Denver Relief is the second oldest marijuana dispensary in all of Colorado, and years on the front lines of one of the most exciting emerging industries in the world has been good for the pot cultivation and retail company.
Co-founder Kayvan Khalatbari talked to us about what it’s like running one of the most prominent and successful marijuana businesses in America.
Khalatbari’s business serves as an exemplary model for what the future of marijuana can look like in the United States.
He’s a tax-paying marijuana retailer, a prominant community member, and built his businesses from scratch. He’s also helping out novice members of the industry through Denver Relief Consulting, and is an excellent source of information on the state of marijuana in America.
He told us what it’s like on the ground floor of the gold rush going on in the Rockies.
: So can you tell me a little bit about the history of the business?
Kayvan Khalatbari: Denver Relief is is the second-longest running medical marijuana centre in Colorado.
We’re the longest continuously operating in Denver. We started the company a little over four years ago in may of 2009 with $4,000 and half a pound of marijuana. This is all pre-regulation by the way.
So we started as a delivery service and saved for the first six months enough to build our retail facility that we’re at now, we’ve been there for about three and a half years.
It was about a year and three months after that that the regulations started to take hold. We were required to move from the 10,000 square foot house we were growing in out in the mountains at about 10,000 feet a little bit west of Denver and got into a 13,000 square foot cultivation facility.
That was required by the City and County of Denver, because at the time they required that to sell a product in this industry in Denver it had to be produced in Denver.
So we moved down to a 13,000 foot facility about 15 minutes from our retail store and we’ve been there ever since.
It cost about half a million dollars to build out. With our banking restrictions — our inability to get traditional financing — we looked around, asking family, friends co-workers, patients, maxed out our credit cards, anything we could have done — I completely demolished my credit score — But we made it, and as of three months ago we are debt free as a company.
: How did you personally get involved?
Kayvan Khalatbari: I started two pizzerias about five years ago, we always kept the activist tone in that.
Every time you purchase a pizza you can donate a dollar to one of four drug policy reform groups — Safer Sensible Colorado, Students for Sensible Drug Policy — we donated almost $15,000 last year, I’m hoping to get close to $25,000 this year.
A year after I opened Sexy Pizza — so about four years ago — I met the partners. Ean’s the other partner, we knew each other a total of 10 days before starting this company and we’re still together.
: How is Colorado’s transition from medical marijuana to legalized marijuana going?Kayvan Khalatbari: It’s going well, the task force that was assembled by Governor Hickenlooper, they had a few industry representatives, they actually came up with a good set of laws and rules for us to abide by.
They’re not promulgated yet, the emergency rules come out July 1st, then the applications for us come out October 1st.
It’s really beneficial for the folks who already have the marijuana centre licenses because we have that first right to apply for those new licenses.
They actually have a moratorium on the first 9 months of 2014 after the shops are supposed to open so nobody outside of the industry right now — unless they’re purchasing an existing company — they’re not going to able to apply for a new licence until October of next year.
Denver City Council actually came out last week and pushed that in Denver to 2016 in January. We have a 2 year moratorium in Denver for licence, so the licenses we have here are really valuable.
A lot of people are really starting to ramp up their production. We’re going to be going from 108,000 patients that we serve now in Colorado to 2 to 3 million people that we’re going to have the opportunity to serve whether they’re residents or tourists.
We do allow marijuana tourism here and throughout the state you can purchase up to a quarter a day, so we’ve got a lot of people going from 5-, 10-, 15-, 20-thousand square foot facilities ramping up to 50-, 75-, 100-thousand plus square foot facilities.
We’re currently in a 13,000 square foot facility. We’re expanding about 5,000 square feet internally. We’re also looking at purchasing the land behind our warehouse to build — immediately — a 10,000 square foot greenhouse. Then we’re able to expand to about an acre-sized greenhouse within the next 12 months.
Business Insider: You’re vertically integrated then, right?
Kayvan Khalatbari: We’re required to grow at least 70% of what we sell. Denver Relief is in a fortunate enough position that we grow 100% of the flowers sold on our shelves, we produce almost 100% of the concentrates, and if we don’t produce the edibles in our own kitchen we do provide the medicine to produce almost 100% of our edibles with our own medicine.
Business Insider: So could you tell us a little bit about the auxiliary businesses that are operating in tandem with the marijuana industry?
Kayvan Khalatbari: That’s my favourite part of the consulting business.
We have a referral agreement with Cannassure, which insured all of our facilities and insures my pizzerias as well. They’re great because they go through Lloyd’s of London and they’re willing to insure not only the harvest but the final product. It’s phenomenal.
We also have a referral arrangement with Canna Security, they just got a round of funding with The ArcView Group. Canna Security just got that funding and they’re hopefully nationally expanding. They’re getting involved in Canada as well.
We helped MMC Depot in Colorado who were really the first marijuana only packaging company in the country. We helped them get started here in Colorado, hopefully we’re going to help them expand in Massachusetts and Washington soon.
They have quality businesses. A lot of people said that during the gold rush it’s always the pike business that’s the most profitable, and that’s what these ancillary companies are taking advantage of right now.
We’re really waiting for someone to come online. Guardian Data Systems, they started up a lending fund for businesses directly related to the cultivation and retail of cannabis, but we’re still really waiting for a VC like opportunity like Arcview or what the WeedMaps chaps started.
Business Insider: How do you navigate the Federal government?
Kayvan Khalatbari: We just actually lost our bank account, four years of being with the company BBVA Compass. They sent us a letter and told us we had 30 days to get the hell out, even though I have accounts with Denver Relief, Denver Relief Consulting, both my pizzerias, my investment company and my property company, my personal accounts. As a result we’re probably going to lose around five to six million dollars in revenue a year.
As far as federal intervention, we haven’t had any in Colorado because it is the most regulated.
You look at a state like California the reason they’ve had such issues is they have no framework. They’re not vertically integrated, they have no clue where this product comes from, and there’s no oversight to it.
You’ve got people growing in their homes and in their backyards and selling to these centres, that’s why they’ve had all these raids, that’s why they’ve had all these issues, there’s very little oversight even on a local level.
Here in Colorado, we’ve got the most regulated system in the world, the only intervention we’ve had federally has been through IRS audits, those have not been debilitating to businesses.
The auditors helped us define what the 280E tax code means for this industry, and in Colorado they’ve defined it as a limited access area. Anything on the retail side of the business is non-deductible on the taxes. So we can’t write off the labour, the rent, utilities regarding the transaction side.
The other way they’ve got involved is by sending letters to places within a thousand feet of schools. While in California where they go in and raid these places, what they say in the letter is you have 45 days to move to another location. That’s the feds playing nice.
In other states, Massachusetts, New York Illinois, they’re going to be even more regulated than Colorado I think that we can expect — hopefully, knock on wood — they’re going to to be pretty left alone.
Business Insider: So you pay taxes just like any other business?
Kayvan Khalatbari: We file them just like any other business, we just take less deductions. We can write off 100% of our cost of good so which means the cultivation of marijuana, so we can write that off, just not the sale of it.
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