Deep-Pocketed Investors Are Storming Oregon’s Cannabis Market. They’re Shifting the Business Model From Mom-and-Pop Shops to Starbucks.

William Simpson, founder of Chalice farms, hopes his brand becomes as recognizable as the Golden Arches.

(Sam Gehrke)

Across Oregon, dozens of recreational cannabis businesses are folding under the pressure of a rapid drop in the price of weed.

William Simpson is leading a quieter campaign that may prove equally disruptive for the industry.

Simpson is the affable 38-year-old former angel investor who started Chalice Farms three years ago and grew it into a chain of glossy, clean dispensaries, including the closest cannabis showroom to Portland International Airport.

On a recent Saturday, budtenders escorted customers through the wood-paneled space, encouraging them to sniff samples of cannabis flower displayed on wooden boards, like charcuterie plates. Natural light shined through a large knee-to-ceiling window frosted with the store's iconic logo, a grail cup. Soft music was piped in.

(Chalice Farms Facebook)

It looks like a farm-to-table restaurant, or maybe a Starbucks. And the same experience can be had at seven Chalice locations across the Portland metro area and in Yamhill Valley wine country.

One year ago, Simpson sold majority control to Golden Leaf Holdings, a publicly held Canadian company with deep pockets and some eccentric characters—including board member Michael Cohl, who used to promote concert tours for acts like the Rolling Stones, Pink Floyd, U2 and Barbra Streisand.

Since that sale, Chalice has expanded from four to seven dispensaries, with another currently under construction. The company also obtained cultivation, extraction and processing licenses in Canada, California and Nevada.

But in late March, Golden Leaf made its boldest move, offering to sell Chalice franchises for $50,000 a pop.

In its first franchise deals, Chalice agreed to sell the rights to open more than 35 stores spanning at least three states—Oregon, California and Nevada—and western Canada, the company tells WW. A Canadian private equity firm called BlackShire Capital Corp. quietly committed $19.5 million in March to fund franchise stores across those markets.

"They thought Chalice was very special," Simpson says. "My original vision was to expand it globally. Kevin [Reed], the head of BlackShire, said it would be very difficult to realize that vision as a global brand without more money. He told me, 'You want to basically become the Starbucks of cannabis. How about I help you do that, because I believe in it?'"

Chalice Farms

Now Golden Leaf—which has a headquarters in Portland but whose board members are based in Toronto—hopes to turn Simpson's vision into a brand as recognizable as the Golden Arches.

"Our first target is the West Coast, including every legal market from the Rockies west," says Mike Genovese, Chalice's chief operating officer. "That's stage one. We know the best franchises out there are modeled like McDonald's. [Chalice is] a hybrid of the Starbucks and McDonald's models."

Chalice is only the showiest example of a significant change in ownership of the Oregon retail market.

A year ago, 71 Oregon retailers belonged to a chain of three or more locations. Today, the state has 115 such retail stores, according to Oregon Liquor Control Commission figures—an increase of 62 percent. Part of that growth is the expansion of the industry itself, but more of the change is due to consolidation as big players gobble up mom-and-pop shops.

More than 1 in 5 of Oregon's 544 dispensaries now belong to a chain.

(Thomas Teal)

There's every sign consolidation of the industry will continue, particularly given that the drop in the price of cannabis has threatened the profit margins of dispensaries ("Too Much Weed," WW, April 18, 2018). Chains can buy up struggling mom-and-pop shops and run them at a loss using investor dollars to prop up the business until the market recovers.

The two most expansion-minded companies are Chalice (which says it wants to open two more dispensaries in San Jose, Calif., next year) and Nectar, a Portland company owned by Jeremy Pratt, a former Coloradan who moved to Oregon almost two decades ago to legally grow medical cannabis.

Nectar has seven shops within Portland city limits and four more statewide. Its website openly advertises the company's desire to snap up dispensaries.

"Now buying dispensaries!" the site's home page exclaims. "Please contact us if you are a dispensary owner and interested in selling your business."

To open its newest storefront in Springfield, Ore., Nectar received more than $1 million in backing from out-of-state investors, listed in public records as living in New York and Fort Lauderdale, Fla.

(Nectar, Samuel Gehrke)

Expanding just as rapidly across Oregon is La Mota, a chain with 10 dispensaries across the state but just three in Portland. Growers moan about La Mota's low bids for flower after a surplus of weed crashed the market. But the company's young CEO, Rosa Cazares, has also earned praise for promoting inclusivity by hiring mostly women as budtenders in her stores. (The company's staff is 80 percent female.)

Observers are impressed by the growth of La Mota and its fellow weed chains.

"This is a period of consolidation," says marijuana economist Beau Whitney, who used to be an executive at Golden Leaf Holdings. "The market is now in a position where only the large [chains] can survive."

(Christine Dong)

Out-of-state investment was not always permitted in Oregon's cannabis industry.

The state Legislature created residency requirements in 2015 mandating that 51 percent of a cannabis business be owned by Oregonians. The rule aimed to protect small business owners from being run out of the market by huge corporations.

But lawmakers walked that restriction back in 2016, a policy change Simpson says he actively advocated and even helped draft. Now, out-of-state investors can contribute any amount to a cannabis business operating in Oregon.

Chalice’s website
Chalice’s website is offering to sell franchises.

Some small dispensary owners embrace the chains' intentions.

Mary Lou Burton, who runs a financial resource convention for cannabis businesses every January in Portland, says several dispensary owners have come to her asking to be connected with large corporations like Nectar and Chalice.

"If they're not strong and they don't have the financing and are at a point where they're just kind of done," Burton says, "it's nice that they can be bought out."

But other owners of small dispensaries see the large chains as a threat.

"When you go up against an international corporation that can afford not to profit for five years, it puts a little bit more Walmart-style pressure on the rest of us," says Jackson McCormack, owner of Natural Wonders, an independent dispensary at Southeast Hawthorne and César E. Chávez boulevards. "Shops can pop up in Portland every 1,000 feet, and there hasn't been any signs of slowing."

(Nectar, Samuel Gehrke)

At last week's Cultivation Classic, the largest cannabis event in Oregon (disclosure: WW produces it), there was much chatter in the halls about the consolidation of the retail industry and how it might have a downstream effect for growers. The worry: that it will create an incentive for less horticultural diversity.

Natural Wonders' McCormack says he fears bigger chains will quash creativity by asking growers to focus on popular strains so every storefront can stock the same products statewide.

"A lot of these larger chains' goals also involve a heavy amount of vertical integration, which will push back on the craft innovation," he says. "How large of a grow can you run and still consider it a craft operation?"

Yet for some growers, the dispensary chains are throwing them a financial life preserver—by ordering a steady supply of the same bud.

Tom Scoble, a small farmer who runs Mother Magnolia Medicinals outside Eugene, sold a strain exclusively to Nectar last year, and allowed the dispensary to "white label" the product and name it "Nectar Lime." In return, Nectar promised to buy all of the strain Scoble grew, at a price negotiated before he harvested the flower.

(Christine Dong)

"Competing with this buyers' market, it's unfair because there's cannabis flooding the market," Scoble says. "I'm no longer competing against the glut."

For all his skepticism, Natural Wonders' McCormack, who competes directly with Nectar and Chalice, says the massive companies probably won't wipe out every craft grower and independent dispensary owner.

Starbucks may not be beloved, but it created space for independent, high-quality coffee shops by vastly expanding the number of people who wanted something better than diner coffee.

"We have awesome craft coffee here, but it doesn't mean we don't have Starbucks," he says. "No amount of foreign investment will kill craft cannabis in Oregon, but hopefully we can create a market that nurtures it."

More than two years ago, WW looked at the people shaping Oregon's recreational weed market ("The Faces of Cannabis," WW, Oct. 14, 2015). This week, we again examine the state of the industry—which has been shaken by an oversupply of bud and plunging wholesale prices. Also in this  we look at the new leaders in recreational weed. In this story, we examine the biggest trend reordering pot: out-of-state investors buying an increasingly large share of the market.

Clarification: This story originally said Chalice had sold more than 35 franchise stores. In fact, it has formally agreed to sell those stores for $25 million, but the money has not changed hands yet.

Correction: This story originally said BlackShire had committed $25 million to open new Chalice Farms stores, but that number reflects the total in Canadian dollars. The story has been updated to reflect that the total is $19.5 million in U.S. dollars.

(Sam Gehrke)

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