Marijuana goes mainstream with the growth of chain stores
August 11, 2016
When Josh Ginsberg talks about Native Roots, the 36-year-old CEO of Colorado's largest dispensary chain sounds like an MBA professor discussing a case study decades in the making, or maybe an MBA student proposing a model so familiar it might just work for weed.
"We want people to know that when they find what they like, they can have the same experience over and over," Ginsberg said from his office in the chain's Denver garden facility. "That's our whole philosophy and model, from the music and budtenders to the product you're smoking to the product we're selling to how we're selling it. And that's really what has allowed us to grow the way we have: Every time we give that experience to someone else it's always well-received."
In less than three years, since the advent of legal recreational marijuana in January 2014, Native Roots has aggressively expanded across the state. The brand started humbly with just two locations — one known as Native Roots in Denver and owned by Rhett Jordan, the other called The Dandelion in Boulder and owned by Ginsberg — and soon burst onto the recreational scene with its first ski-town location, a clean, crisp, thoroughly modern concept in EagleVail, found less than 10 minutes from Vail to the east and Beaver Creek to the west. Both ski resorts draw hundreds of thousands of visitors in the winter, just like their Summit County counterparts, and the founders saw an untapped opportunity.
That first Native Roots resort location opened in August 2014 and quickly cornered the tourist market, despite the fact it was soon joined by two other recreational dispensaries on a mile-long industrial strip known as "The Green Mile" — the Eagle County equivalent of Breckenridge's Airport Road. Native Roots came to Frisco in December 2014 and quietly flew under the radar as another local dispensary, Medical Marijuana of the Rockies, was saddled with a federal racketeering lawsuit from the Frisco Holiday Inn, merely a block from Native Roots. About eight months later, Medical Marijuana of the Rockies permanently closed shop, while Native Roots opened its second Summit County location in Dillon.
“We’re going for the Starbucks model, and it’s not because we want to be a behemoth. It’s because you get a vanilla latte and it tastes the same every time. … When there’s consistency
— when you know you’re getting the same thing every time
— that’s why you go there, and that’s what we want with marijuana.”
— Josh Ginsberg, Native Roots
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By April 2016, partners Jordan and Ginsberg grew their brand to 14 locations across the state, including two in Summit County, one in downtown Aspen, another on 16th Street Mall in Denver and several 'Gas and Grass' combo dispensary/gas stations in Colorado Springs. All told, the company now boasts roughly 450 employees between budtenders, growers, management and traditional corporate departments like marketing, human resources and industry compliance, including four officers dedicated solely to keeping up with constant policy changes from the state's Marijuana Enforcement Division.
And that's only the surface. Along with two more Front Range locations that will open by summertime — stores 15 and 16 — the company also has two corporate offices with a third in the works, not to mention a half-finished, state-of-the-art garden facility in Denver that will replace four remote sites and soon become home base for vertical integration: plant growth, plant curing, product development, concentrate manufacturing, even a tissue-culture lab to fine-tune plant genetics. "The principle here is that we aren't trying to be a behemoth of a dispensary chain," Ginsberg said. "We just want to bring that consistent product and consistent experience to anyone who walks in the door."
"THE STARBUCKS MODEL"
It's all part of a strategic and highly professional business plan, one overseen by the founding partners and funded almost in full by profits from their rapidly expanding dispensary network. The plan still includes combination medical and recreational stores, such as the high-profile Frisco and EagleVail locations. But it runs much deeper than the chic, black-on-white wallpaper and packaging that have become the brand's calling card. On April 1 — yes, April Fool's Day — Native Roots announced a bid for naming rights to the Denver Broncos football stadium, Mile High. Let the jokes begin, right?
"It's not a joke, we're very serious," Jordan told several news outlets, including CBS Denver. It's also not a cheap proposition: Sports Authority, the Denver sporting goods chain that recently filed for Chapter 11 bankruptcy, bought the rights in 2011 for $6 million per year over 25 years, or a grand total of $150 million.
But the money is pouring in for Native Roots. Like most dispensaries, it's a privately held company with several investors, including the two founding partners and one unnamed investor who helped fund the initial expansion in 2014. All Colorado dispensaries still operate as cash-only businesses, so the company does not release any figures save the tax revenue reported to the sate — "It's a human safety thing," Ginsberg said.
But the CEO says its landmark growth in 2015 was funded almost fully by earnings. It's a self-sustaining brand by now, and a respected one, and that's exactly what the founding partners want to be less than three years after full legalization: a uniform experience in the former Wild West of Colorado's marijuana industry.
"We have spent a lot of time and a huge amount of resources on this," Ginsberg said. "If you're in Aspen, in Longmont, in Trinidad — it doesn't matter. You know what you're going to get. We're going for the Starbucks model, and it's not because we want to be a behemoth. It's because you get a vanilla latte and it tastes the same every time. … When there's consistency — when you know you're getting the same thing every time — that's why you go there, and that's what we want with marijuana."
Native Roots is far from the only Colorado dispensary with plans for something bigger, better and more familiar in the marijuana industry. Medical centers debuted in 2009 when the industry was still wildly controversial, but the promise of a legal market for a previously illegal substance was too tantalizing for these entrepreneurs with hopes of expansion: Jordan at Native Roots, Ginsberg at The Dandelion and Alex Levine of Greenwerkz, the company behind the Green Dragon Cannabis Company chain.
Like Native Roots, Green Dragon has grown without rest in the past two years and now owns seven locations, including Aspen, Denver, Edgewater, Aurora, two in Glenwood Springs and, as of February 2016, Backcountry Cannabis Club in Breckenridge — the dispensary at the heart of CNN's "High Profits" documentary series.
For Levine, growth is simply a natural side effect of a constantly changing industry. In 2015, a combined 947 medical and recreational dispensaries across the state collected $76.2 million in tax revenue, up from $43.9 million in 2014, all while regulations changed weekly and the state itself was hit with a joint lawsuit by two neighboring states, Oklahoma and Nebraska. (The suit was rejected by the U.S. Supreme Court in March 21, 2016.)
"In a rapidly changing industry, many dispensaries find it difficult to compete with the larger companies in marketing, compliance, capital improvements, access to capital and general business skills," said Levine, sounding even more like an MBA prof than his competitors at Native Roots. "As we have grown and benefited from economies of scale, our quality has been improving and continues to do so."
While Green Dragon's footprint is about half the size of Native Roots' — the company owns grow sites in Denver and Glenwood Springs — its approach to the industry is no less ambitious. It begins with packaging: Unlike most dispensaries, all Green Dragon flower (aka marijuana bud) is vacuum-sealed in clear plastic bags before it leaves the garden.
"It's like opening a fresh bag of potato chips," Levine said. "Most of our competitors package flower in plastic, pop-top vials, which are not airtight, so the product starts to dry out and deteriorate."
Green Dragon has several reasons for potato-chip packaging — it keeps the product fresh and free of bacteria or mold, also known as "pot rot" — but Levine again sees it as a byproduct of an evolving industry. As the Green Dragon brand expands, packaging guarantees a reliable and consistent experience.
"Due to constantly changing regulations and strict governmental regulations of pesticides and other rules, it is extremely difficult for the smaller grows to deal with the extreme challenges of cultivation within these strict boundaries in a cost-effective manner," Levine said. "Green Dragon has the resources to be able to deal with these challenging and rapidly changing regulations."
It's the same experience Native Roots wants to provide, even when behind-the-scenes regulations seem overwhelming. Late in 2010, the state legislature passed House Bill 10-1284. Among other things, it green-lighted commercial sale and limited the wholesale market. Today, all dispensaries must grow at least 70 percent of every product they sell, including oils, shatters, waxes and edibles. This spurred the vertical integration mentality, and now, large companies with vast resources like Green Dragon and Native Roots are building in-house brands and philosophies to make the most of massive grows. Green Dragon's Denver facility uses a combination of natural and artificial lighting to cut down on emissions, while both Green Dragon and Native Roots are experimenting with tissue-culture labs.
At the Native Roots lab, a former Frito Lay researcher is helping capture the exact genetic properties for each of the dispensary's 30 strains. Again, it's all about consistency: clone plants lose certain genetic qualities after just one or two generations, while a tissue culture preserves the exact structure and, in theory, physiological effects, much like the culture-grown potatoes Frito Lay uses so that every chip tastes exactly delicious.
"The Blue Dream (strain) that I have today might have been through 15 other people — it's that far genetically from what it originally was," Ginsberg said. "It's like when they make orchids: something with the same structure as the parent."
COLORADO AND BEYOND
The newest Native Roots lab and grow facility isn't fully operational — Ginsberg expects it to be online by early this summer — but, again, it's far from the only dispensary brand preparing for future growth.
Altitude Organic Medicine, the newest dispensary in town with 70 employees across the state, opened a Dillon location in mid-March after nearly $500,000 in renovations. It's the company's fifth location (one is currently for sale) and first foray into the recreational market after dominating the medical market in Colorado Springs. In time, he hopes to debut Summit's first drive-through dispensary, beating Native Roots to the punch. (Native Roots has no plans to open a local Gas and Grass location. Why? It's tough to find independent gas stations, Ginsberg said.)
"We had secured such a solid position in the Springs," said co-owner Aaron Bluse, one of three partners spread between Pueblo, Colorado Springs and now Frisco. "We've always kept our eyes open for the right situation and right fit, and we ended up finding that in Dillon because it really is a central location for the highway and ski areas."
Altitude Organic's new garden facility, a two-acre complex in Pueblo, is currently being built in phases. When completed, it will be home to a 750,00-square foot garden, plus manufacturing for the company's soon-to-launch line of in-house edibles and concentrates.
Much like packaging and tissue cultures, Bluse believes Altitude Organic's claim to fame — and market share — is a clean product. This February, he and his partners filed a deposition with the U.S. Department of Agriculture through the Colorado state attorney to defend the "organic" label, partnered with 700 pages of documents with pesticides, additives and other elements used in the growing process. Bluse expects to have a ruling from the USDA in May or June.
"I feel that there is a shortage, or a lack of, the clean, safe product here in Summit County," Bluse said. "People might be living an organic lifestyle but buying cannabis that isn't on the same level. We're trying to find things that have medical benefits, bringing a different element than just, 'Hi, come get high, see you next time.'"
It's a reflection of Colorado's pot industry as a whole. Small mom-and-pop dispensaries still claim more than half of the market, but they're fast being ousted or outright purchased by larger chains with the depth, business sense and, of course, funding to shed the drug-dealer label.
But what happens when the dominoes fall and the industry expands beyond Colorado? Native Roots has already seen a cultural shift, beginning with its compliance department: two are former MED officers — police officers before that — who saw the promise of working in the private sector.
"The times have changed," Ginsberg said, echoing a sentiment from 2009, when medical centers arrived, and again in 2014, when recreational sales debuted. "People are coming out in droves because they want to be in this industry. It's something new, it's something fun, it's something different than the job they've had for 20 years. We are a put-together company. We know what's going on and people don't have to be ashamed to come work for us."
While Native Roots currently has no plans to expand beyond Colorado, Green Dragon is "actively searching for additional acquisitions in Colorado and would like to expand outside the state," company president Ryan Milligan said. Altitude Organic is busy with its new grow facility, which will help Bluse expand the company's two organic medical brands: Cannacone, pre-rolled joints available only through Altitude Organic locations, and Colorado Extract Company, sold in various stores across Colorado Springs.
For now, expansion is the name of the game for burgeoning chains. But, no matter how wild things get, it's still hard for entrepreneurs to believe they've come so far, so fast.
"I never thought I'd have the chance to do this," Ginsberg said. "Every day I wake up and it's so cool that I get to run this gigantic company, and it just happens to be marijuana, it just so happens to be selling weed with a company of (450) employees and 16 stores. It's crazy. I think that every day."
Editor's note: This is a revised version of an article originally printed in the 2016 Rocky Mountain Marijuana Magazine. The original version stated that Breckenridge Organic Therapy on Airport Road was also part of a federal request for grow and fertilizer logs to evaluate the claim "organic," a term overseen by the U.S. Department of Agriculture. Breckenidge Organic Therapy was not contacted by the federal government or Colorado attorney general for grow logs, nor have the owners submitted these materials. The article also identified the federal request as an investigation. The USDA request is voluntary, not mandatory.