It’s been two years since the first cannabis shops opened in Alaska, and to the surprise of many, the industry continues to grow at breakneck speed.
Just how much longer that growth will continue faced with the inevitability of market saturation, a less-than-420-friendly governor, and the pressure eventual nationwide legalization could apply on the Alaska market were among the questions I posed to a trio of Anchorage proprietors — Will Schneider from Catalyst Cannabis, Lloyd Stiassny from Uncle Herb’s and Loren Dreyer from Alaskan Leaf.
Schneider, who moved over from Alaska Fireweed downtown for the Feb. 23, 2018 launch of Catalyst — the southernmost pot shop in Anchorage — has been pleased with the industry’s growth.
“For us, the biggest achievement has just been getting the word out and getting people to recognize our existence, because we were about a year behind the first wave,” Schneider said. “We’re still behind; we’re just trying to close the gap on the people there before us… Just trying to gain a foothold as fast as possible.”
In anticipation of the coming summer tourist season, a swath of new shops are swarming into downtown, most recently, The Green Room AK, across from the museum and adjacent to the 5th Ave. Mall in the spot where the Mexican Consulate used to be.
Schneider is glad to be out of that fray for the time being.
“Downtown is just too competitive, to be honest,” Schneider said. “I really like filling a hole in the market, but there’s at least six shops there now, with more in the works. It’s a pretty finite market in the winter time. Our sales didn’t drop that much in the winter… I feel downtown is saturated, Spenard will get saturated soon with several more going up in the next several months.”
Dreyer, whose snug Alaskan Leaf in the plaza on 36th and Spenard, next to Dipper Donuts, is seeing his neighborhood populate quickly.
He’s counting on strong customer service and customer loyalty to set his business apart from the rest flocking to the ‘Brooklyn of Anchorage.’
“I think ultimately, it comes down to price and quality, but then also convenience,” Dreyer said. “It’s about finding ways to build loyalty among the customers — a lot of advertising and focus on service down to the very fine details.”
Dreyer knows a thing or two about navigating nascent business types. Back in 2006 he was part of a group that created an app to send text messages over voice. A year later, the first iPhone came on the market and his company’s technology was instantly made obsolete.
“That taught me to be really careful and start small,” Dreyer said. “In hindsight, there were so many things we could have done differently.”
That wisdom compelled Dreyer and his business partner Tyler Russell to open in a tight space with a cultivation space of just over 400 square feet. There isn’t even room for a proper office at Alaskan Leaf.
The key to the survival of the downtown and, to a lesser degree Spenard explosion, is to bring on-site consumption online. Though approved by the AMCO board late last year, it was only sent to Lt. Gov. Kevin Meyer for his blessing this week, and even if the presumably less-than-friendly Dunleavy administration signs off on it, Anchorage second-hand smoke laws still need to be overcome. All this almost certainly won’t be accomplished in time for this coming tourism season. Schneider points out that current laws would require retail shops that wish to have onsite consumption to have standalone building sites and few current locations have that distinction.
“Onsite consumption is huge and hopefully Anchorage realizes this. The assembly has always viewed the industry in a fair way,” Schneider said. “Moving forward it is something people are looking for. It’s very attractive for tourists, but also for locals who want to socialize and consume safely, not around their children or families. It will be a tremendous boost to people’s businesses… I hope by the end of the year in Anchorage, maybe by next summer. Nothing happens quickly, but I think a year and a half is realistic.”
Stiassny pointed out yet another hurdle that might push back the start of open consumption even further.
“I think there’s good models for it in Alaska, it just needs to be prudently evaluated. I don’t think there’s any measure of insurance for establishments (with onsite consumption), to insure against the liability if somebody is consuming onsite,” Stiassny said. “Even if it moves forward, is an insurance carrier going to carry that if this is the only place in the nation doing it?”
Whenever onsite consumption becomes a reality its impact could go a long way in determining which retail shops survive when saturation truly takes hold.
“Right now we’re almost at saturation, just looking at the way prices are moving up and down,” Schneider said. “Right now, people in the middle of winter, people are freaking out, but in three months we’ll have a population influx of tourists. This will be the first year where we have a full year with a summer and we’ll be pushing the limit on how many can operate. We’ll see if people can sustain it… It’s a pivotal year; a few people will be going under; there will be several acquisitions and mergers.”
Most agree that the effect of saturation will be felt in cultivation long before it affects retail shops.
That saturation will necessarily drive down prices, meaning that in 2019, we could see the virtual end of black market marijuana sales in Alaska.
“We need to hit a higher volume in the wholesale market to really bring the price down. I expected lower prices sooner, but a lot of that has been that the process is so strict and it’s been taking people a long time to get open,” Dreyer said. “I could see in the next couple of years, the price coming down to drive out the black market. I don’t have pricing data on the black market, but I assume, as the recreational market prices come down, I’m assuming the black market will come down also. If you can come in and get a $6 joint, why waste time calling some dealer?”
Schneider said that tipping point may already be here for savvy shoppers.
“Smart consumers can already shop comprably on the black market — especially for flower,” he said. “In Colorado and they had a medical (marijuana) program in place and it still took 3 or 4 years for the black market to turn into a whiter market.”
Stiassny likened that transition to post-prohibition alcohol.
“That’s a natural transition and obviously it’s a way to increase demand, but that isn’t the intent of a legal industry. Ultimately, it becomes compliant, regulated and you see that in other industries — alcohol being the clear parallel,” Stiassny said. “Nobody is making moonshine in the backs of their houses and selling out the backdoor. We’ll have a regulated, dynamic market and contribute quite a bit to tax revenue.”
The biggest threat all three see to the continued growth of the cannabis industry is political, especially with the arrival of the Dunleavy administration, which has already removed popular retailer Brandon Emmett and replaced him with avowed prohibitionist Vivian Stiver on the very important Marijuana Control Board, which, Dunleavy, as part of his sweeping budget cuts, has recommended gutting.
“I hope (Dunleavy) can’t scrap the MCB, but we’re all freaking out — it’s just kind of scary,” Dreyer said. “I like where we are now and walking off the current road is dangerous for the industry right now. Alaska has set such a good standard and started it from the ground-up. It’s simple but also pretty wide open. It’s let the free market flourish and let it choose winners and losers.”
Dreyer added that isn’t the case in some other states.
“Other states have limits, caps, lotteries, political interference, whereas in Alaska, I’m the little guy and I opened up,” he said. “I had $8,000 in the bank when I started this so I like the way Alaska set up its regulations. The Board has listened and been very attentive. They’ve executed their job in a good way. Rocking the boat right now isn’t in anyone’s interest.”
Schneider is confident, however, that legal and commercial cannabis in Alaska is here to stay.
“I don’t really worry about anything being rolled back. We bring in a ton of money for the state and the city. Most people have gotten over pot hysteria,” he said. “The biggest thing that faces a lot of Alaska businesses is that there’s a finite population with a finite consumption rate. We don’t know how many people consume; we don’t know what the price point is going to be. How many businesses can it support? Other states, this happens a lot earlier. In Oregon they got super-saturated quickly. But Alaska, being finite, that’s one thing that works for us and against us. We can’t get too big if we have restrictions and we’re not giving out too many licenses.”