Bentonville cannabis dispensary is one of the state’s newest startups

by Roby Brock (roby@talkbusiness.net) 2,036 views 

Erik Danielson is an investor in The Source, a medical marijuana dispensary in Bentonville. The store opened Aug. 15.

When Arkansans think about the state’s startup scene, the images that come to mind are over-caffeinated Millennials in co-working spaces with laptop computers and smartphones whiteboarding a way to tap into the algorithms of social media code that will parlay their shoestring budgets into a multimillion-dollar buyout.

Yeah, that’s not how this story will unfold.

The Source, a medical marijuana dispensary in Bentonville, is one of the state’s newest startups. Its path to providing medicinal cannabis to qualified patients couldn’t be further from the startup scene depicted above.

Erik Danielson, son of former Arkansas Supreme Court Justice Paul Danielson, never thought he’d be investing in marijuana.

“I had some friends that I grew up with who relocated to Colorado years ago, and mutual friends who got in the business when Colorado opened up. So, I’ve known people in the business,” he said. “I’d always stayed away from it until Arkansas passed its constitutional amendment. Then, once that happened, I was contacted by some folks who were interested and decided to make a run at it.”

Other investors in The Source, which is located at 406 Razorback Drive in Bentonville, include Aaron Crawley, Conor Filter, Mitchell Massey, Robert McLarty, David Starling, Jeff Starling and Mike Tullis.

The state’s voters passed Amendment 98 in November 2016. It allowed for medical marijuana for sufferers of cancer, glaucoma, HIV/AIDS, hepatitis C, amyotrophic lateral sclerosis, Tourette’s syndrome, Crohn’s disease, ulcerative colitis, post-traumatic stress disorder, severe arthritis, fibromyalgia, Alzheimer’s disease, and certain conditions involving pain, nausea and seizures.

Two legislative sessions and two years of regulatory wrangling later, Arkansas finally has dispensaries and cultivators in operation. The first dispensary, Doctor’s Orders RX in Hot Springs, opened its doors on May 10. The Source opened for business in Bentonville on Aug. 15. By mid-September, it had already sold 52 pounds of medical marijuana, roughly 4.5% of the state total sold since May.

Like many startups, Danielson and his partners have had to clear state hurdles and make adjustments to accommodate city regulations and the realities of what would get the doors open for business.

“We originally submitted our full plans for an in-house cultivation program, but it became clear after about four weeks of not getting through the city and questions they had mostly related to the cultivation side — your power loads, the HVAC, security, various things — it was slowing us down. So we made the decision to pull that application and resubmit for just a retail sales floor and lobby and restroom,” Danielson said.

In-house cultivation remains a priority, he said, as there is the possibility to lower costs as well as create a unique product that might address a person’s illness more thoroughly.

“I don’t want to say what we’re having to buy it for, but we feel we can produce a premium quality product in-house for a fraction of the cost,” he said. “My friends out of Colorado who cultivate, they do some things and have access to some genetics that perform really well in that market that we look forward to having here.”

COST OF DOING BUSINESS
Danielson won’t say what the total investment in The Source is, but he hints that it is well into the six-figure, if not borderline seven-figure, range. He is also an investor in a cultivation facility in Oklahoma.

“It’s not for the faint of heart or the risk-averse,” he cautions.

When a customer enters The Source, they are greeted by an on-site security guard in a waiting room lobby area. New patients fill out an intake form, which includes their medical ID card and other information. A receptionist behind a glass window takes the information and loads it into the store’s system to verify they are a valid cardholder and haven’t exceeded their purchase limits.

When it’s their turn to shop, a patient is buzzed through a door onto the retail sales floor. A “budtender” greets the customer and helps them shop for the right product to help with their illness.

Currently, The Source has three point-of-sale registers, and customers are helped one-on-one. Danielson noted that a fourth register has already been ordered, and a fifth is going to be added.

“Our ability to process patients has been a bit of a choking point,” Danielson said. “With the patient numbers, which we anticipate to double if not triple over time, we’re not sure that we have the best setup to handle more people as the population grows. I was on the phone with our architect yesterday discussing.”

Budtenders check medical ID cards and driver’s licenses a second time before showing patients around the sales floor.

“At that point then it’s just a fairly normal retail experience,” he said. “We do what’s called ‘deli style’ service. A lot of the shops have a pre-packed service where someone will say, ‘I want this particular variety,’ and someone goes to the back and they get a pre-packed bag and give it to them. I think right now we have over 40 jars behind the budtenders, and they actually will pull down the jars so the patient can look at the product. They can actually pick out if they want a particular bud or piece of cannabis. It’s weighed out in front of them on the scale, so they can purchase as much or as little as they want. We have price breaks for larger quantities. The more they purchase, the less cost there is per gram.”

Once the shopping is complete, the shopping cart is essentially filled, and they are checked out at the register. It’s a cash-only transaction.

“There’s an ATM in the waiting room for anyone that needs it. That’s sort of what the user experience is for a first-time user,” Danielson said.

GREAT EXPECTATIONS
So how does one become a budtender? Danielson said his group was surprised by the number of applicants it received after posting a job opening on Indeed.com.

“In two weeks, we received over 850 applications at which point our manager said, ‘I’ve got to stop. It’s going to be hard enough to process these 850.’ So we closed the application window and then went through some rounds of interviews of potential applicants,” Danielson said. “We have a really amazing staff. … All of the people were local. Some of them have had experience working in the cannabis industry in other states.”

Danielson said a year from now he expects to be producing medical cannabis through an in-house cultivation program, and he anticipates those higher patient totals.

“I’ve gotten very little negative feedback. The people coming in have been appreciative,” he said. “I’ve had people give me a hug. I’ve had people ask to give the budtenders hugs. A lot of these people are dealing with pain management and feel like they have nothing to lose. They’re willing to try anything to get some relief.”

Contrary to expectations, Danielson said one other observation has surprised him. He was on guard to be watching for “potheads” or people gaming the medical system.

“The largest demographic we’ve seen in the shop are older ladies,” he said. “It’s one of those trends you hear people talk about, but until you really see it, it’s kind of surprising. It looks like your grandmother, you know, who’s there at the dispensary.”

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