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Oklahoma's green rush indicates booming market but numbers suggest approaching bubble

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Oklahoma's green rush indicates booming market but numbers suggest approaching bubble

Kyle Phillips / The Transcript

Medical marijuana is at the heart of a booming industry in Oklahoma. With statewide sales topping $18 million last month, the industry continues to grow, but industry professionals wonder how long that trend can continue.

Oklahoma's green wave has yet to crest.

Last month, the Oklahoma Medical Marijuana Authority reported that Norman now has 54 licensed dispensaries, out of 1,459 statewide. Some have yet to open, but many are up and running.

The authority would not release the number of medical marijuana patients in Norman, but those numbers have continued to rise across the state, as well.

Currently, there are more than 115,000 licensed patients, and thousands of prospective patients are awaiting approval.

That may sound like a lot -- and it is more than OMMA expected when SQ 788 passed -- but with so many dispensaries blazing onto the market, there are now roughly 77 customers for every dispensary license statewide. Those numbers indicate a growing bubble that will likely burst at some point.

But for now, with marijuana sales topping $18 million last month, dispensaries must be rolling in it, so to speak.


Friendly Market manager Cody Franklin said, despite strong sales, that hasn't been the case. He estimates most dispensaries are hitting a modest profit margin of less than 10 percent. Sales are high, but so are costs.

"The margins are such that dispensaries are probably going to have to Walmart up to wholesale volume," he said. "You just don't make enough money [on marijuana alone]. It's hard because people see so much money going into these dispensaries but they don't realize how much of that goes right back out. It inflates the perception of their profitability, particularly to investors to just see the money changing hands."

There also are fees to consider, which will likely climb when House Bill 2612, the so called Unity Bill, goes into effect Aug. 28. Friendly Market general manager Stephen Tyler Holman said he is happy to see quality testing implemented, but that will bring increased costs, as well.

Franklin predicts that many dispensary owners also will be caught off guard by unexpected tax burdens.

"Part of the tax code is this 280E provision," he said. "What it basically says is that if your primary source of revenue is from dealing with controlled dangerous substances you cannot deduct any regular business expenses -- none of the rent you pay, the office supplies, none of the payroll. So, basically, everything you do, other than the stuff you buy is not tax deductible at all. So, at the end of the year, depending on how you have structured your company, you could potentially be on the hook for a lot of money."

Then, there's the question of what dispensaries do with all the cash. Many banks won't touch anything to do with marijuana because it is still illegal at the federal level.

Friendly Market, for instance, uses a small bank that's roughly an hour away, because its the closest viable option. Oklahoma Attorney General Mike Hunter is among 33 state attorney generals who have urged Congress to take up a proposal to legitimize banking for legal marijuana sellers.

In the meantime, Oklahoma dispensaries are doing what they can to survive in a fast-changing landscape. With so many forces at work, while some dispensaries are thriving, many won't make it to profit harvest.

"You see a lot of people who have taken their savings to open a dispensary or processing business or farm," Holman said. "Based on what we've seen in other states, within first year or two, you're going to see a considerable number of businesses that will close that were not prepared for the costs and regulations, which may be changing regularly."

Still, Friendly Market owner Robert Cox believes it's "a big pie," and there is room in the marketplace. Holman said there are good reasons to believe that. For one, there are already over 100,000 registered patients and more are getting on the books every day. Friendly Market hosts patient drives every other Friday and has yet to have one fail to reach capacity and sales continue to drive upward.

He said Friendly Market, which will celebrate five years in October, is better positioned than most because it already had a steady customer base and went through a highly publicized legal battle over the legality of glass pipes.

"About six months after SQ 788 passed, we opened up a second Friendly Market store in Oklahoma City, and, starting Jan. 1, we officially opened our dispensary here. Having been around for five years and establishing a foothold in the community before [medical marijuana legalization] was definitely beneficial to us …

"Based on our numbers about 2 percent of statewide patients have shopped here in this store [in Norman]."

He said it should be no surprise that so many dispensaries are opening across the state. New opportunities attract investment, and many have waited a long time for an opportunity like this in Oklahoma.

"They're excited to run their own business, to help people in this way, to get out of a corporate job, or something like that and make a new life for themselves," he said.

Bast dispensary owner Sarah Hall is one of them.

She said she has worked hard to get her business to the point of breaking even, and now turning a modest profit.

"It's paying for itself," she said. "Are we recouping our initial investment costs yet? No, not even close. But I'm happy that it's paying for itself. The bills are no longer being written out of my checkbook, which is good, and we're only into this two months. That's really great, especially when there are six of us within a half-mile radius. Consumers have plenty of options."

She said having a grow operation in Oklahoma City and a processing license has helped streamline her business but there is no shortage of challenges. From start-up costs and fees to having to pay high-risk insurance -- a demand of the property's insurance company -- Hall said it has not been easy.

Nor was the decision to take the leap in the first place, but the registered nurse believes in the medical benefits of what she is selling.

"It was two years of talking about and figuring out financially if we could do it, but I truly believe in it, medicinally," she said. "I've lost too many friends to opiates and other things and when this truly became something that was tangible I felt like I had something to offer because I'm a medical professional …

"Medically we are working with children with cancer and people that need help … I think that's important."

With so many shops to choose from she said it's definitely a buyers' market and buyers are savvy deal hunters. And locally-owned shops aren't the only competition. Dispensaries like The Peak, CBD Plus and Fire Leaf originated out of state and entered the game in Oklahoma with a head start on capital and organization.

"I think that it is frustrating as someone that is new to the industry to try to overcome all the hurdles and obstacles, both financially and learning how to do this, when people come from out of state with all of their capital and are able to set up their entire store in less than a week while I'm Youtubing how to build a wall," she said.

Despite the growing bubble and the uncertainty of entering a booming but uncharted market in Oklahoma, Hall said she is optimistic about Bast's future. She has already seen attitudes changing and looks forward to a future where the stigma surrounding marijuana goes up in smoke.

Both Bast and Friendly Market report that most of their customers are over the age of 40.

"I think people are finally not scared and the anxiety is decreasing with all of the mystery surrounding the process," she said. "It's not that difficult [to get a license]."

Mack Burke is an investigative reporter and award-winning feature writer and columnist for The Norman Transcript. An OU alumnus, he has lived in Norman since 2003.

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