Marijuana Business Magazine - April 2018

indoor medical marijuana grow, one medical dispensary and a few thousand patients. Three years ago, it built a 2-acre greenhouse to cultivate canna- bis for recreational use after Colorado voters approved adult-use marijuana. It also bought a recreational store in Pueblo to sell the cannabis it grows. Strawberry Fields was able to move only about 5% of its yield through that store, Thoman said. “At the time, we didn’t have any wholesale customers,” Thoman noted. “We had to figure out how to wholesale the other 95%.” The temporary fix: Strawberry Fields struck a deal with Colorado-based retailer LivWell Enlightened Health to sell the rest of its product for $950 a pound. Next up, the company started looking for more retail opportunities. Strawberry Fields built a second store in Pueblo that allowed it to sell 15% of its crop to consumers. After that it added stores in Trinidad and Dumont, allowing Straw- berry Fields to sell about half its canna- bis. Today it operates six retail outlets. “We were trying to supply all of our stores and buy as many stores as we could to sell our marijuana,” Thoman said. Pivoting After New Tax But last year’s change in Colorado’s excise tax regulations forced the company to switch gears to protect its bottom line. Strawberry Fields would have been forced to pay higher taxes if it continued to supply its own stores, given the wording of the 15% excise tax on wholesale marijuana sales to retailers. By selling its marijuana to other dis- pensaries and supplying its own stores with MJ bought under contract from other growers, Strawberry Fields was able to lower its tax bill by about 35%. It now pays the 15% excise tax on the price it has contracted to sell its crop to retailers – rather than the state- calculated average market rate, which has been higher. The Colorado Department of Revenue calculates the AMR quarterly based on recent sales transactions. It covers marijuana sold or transferred from a grower to a retailer. The January AMR, for example, was set at $1,265 a pound for bud. By comparison, the prevailing contract price for indoor-grown bud at that time was $800-$1,000 a pound. Greenhouse marijuana was $750-$800 a pound, and outdoor MJ was about $500, Thoman said. In the past four months, Strawberry Fields hasn’t pur- chased a single indoor pound of flower for more than $1,000, Thoman said. That means Strawberry Fields would have paid a steeper tax based on the AMR if it supplied its own stores with the marijuana it has been selling to retailers under contract at $750 a pound. “We’d still be making money, but marijuana is the cheapest it’s ever been,” Thoman said, explaining the gap between the contract price and the AMR. “The market is oversaturated right now.” Thoman said Strawberry Fields is waiting for the AMR to better align with what is happening in the market before the company starts transfer- ring the marijuana it grows to its own dispensaries. “If the market gets really bad and our stores need product, we’ll eat that excise tax,” he said. Hands in More Than One Pot Despite the setback with the excise tax, Strawberry Fields has vertically integrated other aspects of its business and, as noted, the company is making its own vape pens, edibles and lotions. Consumers want less expensive products, and by manufacturing its own products Strawberry Fields can keep costs down, Thoman said. “We slowly kicked a lot of lotion companies off our shelves,” he noted. “We still carry O.Pen, but their shelf space is super limited. If it gets to the point where we can switch everyone to Pentagon (the Strawberry Fields vape pen), then we’ll take them off our shelves.” Strawberry Fields now has its eyes on distillation. Because it does not yet have the equipment, it contracts with Pueblo-based Purplebee’s Extracts to turn its trim into food-grade cannabis oils. For its live resin, wax and shat- ter, it contracts with Clutch Extracts in Pueblo. Strawberry Fields spends about $3 million in processing fees annually, but it’s in the process of acquiring the needed equipment to bring all of that work in-house. The equipment costs about $200,000. “Our goal is basically to get to where even if we have to pay that excise tax, we’ll cut everyone else out,” Thoman said. ◆ Sam Thoman is the head of business development at Strawberry Fields. Photo courtesy of Strawberry Fields Strawberry Fields is purchasing the equipment it needs to produce its own cannabis oil. Photo courtesy of Strawberry Fields 90 • Marijuana Business Magazine • April 2018