Plant a seed: Fledgling industry's early entrants see profitable harvest

When Amendment 2 passed in 2016’s general election, it spawned a new industry in Florida — medical marijuana — that has rapidly expanded, approaching $800 million in total market value and nearly 16,000 jobs, according to Leafly, a website that tracks the growth of the U.S. cannabis sector.

Gulf Coast companies that got in early on the boom — which also includes robust sales of CBD products that don’t produce the same “high” effect as full-strength cannabis — have been quick to reap the rewards of their foresight and patience. 

“We’re expecting the marketplace in Florida to be around $1.6 billion in revenue by 2022,” says Roger Brown, founder, president and CEO of ACS Laboratory, a Tampa-based company that tests medical marijuana for compliance with state regulations. Brown, 60, a serial entrepreneur who launched ACS in 2008, says the firm, which tests thousands of product samples every week, did $15 million in sales in 2019, and he expects 2020 to be “well north of that.” 

‘We are in a highly regulated industry, and so some things are just out of our control.’ Todd Beckwith, AltMed Enterprises’ director of corporate affairs 

It’s a similar story at Proleve, a Tampa-based manufacturer of CBD products for wholesale and retail distribution. Founder Jon Solomon, 34, says the company went from $500,000 in sales in 2018 to $2.4 million last year. For 2020, he’s projecting a giant leap, to $19 million. “The sky’s the limit,” he says. “It’s perfectly legal now, so the floodgates are open.” 

Also finding success with CBD is Tampa-based Summitt Labs, which makes the Kore Organic line of oils, gummies, lotions and other health and wellness products. Sameer Jessani, 40, founded the company in 2018 with profits from investments he had made in gas stations and dollar stores. In 2019, Summitt did about $500,000 in sales and Jessani projects that figure will rise to $1.2 million in 2020. "And if everything goes how it is currently, we are very much in line to double that," he says. 

Sarasota-based AltMed Enterprises, a maker of medical marijuana products sold at dispensaries it owns and operates in Arizona and Florida under the brand name MÜV, has also gone from strength to strength, opening 11 dispensaries in 2020 alone. It now has 22 locations in Florida and expects that number to hit 30 by the end of the year. AltMed Director of Corporate Affairs Todd Beckwith says the firm has 525 staffers but anticipates hiring more than 200 additional employees by year’s end.

“Not only have we doubled our retail footprint,” Beckwith says, “but we’ve nearly doubled the size of our operations and facilities.” 

But as profits have flooded forth, so have government regulations, making medical marijuana and CBD a potentially tricky business to set up and sustain. Some industry executives say it can be one step forward, two steps back, in terms of rules to follow, and they fear that a potential Food and Drug Administration crackdown on the industry could leave them scrambling to adapt and survive. 

“We are in a highly regulated industry,” Beckwith says, “and so some things are just out of our control.” 

State regulators have generally been easy to work with, Solomon says, and are good about consulting the industry for input about potential changes that could affect the way products are made, marketed and sold. But he concurs that the FDA could throw up hurdles.

“If the FDA comes down and says you’ve gotta be registered, well, that's just money — we throw money at it, we become compliant with the FDA, we move on,” Solomon says. “But if the FDA comes back and says, ‘CBD is harmful for you, and we don't recommend it,’ then that's a whole other story.” 

WORK THE SYSTEM

Just like their brethren in alcohol, banking, pharmaceuticals and other heavily regulated industries, CBD and medical marijuana companies can flounder or flourish in accordance with the government’s wishes, so it behooves them to stay out in front of any potential restrictions. That’s a lesson well illustrated by ACS Laboratory’s strategy. 

The company made a big push to get its testing facility — which is already one of the largest in the eastern half of the U.S., according to Brown — certified by the Florida Department of Health’s Office of Medical Marijuana Use. That has it well positioned to meet a crucial deadline — Dec. 24, 2020, the date by which all medical marijuana treatment centers must sell off all products that were tested prior to June 24, when the state updated its certified marijuana testing labs rules. 

“Growers have to test certain batch sizes and have to test for all of the contaminants that could be in marijuana, like mold mildew, mycotoxin pesticide and heavy metals, while also measuring the potency levels of the product,” Brown says. “That is something that is now mandated.” 

Now that ACS Laboratory has achieved CMTL status, just three labs meet the state’s rigorous standards. Brown expects to be able to grow rapidly via acquisition because a number of smaller, less well-funded labs will be open to offers. That process has already begun, he says: ACS Laboratory recently bought out Botanic Testing Inc., a Gainesville lab. It has three other deals in the works. 

“They were a small, high-quality CBD testing laboratory,” Brown says of Botanica. “We had a good working relationship with [Botanica], and the opportunity came up to acquire the business. So we bought the company and picked up about 500 CBD clients along the way.” 

Getting out in front of fast-changing rules and regulations has also been a boon for Proleve, which has seen its private-label manufacturing business soar. Solomon says smaller CBD firms are increasingly turning to his company for their production needs because “they just can't comply with everything that's required, and there's nothing wrong with that.”

He adds, “So they come to us and say: ‘We like what you're making, but we don't want to deal with making it. Can you make it and put our name on it and help us get compliant?’ And that's become a big piece of our business.”

Jessani, at Summitt Labs, has taken the opposite approach with Kore Organic, refusing to do private-label work. "If something goes wrong," he says, "it says on the back of the package, 'Distributed by Summitt Labs.' At the end of the day, who has to be blamed? It's us, so that's why we don't want to give away our product to anybody." 

Solomon says he had never used CBD or marijuana before getting into the business, but he had been following the development of the industry in other states and was aware of the products’ benefits. He started selling CBD products at farmers' markets, which he says proved to be an ideal venue for soliciting feedback directly from consumers. Today, it’s not uncommon for Proleve to receive wholesale orders for nearly a million CBD gummies — the firm’s most popular product. 

Thus far, CBD hasn’t had to meet the same regulatory standards as medical marijuana, but Solomon says that could change. Much like Brown at ACS Laboratory, he expects to be in a good position to expand via acquisition if and when the FDA tightens its standard for CBD production, marketing and sales.  

“The next big thing that will weed people out will be our next growth potential,” Solomon says. “It will be when the FDA comes back and says, ‘This is how we're going to classify CBD, and you need to be registered with the FDA.’” 

VERTICAL LEAP

Another challenge for entrepreneurs who want to enter the medical marijuana industry is vertical integration. Because of the way the industry is regulated, companies must be responsible for growing their product as well as marketing and selling it. 

That’s where AltMed’s strategy has shined. Founded by Mike Smullen and Bill Petron, the company has steadily been building a comprehensive portfolio of medical cannabis-related enterprises in both Arizona and Florida. (It decided to launch in Arizona when Amendment 2 narrowly failed to pass the first time it was on the ballot in Florida, Beckwith says, and there was a license available in the Grand Canyon state.) 

Another key strategic move was a partnership with Plants of Ruskin, an Apollo Beach-based agricultural company that had been in business for more than 100 years. Doing business as AltMed Florida, the grower received approval from the Florida Department of Health in 2017 to begin cultivating medical cannabis for sale. So rather than starting from scratch, AltMed Enterprises instantly added the bona fides and resources of a long-established agricultural powerhouse to its venture. 

“We had established ourselves on the commercial side of the industry — the research and development and marketing,” Beckwith says. “So it was a dream marriage. We brought all the assets together — just like in a good marriage, one plus one equals three.” 

AltMed’s MÜV dispensaries and MÜV-branded, cannabis-infused products have been a big hit, Beckwith says. As of July 10, its dispensaries were No. 3 in overall market share and No. 2 in sales, on a per-location basis, in Florida.

“Having depth in the two states that we operate in, rather than trying to be in a dozen states, has been a successful strategy,” Beckwith says. “We’ve been very lean and mean, kind of a mom-and-pop company approach, and we’ve done everything by the book and tried to invest in doing things for the long haul.”