall in tax revenue coming from legalization. At minimum, medical marijuana will become more commonplace.

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Paula Rosenblum, Managing Partner, RSR Research

Medical marijuana has been legalized in 22 states and the District of Columbia, with similar legislation pending in several other states. Revenue from medical marijuana in the United States is forecast to hit $2.6 billion this year and grow to at least $8 billion by 2018, according to Marijuana Business Daily.

With that much money in the mix, dispensaries are opening nearly every day, and some of them are implementing loyalty programs to separate themselves from the competition. It's an interesting and potentially educational case study for retailers as well as operators of loyalty programs in more traditional businesses, to observe and learn from what is happening in an emerging industry. Read more in this recent COLLOQUY article: "Medical Marijuana: How Loyalty Programs Can Benefit from a Budding Business."

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Bryan Pearson, President and CEO, LoyaltyOne

Selling pot at a Rite Aid is a ways off. Why? You are dealing with a substance that is illegal in many states and legal in a few. Dealing with controlling that substance is a lot of work. The other end of this is knowing the sources for the supply of the product. Last, how to do coupons. People that are high will most likely misread the coupon and fights will start in the stores.

We might see more action with a distribution company that focuses only on pot and helps to refine the SCM channel for this amazing drug.

Overall, to me only, this retailing pot business is a political joke. Is pot is really helping certain people and not just a way for them to get high? Come on, we have so many drugs that are better than THC.

My hope is that our solid retailers never fall into this trap—a trap that will leave them with increased security issues, more crime and a shopper that is legally approved to become addicted.

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Tom Redd, Vice President, Strategic Communications, SAP Global Retail Business Unit

I'm going to take the high road here and assume this is a serious question.

The stone truth is that for most (non-pot sellers) the idea of selling marijuana next to the brownies is—well—just a pipe dream.

Those retailers searching for the next thing by-hookah-or-by-crooks will no doubt see their futures as cannabis caterers go up in smoke.

Sure, the profit potential is eight miles high (it is a weed for goodness sake) but the regulatory requirements for sale and the public relations nightmares could bust a joint.

So, while there may be roaches in the future of some stores they will need to be addressed by an exterminator, not Cheech and Chong.

Oh ... yeah dude ... like, I almost forgot ... yeah ... the move to legalize isn't, like, going away.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

My guess is that a significant portion of most retailers' shoppers would be adverse to adding marijuana to the list of offerings, so adaptation might be very slow. Given the stereotypical demeanor of marijuana users, slow should be just fine.

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Mark Heckman, Principal, Mark Heckman Consulting

It will take time and a great deal of legislation to make this worthwhile for traditional retailers. But again, that what was said about alcohol sales at one time. The more progressive retailers may find a way to introduce a separate banner that could cater to this market. I agree with Tom Reed. It may be more trouble than it is worth.

As to expanding to other states, New York has just taken the first step in passing medical marijuana legislation so it may not be too far off in the future to legalize it, although I do not think it will happen under Governor Cuomo as he has higher aspirations and would not be willing to appear soft on this issue.

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Zel Bianco, President, founder and CEO, Interactive Edge

Legalizing marijuana is on the way. I re-watched the movie "42" about Jackie Robinson breaking the color barrier in Major League Baseball in the late '40s. One of the lines quoted by Branch Rickey was similar to: "They are coming and coming in droves. You better be ready." I see the recent votes to legalize as the forerunner to marijuana becoming available without fear of repercussion. These early growing pioneers are going to be some wealthy people soon.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

This is interesting. CVS is removing tobacco but I wonder if they will sell pot? Cigarettes are politically incorrect but marijuana is politically correct. Retailers will most likely go with the flow and follow the money. I see it growing slowly but surely. Perhaps some states will sell it through state-run shops like liquor. Maybe at some point we will see it out in the open at farmers' markets. Right now the trend is to legalize, not criminalize, similar to gay marriage and fireworks. At some point the novelty will wear off and the next generation will read about the controversy in history books.

David Livingston, Principal, DJL Research

States, other than Washington and Colorado, will do well to gather and study a couple of years of data about purchase, use, social issues and community reactions/results from the two states that have authorized it. It is highly unlikely that retailers like Costco or Nordstrom (Washington), or King Sooper (Colorado) are likely to enter into this business.

CVS has already made the decision to exit the tobacco business. That, in turn, will have an impact on decisions by Walgreens, Rite Aid, and grocers and mass merchants who carry tobacco products.

Legal marijuana is attempting to cross a huge social divide from a legal standpoint. This is a battle that retailers neither need nor want to fight in the next five-plus years.

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Roger Saunders, Managing Director, Prosper Business Development

Selling any regulated product—tobacco, beer, wine—requires an entire new level of controls; training, accounting, etc. Add to those the issues surrounding the legality and the emotional issues that being a seller of marijuana bring, and I don't see mainstream retailers selling it for some time.

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Steve Montgomery, President, b2b Solutions, LLC

Convenience stores have sold rolling papers and other paraphernalia for years. C-store operators also have experience with tobacco and alcohol regulations. Seems as if any format type would be able to succeed in opening marijuana shops, c-stores would be it.

Also, since marijuana is legal due to a popular vote, I think the social negatives attributed to pursuing such a venture in either Colorado or Washington is overstated.

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George Anderson, Editor-in-Chief/Associate Publisher, RetailWire LLC

Traditional retailers will not get into this in my lifetime, but I could be wrong. I wouldn't want the stigma of that hanging over my head. I don't care what consumers do personally, but to sell it would not be something I want in my store, as kids could get their hands on this stuff.

Just what we need by the way—more stoned slackers.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

Whoever does it first will be huge. Look at the history of product "blow up" in the US: let's take hamburgers. First, it's all about ma & pa, then someone comes along and makes it mass, like Ray Kroc. That's First Wave and Second Wave. The Third Wave is the gourmet burger joints—simple and better, but not big. Same with coffee: Starbucks is the Second Wave, Blue Bottle is the Third Wave, Joe's Diner was the First Wave. All mass product has those three waves.

Point is, we're still at First Wave with pot. Whoever makes it mass will be huge (Second Wave, ala SBUX /MCD) ... and I mean HUGE. Some smart CPG company will most likely take the opportunity by the horns and make it mass. Or a pure logical thinking VC.

Hey, maybe I'll do it myself! Anyone else up to help?

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Lee Peterson, EVP Creative Services, WD Partners

So let's see: some notable mainstream retailers like CVS do not sell tobacco. Now the question is whether such mainstream retailers will sell pot for medicinal or recreational purposes.

Let's wait a year and check the record in Colorado and Washington where
pot is legal. Let's see if there are more traffic accidents/fatalities, and if there is escalation from this gateway drug to stronger illegal substances, followed by more crime to get the money to pay for high-priced "recreation." It happened that way in some European countries and I predict it will happen in the USA. Responsible retailers should think twice before getting into such sales.

Is this a conservative position? Yeah, you bet. It is a world gone mad.

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John Karolefski, Editor in Chief, CPGmatters.com

Enterprise systems address these kinds of issues (inventory management and local regulations). So here's another question: how long with it be before Oracle and SAP have a pot module, and will it support drone delivery?

Vahe Katros, Consultant, Plan B

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