Jan 18 2016 . 27 min read
Elevating the Conversation with Leslie Bocskor
Elevating the Conversation with Leslie Bocskor
Leslie Bocskor is a managing partner of Electrum Partners, founding chairman of the Nevada Cannabis Industry Association, and a member of ArcView Angel Investor Network. Having worked on the investment side of the tech world, Bocskor’s interest turned to cannabis in 2012 when he began looking at data surrounding the industry. Following the election later that year that made adult use legal in Colorado and Washington, Bocskor explained “the writing was on the wall and that was when I knew there was something very substantial happening and I was certain it was going to be enormous.”
After I moved here, as soon as I figured out that there was a medical marijuana law, I read it. Only because in New York where I am from, medical marijuana was that thing they do in California, and it would have been the butt of a joke. It wasn’t anything anyone took seriously on the East Coast. I went to Colorado in 2009, I saw friends of mine that were involved in the burgeoning medical marijuana industry and this idea of there being an actual business was very interesting to me. So when I saw that there was a law on the books in Nevada, I read it, I saw that it was incomplete, that it allowed for use but not sale or transfer of any sort so there was no possibility of a market, but it got me familiar with it. So much so that when my friend Joe Brezny (editor’s note: Brezny is now with the Coalition to Regulate Marijuana Like Alcohol), who I was collaborating with on a technology project, told me to pay attention to what’s going on with cannabis I thought, ‘Oh, Joe, you are just hopeful because you want to see this issue come to the forefront. And he said, ‘Oh, no, no, no there’s going to be a big market here. It’s going to be enormous.’ So I started looking at the data around 2012 and it started to look more compelling. Then the election of 2012 happened where Colorado and Washington made adult use legal and to me that was the writing on the wall. And that was when I knew there was something very substantial happening and I was certain it was going to be enormous and Joe was right and I told him he was right and I thanked him for getting me in the business. So it really started around the winter of 2012, beginning of 2013.
Yes, as a matter of fact it has. During the session of 2013, Joe Brezny reached out to me and said let’s talk about this. He and I started talking about Tick’s medical marijuana dispensary law, which is what we were calling it at the time, which was making its way through the session. In whatever small way I could, I tried to help in building consensus by using the little political capital I had built up. We tried to do what we could to make sure that everyone was on the same page about this – the activists as well as the businesspeople. With my background in banking, corporate finance and entrepreneurialism, I suggested that what we should be doing was bringing as much best practices from other businesses as possible to help the state in developing the industry and the industry in developing itself. So during the session, Joe and I were probably spending 10 to 20 hours a week together on this project. As we know, it only passed by one vote and that was (Nevada Assemblywoman) Michelle Fiore who crossed party lines to make the difference. The fact that it passed by one vote meant that every little bit helped and that everybody provided. Has it unfolded as I would have expected? In fact, it’s unfolded even better than I thought it would. Many people are very critical and they point out all the shortcomings, I would say having studied this on a national basis and an international basis, whether you look at what’s happened in Holland, Israel, Canada, and their missteps and you look at the laws and missteps of Massachusetts, Colorado, Washington, Arizona, Oregon, New York, Florida, Michigan, Illinois, they have all had really rough goes of it. When you take a look on a purely objective perspective and evaluate first off how transparent and fair is the regulatory framework in Nevada? Well arguably it’s the most transparent and fair framework that yet has been devised, and thorough. Why is that? Well, because Nevada has a history of being able to establish a regulatory framework for things that have been looked at as taboo in other jurisdictions and the history goes back decades. We have been through it and had it gone wrong and figured out how to do it right. Then people were complaining about how long it took. I understand, we wanted it to happen faster. Nobody wanted it to happen faster than I did as Chairman of the Nevada Cannabis Industry Association, and someone who has interests here in Nevada, and as someone who has interest in seeing Nevada develop its presence on a national basis. I, of course, wanted to see it move quickly. That being said, slow is better than fast, patience is power. And now the fact that we have the best regulatory framework, the best testing standards, the best quality cannabis being produced here in Nevada, of anywhere in the world, because our testing is more strict than anywhere else. You can be sure what you are getting when you buy cannabis from a Nevada dispensary and that it’s going to be a clean product. We should be so fortunate as to have our food tested to the same level that our cannabis is here in Nevada. And so, how has it unfolded? It’s unfolded better than I could have expected to be quite honest.
When I first was doing this, I made a lot more comparisons because you could easily make that comparison that it was the birth of a new industry and the explosive growth that comes along with that but actually, at this point, I am more likely to contrast the tech industry and cannabis industry than compare them. What we are experiencing right now with cannabis is really unique in the history of business across the globe. And why is that? What makes it so unique? We aren’t just talking about adult use cannabis, which is a big component, but it’s not just that. Adult use cannabis, according to Rand Corp., in 2010 with a 10-year look back, was $50 billion dollars a year. MLB, NBA, NFL, and NHL together represent about $35 billion dollars a year in revenue; illegal cannabis adult use in 2010 represented $50 billion dollars a year in revenue. So that gives you an idea of the scope. Let’s do that contrast. When the Internet and new media was really born back in the mid- to late ‘90s there was no internet yet, there was no industry, nobody knew what was going to happen. When Jeff Bezos was saying he was going to start something called Amazon and sell books on the internet people would say: What is the Internet? And why would I ever buy a book there? And so there was this great uncertainty in terms of how big it would get, which is why people like Paul Krugman in 1998 said that the Internet was a fad and that no one would ever make any money there. Because nobody really knew and it was the same reason why people said Amazon would go out of business by 2000, which obviously they didn’t. And why all sorts of other predictions wouldn’t happen and there was a reason for that, there was an uncertainty, nobody knew…would we ever be able to get consumers to start using the internet like they do now? Would they buy books? Would they buy homes? Would they buy cars, book movies, communicate with all their co-workers, would they set up software platforms on the internet to manage businesses? We didn’t know that. It had never been done before. So how could we say it? But we do know that people: #1) use cannabis recreationally on a global basis and we know they spend a lot of money doing it. #2) we know that they use it for medical marijuana, which is a new industry, but it’s been growing. We also know that industrial hemp is a gigantic market, we don’t even know how big it was because the illegality of it has crushed an industry that is probably in the tens of millions of dollars. What do I mean? I mean, industrial hemp for paper. Hemp uses something like 25% of the water and produces something like 1/10 of the toxic waste that a pulp paper mill does. Plus, we can have 2 harvests of hemp a year in a place that takes 20 years to grow the trees to yield similar amounts of paper from hemp. We can use hemp for textiles and, once again it uses much less water than cotton and is better for remediating the soil and it doesn’t have as much toxic waste produced in processing it. We can also use it for fuel. You can make hemp bio fuel. You can also use it for making plastic and people don’t know that. Henry Ford made a car in the early 1900s where part of it was made from hemp plastic and soy plastic. Once again, it’s not nearly as toxic. Remember, hemp is above the ground and plastics these days are from petro chemicals below the ground which work against us in the overall carbon emissions issue because you are getting carbon out of the ground and putting it in above the ground. Then, there’s pharmaceuticals. We have been keeping the cannabis plant out of being a derivative ever since there has been a pharmaceutical industry in the United States, since the early 1900s.So what I am saying is that the contrast between cannabis and the tech industry is that the cannabis industry is far larger than we anticipated. It is so large, it is probably in the hundreds of billions of dollars once it matures. Sure the tech industry is in that number now, 15 or 20 years later, but my point is that the time it will take to grow, and the uncertainty, isn’t there. What I mean specifically is when you take a black market industry and move it into a regulated market you don’t have the same uncertainty around consumer behavior because what we are doing is we are taking a market right now where you have to put your personal freedom at risk, you might get arrested for buying it or selling it, you certainly have a significant amount of inconvenience associated with it because you gotta go meet some guy on a street corner or someone’s home or God knows how else you buy it on the black market, but when you contrast it with a licensed store with policies or if there’s a recall you will be able to look at the serial number and say, ‘Oh, mine was recalled’ and give it back, there’s no comparison. People buy cannabis on the black market and they don’t know whether it’s been sprayed with paraquat or DDT or what. Anything could be on it. They have no idea. So as soon as you make it a regulated market that is much easier and much more comfortable for consumers and you take this already existing $50-billion-a-year market, it’s going to explode and double in size quickly. Why? Because so many people are currently sitting on the fence because they have used it in the past in high school or college but are scared to break the law or take the risk to get something they don’t know about. But if you can go to a store like a liquor store and just look and read reviews and find out test results -- all of sudden it’s a completely different experience. In the birth of a new industry, its similar in terms of what happens with the entrepreneurs and things start to bubble to the surface but the contrast is much more significant now than the comparison was when I first was looking at it. Contrast in how quickly it is going to grow, contrast in how much less risk there is, contrast in how quickly businesses become profitable. For example, another fact that came out of the MMJ Business Daily Fact Book in 2015 is that half of the businesses started in the legal cannabis industry are profitable or break even within a year. And that’s never happened for any industry in the history of the world. Also, there’s the federal illegality that is keeping big players out. See you can’t have the Pfizers and Johnson & Johnson, CVS Pharmacy, Anheuser-Busch, whoever it might be, they can’t come in and crush the small guy with their wallet because they are prevented from coming into the industry. Plus, it’s regionalized so you can’t do interstate commerce so that means each state is like its own market which presents entrepreneurs in that state with opportunities that they haven’t had in any other type of industry in any other time in the recent past. So the contrasting points from a business perspective are much more significant to me now than the comparison.
That it is real because up until the moment that they open there’s still this question because it is still federally illegal. This is really happening, we are seeing change. What does that mean? That means fewer arrests for ridiculous things. That means tax revenue is going to be generated for our schools and for law enforcement and for substance abuse counseling that is so needed in this state. It means jobs are plentiful. It means keeping the hard won treasure of Nevada in Nevada. Money was leaving the Nevada economy and going into the Mexican economy to criminal gangs who murdered American law enforcement agents and we were funding them with the black market. And now, once we have the dispensaries open, that money is going to be kept in Nevada rather going into a black market that is leaving the state. It’s all that money not leaving our economy and being siphoned off into a criminal economy. And people not getting arrested which means not burdening Nevada taxpayers because every time somebody got arrested for cannabis, there is a cost associated with that arrest: sending them to court costs money, putting them in jail costs money, keeping them in jail for a period of time costs money, and who pays for that? The Nevada taxpayers. And so that burden being eliminated is also fantastic. And knowing Nevada consumers now are going to be able to get things that have been tested. The dispensaries opening made that real and, also, knowing that we are going to keep it out of the hands of kids. So if you ask me why I am happy it’s because all of those things are becoming real with the opening of the dispensaries.
Truly, it has been a combination of two things -- and that is profitability and values. First, it has a value system that has developed and made it so as an industry, the conversation is how can we be exemplary? How can we do the right things every step of the way? How can we not have our profitability compromise our values? And the fact that it is such a prominent part of the conversation at all of the meetings and all of the conferences is such an important part of it. Values are trumping profitability. You just don’t hear about that, it just doesn’t happen. The other surprise is the profitability. Maybe the reason we can think about our values is because the industry is so profitable. Maybe because 52% of businesses in the legal cannabis industry hit break-even or profitability in the first six months, that’s unheard of. It leaves me speechless at times when I start to think about the consequences of that. So it is the profitability of the industry combined with it being managed by the values that are being established in terms of how operators in this business behave. And you see people come into this business and they say they are just here for the money and then six months later they are talking about values and they are talking about the importance of doing the right thing. Once again it is this convergence of forces, being able to do the right thing, know that you are fighting for a social justice cause, and knowing that you are making the world a better place, and knowing that you are taking part in establishing sensible policy that is leading to compassion and fewer people’s lives being destroyed and leading to access to something that will make people’s lives better, and, you are able to do it profitably. I meet other entrepreneurs who literally say, ‘I have to pinch myself because it feels like this is a dream.’
I wouldn’t use any of those terms to describe myself. I would describe myself as really being a humble servant to what is going on. I know that sounds sort of goofy but the truth of the matter is I am just here to support the team. And that’s the truth. But if you forced me, I would probably say I am a combination of all three of those.
I didn’t actually start it. It was Joe Brezny who started it. He would probably say we started it together. But I am going to give credit where credit is due. It was his idea. He recognized the value of having an industry association help to establish a thoughtful, well-regulated industry because he has worked in that space before. I helped start it but it was really his idea. My initial role was to find a founding chairman because that was such an important role. I reached out to several key players and thought leaders in the industry and they all said, ‘I would be happy to be a part of the board and be one of the founding members but founding chairman? No, it’s too much of a lightening-rod role. I can’t take the optical risk or the social, political or business risk.’ After trying to find the founding chairman for three months, Joe turned me to me and, ‘Leslie, everybody else is chicken shit. Would you do it?’ And I have been very pleased to get that trade association up and running here in the state.
One, outside ownership is allowed, two, for-profit entities are allowed. So right there, the only other states you can really compare us to are Oregon and Washington. But you can’t really compare us to Washington because medical marijuana isn’t even regulated. Colorado is regulated but not that well-regulated. But right away you can’t have outside ownership. And on the face of it, it looks like that is really good for Colorado. But no it’s not. Anytime you create regulations that put heavy-handed restrictions on a free market, you create an opportunity for mischief because people are still going to try to find a way to participate in the market. You are just inviting people to break laws and find ways to violate the spirit of it which is why Colorado is already looking to unwind their restriction on ownership from being a Colorado resident. So first off, no residency requirement. Secondly, making the licensing process a merit-based process where you have to be thoroughly vetted by the state and you have to really show that you put together all of the components to have a qualified team and enterprise. The licensing process was a transparent one. The state had issued the requirements, and the scoring schema being published prior to licenses being completed was also really well done. Reciprocity. Let’s talk about Hawaii and New York for a minute. New York just issued five licenses, Hawaii is about to issue eight. Both have substantial tourist trades. New York is comparable to Nevada and Hawaii certainly. The idea of saying we recognize that marijuana is medicine, and that we are going to set up a medical marijuana program and we also are a very big tourist destination and we want you to come visit our state and we are going to make you break the law if you are a medical marijuana user and a tourist coming to our state so you either have to buy it on the black market when you get here or you have to travel with it illegality. To me that is just patently absurd. It’s just bad policy. And the fact that Nevada has what I would consider sensible policy around reciprocity, that’s as clearly articulated as it is, just, once again, puts us head and shoulders beyond the rest. Then you add the transfer of ownership being done in the way that it is being done. Look at our testing requirements as to how strict Nevada is compared to everywhere else and now people are starting to copy us. That is the surest sign that we are doing something right is when other jurisdictions are looking to Nevada and think maybe our state should start to do something like Nevada did. So if I had to pin it on a couple of things, it would be the licensing process, the transparency associated with it, the basic underlying components of that licensing process, for-profit entities, no residency requirement, merit-based system, and reciprocity for the patients that travel here. And then the fact that Nevada is so good at regulating things that would be taboo in other jurisdictions, giving us a leg up on everybody else.
I think that we will see a Nevada financial institution created under the special Thrift provision that was amended to the law in the last session. We will see a Nevada financial institution that will be doing business with legal cannabis in-state and out-of-state eventually but not exclusively cannabis businesses, a small percentage of them. We will see a Nevada financial institution able to do what the Four Corners Credit Union in Colorado wasn’t able to do. I thought they should not be calling themselves a cannabis credit union but calling themselves an agriculture credit union and primarily go after the agriculture market in Colorado and then have 5 percent of that be agriculture and I think that the Fed would have absolutely given them their master Fed number if they had done that. The reason the Fed has not given them their master fed number, from what I understand, is the concentration of risk. If you created a credit union that worked exclusively in adult entertainment or in gaming or any other industry that is considered high risk, the fed would have said you are concentrating your risk, you are working only in that one industry and that way you are exposing your shareholders and the banking system to the risk of one thing. I think we will see a financial institution learn from the mistakes of Four Corners Federal Credit Union. I think in the first or second quarter you will see some substantial activity and the possibility of banking not just in Nevada but in the whole country for businesses that are the best of breed for the industry. In the 2nd quarter you will see an industry-based solution for banking that is going to come as a result of legislation.
I think it will take longer than 10 years to get rid of the stigma. A substantial amount of it will be gone in 10 years but probably for years to come there will always be some stigma associated with it because you can’t have nearly 80 years of propaganda that’s not going to have some lasting effect. I think at the same time it will be thought of as a legitimate medicine. It will be thought of as a legitimate medicine when there is a mass market product in the United States that is cannabis based that serves a mass condition like diabetes or arthritis or is used for cancer treatments in a much more widely prescribed fashion and doctors across the country can prescribe something based upon it, that’s when you will see it thought of as a legitimate medicine.
I believe there are going to be many other cities that are going to want to become the Las Vegas of the U.S. People think of Amsterdam as the touchstone of legal cannabis but it’s not done right there. The wholesale market is not allowed to exist, there’s no testing that’s done, and it is still sort of seedy. So I think other cities are going to say we are going to become the Las Vegas of… for instance, Anchorage will say we are going to be the Las Vegas of Alaska. I would say we are going to blow right by Amsterdam because we are going to be doing it so much better, and it’s going to be so much cleaner, or well regulated and so much more friendly to the consumer. Pretty soon Amsterdam will say they want to become the Las Vegas of Europe.
I think it’s very likely that it will pass. I think every Nevadan really needs to think about it and consider that this is the only effective way to keep it out of the hands of kids and that this is the best way to provide tax revenue for substance abuse counseling, for law enforcement, and for education. Nevada is 50th in the United States for public education. We are going to provide tax revenue that’s going to help our kids to get a better education while keeping cannabis out of their hands while establishing a regulated framework that’s going to lower the burden on our court system and treat this from a regulated perspective the way alcohol has been. If every citizen of Nevada has an honest conversation about that and looks at the facts, what they are going to realize is that it’s the only solution and it will pass by a very wide margin. We can’t come at this as activists, but as realists.
Low dose; I have been talking about low dose for two years. Low dose products will be a huge trend. It will become like a vitamin. Personal vaporizers are another trend. There are going to be bars created for cannabis consumption, Alaska is considering it now and Oregon has one. Ten years from now it will be common. Also, you will probably be seeing cannabis pairings suggested with dinners in fine restaurants; it will just be a matter of time before there will be the reds, the whites and the greens.
If I can bring anything to the industry it’s that we have the opportunity to do something special. We are not just creating the next great American industry as Troy Dayton from ArcView says, but we are truly creating a different type of industry. I want to bring excellence -- excellence in values, excellence in execution and strategy, and excellence in integration within communities to the industry.