The rush to establish dispensaries three years ago led to about 2,000 dispensaries doing business in Oklahoma.
It was modern ground, as many sought to lay claim to a booming industry with just one small storefront, consisting of the owner and a few employees. But now, as the industry matures and entrepreneurs find their footing in the market, and the state steps up its property law enforcement efforts, a struggle is emerging for market share as companies try to expand their footprint across multiple stores in multiple markets.
One company, Apothecary Farms, had two grand openings in the past week alone.
The vertically integrated cultivation, processing and retail company opened storefronts in Moore and Oklahoma City’s Automobile Alley, bringing its number of dispensaries in the state to five after starting with others sites in Tulsa, OKC and Durant.
“We’ve always planned to open four, five or six dispensaries in major Oklahoma markets,” said chief marketing officer Brent McDonald.
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As a manufacturer, Apothecary Farms already had products in hundreds of dispensaries across the state, but market oversaturation caused prices to fall below achievable levels, he said.
“It almost became a necessity to open more stores as we were more focused on getting out of the wholesale market due to this market saturation,” McDonald said.
Risks and Rewards
Apothecary Farms was an established brand in Colorado before opening its first stores in Oklahoma. So they already had an expansion framework. The introduction of a new, highly profitable industry has also brought in learning-on-the-fly entrepreneurs.
State law prevents majority ownership by individuals outside of Oklahoma. Although Apothecary Farms was founded in Colorado, it complies with this law because one of the company’s founders is a resident of Oklahoma.
Juan Hernandez, owner of 405 Budz, cashed in his retirement savings and took out a small loan to open his first dispensary. He was on the verge of running out of money when he was finally able to open the doors of his first store in Midwest City.
“I probably started the store with minimal inventory like two quarter pounds, 12 pre-rolls, like five brownies; then I kind of just replenished the inventory as things sold out and that’s how it all started,” he said.
Six months later, he felt comfortable enough to expand the business. Now, 405 Budz has locations open in southern Oklahoma City and Stillwater, with its storefront in Midwest City being renovated.
But there was no growth without loss for Hernandez as the company tried to find its footing. A storefront in downtown Oklahoma City had to close; Hernandez cited poor foot traffic in an industrial area as the reason.
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Hernandez, a 27-year-old former T-Mobile store employee, said he used his experiences working in retail to inform his expansion plans.
“I kind of based it off of what T-Mobile was doing, where they were opening stores,” he said, noting that the cellular carrier’s locations in South OKC and Midwest City had a lot of business.
“And Stillwater, because it’s a college town, we can get college kids who show up every year, and then the football games, and the locals who are there as well,” Hernandez said.
A repeatable idea
In multi-site commerce, efficiency is important. Find any successful franchise and it probably looks nearly identical to its sister stores. More likely than not, it has the same design and the same products. Consider Walmart, McDonalds or even local brands like OnCue and Braum’s – there may be slight variations, but store layouts, products and even building design are remarkably uniform.
The importance of brand recognition is also true for the retail sale of medical marijuana.
“One thing you’ll notice walking into each of our dispensaries is that the aesthetic is exactly the same. We have this brick wall feel, this old-fashioned apothecary feel to our brand,” said said McDonald. “It’s plug and play. We want to make sure that each of our stores is consistent and congruent, and offers very similar menu offerings, exactly the same products.”
Hernandez said he has tried to work with the same vendors since opening.
“I know that as we grow, they will grow and it will benefit each other as well,” he said.
The Fire Leaf dispensary was the first in Oklahoma to open. From the start, the owners wanted to have two to four storefronts. Just three years later, the company has eight dispensaries stretching from Guthrie to Norman.
“Once you mastered opening a store and understanding what patients need and want, it was something they thought was easy to replicate,” said Allison Griffith, director of Fire Leaf marketing. “And it was really difficult at first, because a lot of landlords were very reluctant to rent to dispensaries.”
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However, not all dispensaries are successful. Industry insiders say there are too many products and too many retail options for the current market to be sustainable. McDonald’s said it has seen concentrate prices plummet and dispensaries forced to make tough decisions about whether to stay open.
As closer, however, successful companies have the opportunity to acquire equipment, property and employees to launch their next location.
“It’s survival of the fittest right now,” McDonald said.
Beyond the economic factor, potential legislative changes and stronger enforcement of existing industry rules and regulations could close some stores. The state recently required a signed disclosure
confirm or deny the existence of any foreign financial interest in the medical marijuana business
stating that the companies were not majority-owned by parties outside the state. The Oklahoma Medical Marijuana Authority said eight dispensaries waived their licenses when the state sued them for foreign financial certification.
There are several bills that could significantly affect the marijuana industry, should one become law this year. The Oklahoma Medical Marijuana Authority could become a stand-alone agency, outside of the Oklahoma State Department of Health. Another proposed change to the marketing of marijuana could require edibles to come in the shape of a marijuana leaf.
A proposal would ban all out-of-state industrial property, radically disrupting the retail industry.
Writer Dale Denwalt covers Oklahoma business and economic news for The Oklahoman. Do you have a story idea for Dale? He can be reached at [email protected] or on Twitter at @denwalt. Support Dale’s work and that of other Oklahoman journalists by purchasing a digital subscription today at subscribe.oklahoman.com.