Jay Czarkowski, Founding Partner Canna Advisors– Interview Series

“It’s true that stories are flying around about “only” 42% of cannabis businesses are turning a profit. To some degree, that is sensationalism. Look at other industries – restaurants, small businesses. That number is not unusual. In fact, at 42%, they’re ahead of the game when compared to all businesses.”

Jay Czarkowski

Much has been said about the cannabis greenrush sparked by the legalization of adult-use cannabis in the states of Washington and Colorado in 2012. The beginning of the period was marked by enthusiasm and entrepreneurial optimism, motivating investors to pump money into the budding industry with a projected value into the billions of dollars. A decade later and the optimism has dampened significantly with the media going all out to paint the picture of a crumbling cookie.

Has the greenrush backfired?

Jay Czarkowski has every reason to believe otherwise. And no one understands the cannabis industry better than one who has built businesses in the space from the ground up and now runs an organization, Canna Advisors, that helps cannabis entrepreneurs navigate the intricate meshwork of cannabis regs across states. In this brief interview, Jay shares profound insights on various aspects of the industry including licensing, zoning, financing, and scaling, among other things. He also dispels the myth that the industry is on its knees.

Meet Jay.

The cannabis industry is one that many would rather not associate with (stigmatized). How did your career path lead you here?

I don’t agree that working in cannabis continues to carry a stigma. Especially not now that close to 75% of states have some level of legalization. And, even in states that have not yet overcome legislative hurdles for approving cannabis – like in Texas – support for legalization is well above 70%.

I would say, instead, that cannabis is an industry to which folks are drawn – because it is the next great American, and global, industry. Many professionals from other industries are being drawn into cannabis right now and have been for many years.

A recent report from Leafly underscores this point as jobs in cannabis grew by more than 100,000 in the last year. That growth brings the total legal cannabis jobs in the US to almost half a million.

My career path in technology and real estate development led me to cannabis in 2008. We were developing real estate and then the recession hit. We knew we needed to make some moves and we really stumbled upon the cannabis industry by chance. We put our little home-style commercial building in downtown Boulder up for lease since the economic downtown brought construction business and cash flow to a grinding halt.

After two groups of young people wanted to sublease the building and open what they called a “medical marijuana dispensary” – a novel term in those days – we investigated it and basically adopted their idea. We had the building, and we ran with it. That’s how we got in.

From there, operating as one of the first medical marijuana dispensaries in Colorado, we expanded to owning several cultivation facilities as well.

Briefly introduce Canna Advisors, the vision behind it, and the role that you play as co-founder

The vision behind Canna Advisors today is to help entrepreneurs win cannabis licenses. The origin, however, was somewhat unintentional and born out of our close industry network and our reputation as advocates and early influencers in the industry.

It was back in 2012 when we were introduced to a group of five guys from Westport, Connecticut through a mutual acquaintance. Connecticut had just passed medical marijuana legislation in April 2012. The state was going to issue four cultivator/processor licenses. This group knew that they needed help. They were excited to speak to folks with experience from Colorado.

We met with them, and they became client #1, before we even had a business name or bank account. We won one of the initial four licenses and they have since gone on to sell their resulting business for $80 million.

That initial success led to scaling of our expertise and working with clients in 33 states and internationally. We’ve been fortunate to be recognized as the #1 cannabis consulting firm by leading industry publications and we are committed to earning that spot every day that we operate and via every client who trusts us with their cannabis dreams.

My role continues to be – in many ways – the face of the company, meeting with former and potential clients, speaking at industry events, and leveraging my strong network to connect with other entrepreneurs and bring their ideas to life.

I’ve always been very involved in advocacy, so I’m well-known for that and will continue to be an advocate while supporting my team members in their advocacy efforts. I’ve also been involved in the cannabis investment community for about six years and continue to play the role of investor.

Local zoning regulations are a headache for municipalities across the country in states with regulated cannabis programs. For first-timers, the learning curve is very steep and usually leads to complicated zoning ordinances. What can be done to improve the current situation?

I don’t know that municipal zoning regulations are necessarily a headache. Occasionally we see that as an issue at the state level, as with California or places with more complex state regulations.

There are many municipalities that simply embrace cannabis as any other business like they would a restaurant. Sometimes local municipalities must follow state law – in terms of distance from a church or a school – but that is simple enough to tackle with advanced planning and knowing the regs. But local municipalities get to decide where they want these businesses. I haven’t seen very many municipalities that make it overly complex.

For first-timers – cities or counties that are new to the cannabis industry – they could easily adopt best practices from other places. They certainly have the ability to call on a wide variety of consultants and legal counsel to figure out what and what doesn’t work.

I don’t know that the current situation needs to be significantly improved. There are many places where it’s working out just fine. For business operators who might need guidance, my best advice is to know the regulations and act early. And, if any particular regulation becomes an issue, serve as your own advocate and work with local governing bodies to make a business case to change the regulations.

With the amount of complexity and upfront financial burden that is required to secure cannabis real estate, the playing field is tilted to favor large multi-state operators. How can smaller businesses (legacy operators) get past this hurdle?

Any business typically needs real estate to operate – restaurants, retail establishments, warehouse businesses. I don’t think securing real estate for cannabis is very different.

Sometimes landlords have concerns specific to cannabis, but most concerns are easily addressed now that the industry is fairly mature. There is significant data illustrating the positive impact cannabis has on communities and real estate values. Use the data to start a dialogue and build rapport with the potential landlord and community. Community support can often overcome any lingering barriers.

The financial burden of real estate is certainly an issue. I would say more of an issue in cannabis than other comparable industries. We often see the licensing process drag on. It could drag on for years at the state level like it has in Massachusetts. It could certainly drag on at the local level as well. And if that process does drag on and entrepreneurs are prevented from opening right away, then yes, they may have to make a mortgage or lease payment for months – sometimes years – without being able to open their doors. That is certainly a burden.

The best way to weather delay-related real estate costs is to recognize it as a potential risk – and build it into the initial financial plan. As you’re raising money, be sure you are considering this possible impact on cash flow.

How else could smaller businesses or legacy operators get past the real estate hurdle? It’s all about how you strike the deal and what kind of relationships you have. A legacy operator may have a family member that has an existing retail location in another industry. Or you could make arrangements with a proprietor that will hold onto the property for you in the interim. When you get your license and are ready for the property, you can reward the helpful proprietor with equity.

So I think there are a lot of creative ways where smaller businesses or legacy operators could work something out. If they’re determined, they’ll make it happen.

Which has been your greatest project to date and what was the one lesson that you learned from executing this project?

I’d say our greatest project to date is ongoing: continuing to win licenses for our clients. Though the work differs, that success looks similar in any of the 33 US markets and international jurisdictions where we’ve worked.

If I had to think of it in terms of “a” great project or boil it down to one lesson – that would be figuring out how to apply our accumulated knowledge to the next state’s specific set of regulations and scale that success for clients. Basically, how to venture into a new state and secure a large number – and large percentage – of licenses in that state.

I’ll use Missouri as an example. That application process was in 2019. We had already done well in multiple states and were winning multiple licenses in multiple states. But, in Missouri, we won roughly thirty licenses for our local Missouri clients – which is a big number.

And we’ve continued that track record for years – winning a significant percentage of available licenses.

The biggest lesson that we learned is figuring out how to scale our own operation. How to take a significant number of clients – avoiding conflicts of interest – and win a large number of licenses in every state.

Vertical integration versus horizontal integration or specialization, which trend best suits the cannabis industry?

When I hear of states that are insisting on allowing only vertical integration – to some degree, that is synonymous with corruption. Florida is an example where the program is restricted to a small number of vertical licensees. We used to refer to them as the “family cartels.” That restriction is not helpful for the industry or the end user.

Horizontal licensing is much better for everybody. It is much better for the smaller entrepreneur and more importantly, it’s much better for the patient – if medical – or the consumer if adult-use – because it first and foremost allows for competition. Everybody has the chance to get in.

If somebody is good at growing plants, maybe they’re a cultivation licensee.

If somebody is more interested or experienced in retail or sales, maybe they’re a dispensary candidate.

If somebody is a scientist with a manufacturing background, they are best suited to work with infused products and the manufacturing/processing side of things.

So it really depends.

Should vertical integration be allowed? Of course. Should it be required? Not at all.

If a business comes in with significant expertise and they want to get a cultivation operation going, have a couple of dispensaries, and also make their own products – why not? It’s the American way. It’s capitalism. Let the cream rise to the top.

But, if a business comes in that wants to specialize in growing the best craft cannabis and providing the best product at a great price with top-notch customer service – that business should be allowed to enter the market – thrive if they can, and promote competition. That’s the best scenario for the operator and the consumer. That’s the way it should be.

A recent survey by the National Cannabis Industry Association (NCIA) revealed that only about 42% of cannabis businesses are turning in a profit. Why is it difficult for most cannabis businesses to make a profit?

It’s true that stories are flying around about “only” 42% of cannabis businesses are turning a profit. To some degree, that is sensationalism. Look at other industries – like restaurants and small businesses. That number is not unusual. In fact, at 42%, cannabis is ahead of the game when compared to all businesses.

Stats I’m seeing show 40% profitability for both businesses overall and for small businesses specifically. The other 60% is evenly split between operating at break-even and being profitable. And for restaurants, some stats show only 20% are profitable.

For those that are not profitable, some of those include folks who are new to the industry, haven’t planned appropriately, and enter the market with the mentality that “it’s cannabis, right, it’s crazy profitable – I’m going to be in money up to my elbows!”. So, they come in woefully unprepared.

The other part is the cost of maintaining compliance in a regulated industry and continued federal prohibition. Years ago, you could grow cannabis and sell it – illegally and highly profitably – but as a business in a state-regulated environment, there are compliance issues, there is payroll and insurance, state taxes, and the 280E federal tax that penalizes people selling cannabis. You’ve got a big financial monkey on your back so it’s not always easy to play by the rules and make a profit.

What’s next for Jay Czarkowski?

I’ve been in the industry now for thirteen years. I’ve helped build a number of advocacy groups. I’ve helped pass legalization efforts in multiple states. I’ve invested in many companies. Canna Advisors alone has probably helped secure over 300 competitive licenses.

Clearly, we built billions of dollars of market capitalization and value in the industry – one might think I’ve done enough. The reality is that so many places still don’t have any kind of a mature cannabis market by any means.

So there remain many opportunities – right here in the United States – to do business. Then there’s the rest of the world. Europe definitely has a long way to go.

So what’s next for me?

I don’t think I’ll ever slow down or quit or retire. I need to take some time to evaluate and figure out what’s next – what the smart moves are. Part of that is likely in the M&A realm.

At the most basic level, I continue to move along with the industry and continue to execute with the great team I have around me, as we’ve done for the last 13 years.

It was a great pleasure to have this one-on-one with Jay from Canna Advisors. Readers who wish to keep up with the company are more than welcome to visit their website.