Largest legal pot farm may mark end of cannabis industry’s “Wild West” phase

Once predicted to generate broad prosperity, legal weed is giving rich money-movers the munchies.

CREDIT: AP Photo/Robert F. Bukaty, File
CREDIT: AP Photo/Robert F. Bukaty, File

Massachusetts will soon be home to the largest licensed marijuana growing facility in the nation — and ground zero for the legalization effort’s transformation from revolutionary social justice movement to another reinforcer of economic inequality and corporate control.

Out of state financiers have bought up a 52-acre parcel of land southeast of Boston for the purpose of building an industrial-scale cannabis cultivation, processing, and testing campus. The first phase of construction on the Massachusetts Medical Cannabis Center (MMCC), set to begin in March, is a 130,000-square-foot building, a quarter of which is warehouse space. Future constructions plans, still in the design phase, will eventually add a full million square feet to the site’s capacity.

But the bulk of the economic benefit from this grand new facility will not accrue to Massachusetts residents and entrepreneurs. The facility is the brainchild of Benjamin J. Barton, a veteran financier who hewed an ambitious company called Americann out of a failing Nevada firm in 2014. Barton has been in high finance for over a decade, running for most of that time a venture capital and private equity firm in Colorado called Strategic Capital Partners. If Americann’s complicated play for a new, large-scale pot business model is successful, Barton and his investors will get many millions of dollars richer.

In the process, though, they will help mold the new-born industry to look like the rest of American retail, with concentrated profits for a few people at the top and service workers sharing the leftovers.

Americann’s model works much like the shopping mall business. Just like mall owners don’t make Hot Topic belts themselves, Barton’s firm is a landlord that won’t grow an ounce of pot itself. The Massachusetts facility will legally belong to a separate shell company registered to other members of the Barton family. But Americann will make money by leasing or selling its facilities to licensed vendors and cultivators. Unlike a traditional landlord who leaves tenants to sink or swim, Americann CEO Tim Keogh told ThinkProgress, the Colorado firm will take an active role in helping its partners succeed.

“It’s the design and the [intellectual property] that’s gone into the facility where we kind of take a step beyond the traditional landlord-tenant relationship,” said Keogh, a Massachusetts native who Barton recruited to run Americann in 2014. “It’s not just, we throw you the keys and see you in 30 days.”

The project’s timing, with construction plans unveiled just weeks after Massachusetts voters legalized marijuana for adult use there, is misleading. Barton and Keogh have been trying to get the MMCC off the ground for years, working with a marijuana business veteran from early 2014 to refine its approach to building a pot real estate empire.

Colorado pot entrepreneur Jay Czarkowski had only been Americann’s CEO for about two months when the firm shifted into pot real estate work in 2014. When Czarkowski decided to resign and act as an independent partner in Barton’s efforts rather than be absorbed into the new business, he walked away with a $10,000 monthly consulting contract and 300,000 deeply discounted shares of the company’s stock, which are already worth almost $1 million more than what he paid for the equity. (Barton’s own holdings in the firm are much larger, but the Americann head will need the stock price to rise much further before he can cash out the sort of return his consultant has already booked.)

Czarkowski didn’t walk far. His consulting firm helped multiple Massachusetts businesses apply for dispensary licenses under the state’s medical cannabis program. Despite a brief kerfuffle in 2014 when the Boston Globe revealed that Czarkowski had previously been stripped of his dispensary license in Boulder, Colorado, the companies he helped won state licenses and moved forward.

When Americann needed a preferred partner in Massachusetts to lease the MMCC growing space to, it turned to Coastal Compassion — one of the firms Czarkowski had assisted, and on whose board Keogh still serves. Coastal Compassion will be the sole tenant of the 130,000-square-foot flagship facility when it is completed later this year.

The MMCC will give Americann’s partners huge influence in the state’s medicinal cannabis market, concentrating control in ways that come with pluses and minuses for consumers. When the first greenhouse opens, Coastal Compassion will rapidly become the largest supplier in the state, potentially controlling an outright majority of the current demand for medical pot. But as the market grows and matures over time, Keogh expects the MMCC facilities will provide roughly 20 percent of all the medical cannabis that Bay Staters buy — smaller than its initial market share, but still plenty large enough to be a dominant player.

In the short term though, Keogh said, it will be good news for patients.

“Let’s say you’ve got multiple sclerosis, and you find a strain of cannabis or a tincture or a capsule that works for you. There isn’t certainty that when you show up that’s going to be on the shelves,” he said, because traditional indoor warehouse-style growers, which operate much smaller spaces than the MMCC can support, are not able to deliver the consistent supply patients need.

“We have the flexibility to say, this zone within this building is going to produce this high-cannabinoid [strain],” said Keogh. “That way the mom with the epileptic child knows that once a month she can show up and the strain of cannabis that works for her child will be there.”

Wild West, or a closing frontier?

Benefits to patients aren’t cost-free to the market as a whole.

Such huge scale and concentrated market share implies a very different pot economy from what legalization and medicinal advocates might have had in mind just a few years ago. With cannabis still illegal federally, and pot businesses thus unable to access the basic financial services all businesses need to maximize growth, the emerging pot industry has often been compared to the Wild West. Gutsy entrepreneurs willing to risk losing it all to a federal crackdown are stuck with mountains of cash that make them targets for criminals. A miniature security industry has sprung up around the growers and dispensaries, like the shotgun-toting stagecoach guards of old.

But this green frontier is closing fast. The big money is coming in, eager to wipe out boutique operations and hippie ideals with venture capital leverage and factory-style pot farms. As the big-box-store model of pot capitalism puts down roots, the financial proceeds of legalization will become concentrated in fewer and fewer hands.

Those hands will almost all be white, and almost all will be rich already. The people who have suffered most from America’s drug war — people who already face near insurmountable hurdles to even being employed at the cash register of a local dispensary — are losing out on the vast majority of the profit generated by state-level legalization. Black Lives Matter activists have called out this trend in legalization, asking lawmakers to “mak[e] sure that people of color…do not get locked out of the emerging legalized marijuana economy.” But even if policymakers heed those concerns on the criminal justice side of pot reform, capitalists seem bent on restricting access to the fruits of the boom.

While voters are increasingly on board with legalization in concept, there’s evidence they object to the idea of an industry controlled by a powerful few. Ohio voters famously rejected legalization in 2015 after reporters uncovered a scheme built into the law that would have established a permanent oligopoly on pot production there. Only 10 grow sites would be licensed, giving a tiny group of about 20 investors a stranglehold on production. While voters balked in Ohio, such cartel models of legalization and industrialization already have the endorsement of analysts from the influential Rand Corporation.

A design mock-up of Americann’s MMCC cultivation campus. CREDIT: Americann
A design mock-up of Americann’s MMCC cultivation campus. CREDIT: Americann

Just another industry

Americann’s blooming real estate empire is very different from the crooked back-room deal in Ohio. But its end result could be much the same if the model thrives and spreads alongside legalization itself.

Americann isn’t going to be able to do that by itself. “People think we’re going to step in and dominate the market,” Keogh said. But even once the MMCC hits its full planned capacity of a million square feet, “the state is going to need around 5 million square feet of production capacity for medicinal alone.”

Keogh and Barton’s firm won’t be a monopoly. But in time, it will be one of a handful of giant operators that together control the marketplace. Other firms are testing similar approaches, and finding willing partners from the high finance world. Another Colorado-based competitor, FutureLand Corp., is promising enough that “a mainstream private equity firm bought $1 million of its stock” last year, according to Marijuana Business Daily. A third company, Kalyx, is successfully raising tens of millions in investment to fuel its own grow-leasing ambitions.

Such concentration and efficiency is inevitable, Keogh said, and necessary. “As the industry matures we’re going to see a transition toward low-cost providers,” he said. “That’s what we bring in from a disruptive standpoint, a traditional horticultural approach to cultivation and processing, as opposed to a legacy approach which largely relies on indoor production, which is highly inefficient, has a huge carbon footprint, and is not sustainable.”

And if the prospect of megabusinesses dominating the pot world bothers you, said Keogh, at least Americann is a public company. “Our investment is inclusive rather than exclusive,” he said. “You can vote with your dollars to support the growth and transition of the industry. Purchase a share. Or a hundred.”

The long-term potential for market domination by a handful of producers should still worry pot consumers. It will drive down competition, reducing buyers’ power in the marketplace. As Americans have seen in many other industries — cable TV, cell phone and internet service, banking, air travel — tilting the field toward corporate interests and shareholder priorities will drive costs up and quality of service down over a long enough period of time.

But not to worry, says Jay Czarkowski, the consultant who turned to the pot industry after successfully dabbling in the dot-com and real estate worlds earlier in his career. “If you can provide a good product and service for a good price, it’s no different from working in any other industry,” he told Denver’s 5280 magazine last spring.

That endgame — legal pot looking like “any other industry” — will suit the investors and would-be tycoons driving the industrialization of marijuana just fine. But in an economy where working stiffs are increasingly marginalized across almost all business sectors, the rich-get-richer model of cannabusiness is not exactly inspiring.

Once a rebel’s cause inflected with utopian ideas about reinvigorating economic security for the most marginalized participants in the American economy, legal weed is quickly becoming just another biz-school spreadsheet game for millionaires.