Interview with Phil Martin

Here is the video.  The transcript is below.

What Does Copacetic Strategies Do?

MaryJane:
Okay. We’re talking to Phil Martin. Phil Martin is the CEO of Copacetic Strategies. And if you don’t know how to spell copacetic, I will actually write it on the web so that you can figure it out. Copacetic means everything’s cool. So Phil, you’ve got an interesting company and an interesting background. Tell me what a Copacetic Strategies does.

Phil Martin:
Sure, so Copacetic Strategies… And I like your definition of it. We typically define it as in excellent order. Which is the way we prefer to have our strategies in the very compliance heavy cannabis ecosystem or industry here.

MaryJane:
Boy, compliance heavy is really the word for it, isn’t it? Oh my gosh.

Phil Martin:
That is the word. And so Copacetic Strategies is truly a full service compliance and risk management advisory and consulting firm for both cannabis businesses and financial institutions that would serve them. So my background is actually in anti-money laundering and bank secrecy act compliance prior to-

Compliance and KYC

MaryJane:
Wait, wait, wait, wait, wait, wait. Anti-money laundering and bank secrecy? What are you like a sec… You’re like Jack Ryan or CIA or something?

Phil Martin:
No, not quite. It’s just the people in the banks that are required to file all the suspicious activity reports and to ensure that certain federal reporting requirements are adhered to at the institution. So it is kind of a legally required position in a financial institution.

MaryJane:
Wow. You mean like you’re the guy that makes it so that I can’t trade Bitcoin?

Phil Martin:
At one point in time, that is correct. In about 2015 I remember working for a bank that was said no, no Bitcoin. Like, no, no, no, no. [crosstalk 00:02:14] I think it’s a little bit different now.

MaryJane:
Not much.

Phil Martin:
Not much? Okay.

MaryJane:
But then now they say no, cannabis and no Bitcoin but okay. Sorry, I interrupted you. Tell me more about what your business does though.

Phil Martin:
So we do the full range of compliance services for cannabis businesses to include everything from licensing to the standard operating procedures that you’ll need once you go live. And also kind of help with the bank relationships by basically explaining to the bank what your company is and what it does. Which in the cases of banks that are willing to bank cannabis operations, it makes it easier for them because they can see basically into the company. Right?

Banks for Cannabiznesses

MaryJane:
So you actually know of banks that will deal with cannabis companies?

Phil Martin:
Yeah, absolutely. There’s probably, across the country somewhere between 60 and 80 banks that deal with the licensed marijuana companies and then of course the hemp now is kind of a different thing. I’m not exactly sure how many financial institutions will bank hemp but I know there’s at least a few here in Colorado. Which has been a bit more friendly to the industry.

MaryJane:
Yeah. Now, okay. I’m going to give you the chance to basically tell everybody how to get in touch with you to find a bank for their cannabis business. So what do they do to get in touch with Copacetic Strategies and Phil Diez Martin?

Phil Martin:
Yeah. So the easiest way to get ahold of me and Copacetic Strategies is to go to our website. Copaceticstrategies.com and then use the contact form there that’s going to come basically straight to my email. And then from there I can contact you and discuss whatever compliance or related issues. Banking as well in licensing and basically anything with your cannabis business.

Small Operations

MaryJane:
Now, when you’re consulting with a cannabis business, let’s say somebody in… I don’t know. I don’t know. Maybe Nevada or Oregon. A small grower that wants to set up an operation, a retailing. Like a farm store or something. So when you do that, what do you do and how long does it take?

Phil Martin:
So it kind of depends on where in the process we kind of come in. If it’s at the very, very beginning, it would start with understanding the person who’s going to own the business and whatever investors they may or may not have. And then completing the license application for the state based on what the business plan of the owner is. And then after licensing, once licensing is completed and the company is licensed, we would, in that process provide you with all the standard operating procedures that you need to do the things that you’re doing to be compliant with whatever inventory tracking system that state has in place and basically helping you get the business started and then also have the internal controls to run it compliantly going forward throughout that process.

MaryJane:
That sounds like a very expensive business to run. And it sounds like somebody that only would be able to run a big multi-store business would be able to afford something like that. Is that right?

Phil Martin:
That’s not correct. The licensing fees depending on the jurisdiction are typically not too outrageous for small businesses. For instance, in California they actually have a micro business license. Which provides the privileges to do numerous segments of the industry. That is to say growing it, manufacturing it and potentially even selling it as well. Those are not too costly. Our services are reasonably priced. We cater to those kind of small businesses that are trying to get involved in the industry. Particularly in new states. For instance, Missouri now has a medical program and they’re using a lot of the same licensing regime contours that we use here in Colorado. So it’s all very familiar to me after working for the state of Colorado and we can kind of help through the process of getting the licenses. Getting everything up and running. Making sure the right risk management and compliance programs are in place and everything has been kind of looked at through the eyes of an independent risk assessor essentially.

How Much For a Business?

MaryJane:
Now, I just did a survey of our readers and I was surprised that we got basically a 16% click through rate, which is amazing because normal click through rate is like 1%. But of all the people that replied and granted, we target this market, but of all the people that replied, about half of them were saying that they prefer… A little more than half. About 60% were saying that they prefer to get their marijuana as homegrown. Now, my guess is that a lot of those people are growing their own, but as we both know, if you have one plant, you’ve got enough for you. But if you’ve got two plants, you’ve got more than you need. And if you’ve got six plants, it’s easy to grow six plants. And a lot of States allow six plants.

Phil Martin:
Yeah, that’s the typical maximum is six.

MaryJane:
Right. And if you have six plants, unless you are smoking your buns off every single day, you’ve got a lot of weed. So my guess is that there are a lot of small growers like that. That would like to be able to sell their product legally and right now maybe they’re giving it away to friends or whatever they’re doing. How do they do that? What do they have to do?

Phil Martin:
So it really truly depends on the state that they’re in and the laws that state currently has. For instance, in Michigan, they still have a caregiver program within their medical marijuana program that allows pretty much exactly what you’ve just described and those people are allowed to sell it to other patients and basically take the proceeds from those sales in order to upkeep the fact that they’re growing and all these things.

MaryJane:
Okay. [crosstalk 00:09:44].

Phil Martin:
There’s differences in each state and back in about 2008, in Colorado, we had caregivers. Now, I don’t believe that they still exist in the ecosystem here because the medical dispensary’s exist and that’s typically just a more efficient manner to provide the good to customers and patients. So that typically kind of pushes out the actual, like literally homegrown, what I would call a caregiver.

Phil Martin:
Outside of that, it’s really just getting that medical marijuana license that your state provides. And every state has kind of different regulatory regime for that license. Some like Missouri would require you to conduct a metric operations or inventory tracking operations and other States don’t require that. So it’s truly dependent on the state and I would tell all of your listeners or readers that it’s very important to know what is legal in your state because this is federally illegal still but the feds have basically allowed the States to implement their own rules. So look for your state’s rules. And also, I would certainly not suggest ever growing more than what either you can consume or what your state allows based on home grows and things like that.

MaryJane:
Okay. Now one question before we get to the real reason that I called you up. And one more question about, I don’t know, maybe 20% of the respondents to this survey were from other countries. India, Laos, Thailand, South Africa, Germany, France, Russia, all over the place. I was astounded to tell you the truth and how do these folks get help with their issues in their country?

International

Phil Martin:
Yeah, that’s a fantastic question MaryJane actually because there hasn’t really been much of a kind of cross border knowledge share on some of these things. So each country has basically their own interpretation of their own rules in regard to cannabis. Specifically THC bearing cannabis. But there are some new repositories of information and one of them is called ACCCE. It’s ACCCE.org. And basically it’s kind of bringing all that knowledge together and that’s something that Copacetic Strategies is partnered with and helping to build. So even your international audience, if you contact Copacetic Strategies through the website, as I explained, I can give you as much information as I can give you, but we do have access to this large store of information back there. So we are kind of trying to keep tabs of what’s legal in Spain for instance. My wife is Barcelona and so when I go there, what can’t… How can I buy? What is the sort of legal procedure to do this? Which they actually have a pretty good system. I didn’t have any problems. It was a little bit expensive compared to Colorado prices but it was not hard to get.

MaryJane:
Well good.

Phil Martin:
So in Barcelona at least.

The SweetLeaf Scandal

MaryJane:
Okay. So all right. Now, the reason I called you as you know is because you wrote this fantastic article about your experience as a basically an enforcement guy dealing with a company that was doing something that I had assumed happened, but I didn’t know how it worked. So tell me a little bit about the Sweet leaf case.

Phil Martin:
Sure. So you know the… I’ll start with the sort of background and put the context around it. But for about two years I worked in the marijuana enforcement division of the state of Colorado. That’s through the department of revenue tax collection. That’s where enforcement typically sits and while I was there using kind of what I learned from the anti-money laundering world, applied certain techniques to data analysis on the inventory and tracking system. In Colorado, they use metric. Which is pretty much nationwide right now. There’s a few States that have different providers, but using that, we would use the data in there to basically measure compliance, tax, certain tax things and other stuff. So when… So that’s what I was doing. That’s where I was.

Phil Martin:
The Sweet leaf case actually started with a Denver City licensing investigation that included their police force. And basically they investigated this company that had I think about 12 dispensary’s or locations here in the city of Denver and basically found that this franchise… Or sorry not franchise, but this business was selling the maximum amount allowable to customers who would then go deposit it in their car and then come back five minutes later, buy another ounce, go put it in the car and do this over and over and over again until they had something like 48 ounces in their trunk. Which of course is now beyond the legal limit of possession. And even today in Colorado, there are certain levels, misdemeanor levels of possession. So anyways, the Denver police investigated this company for a year plus and finally, basically rated all their stores and said, “Hey, what you’re doing is illegal.” They arrested some bud tenders and basically kicked off the process to both administratively revoke the licenses to sell marijuana as well as bring an action against the company.

Phil Martin:
And then at that time, once the raids happened and everything. We began to analyze the company’s data, both the seed to sale inventory tracking system data and their point of sale data. Which is actually two different systems, but we could kind of see the sales. How they were doing and then also the marijuana that’s flowing through the inventory tracking system. And basically, we were able to, through some good solid analysis, both myself and my team… I had a couple of other guys as well at the time. We could isolate and identify loop sales for medical patients because they were also doing this on the medical side and basically identify, this person or this patient came in and bought 15 times in the course of two hours. Their maximum amount, which is not even announced, but it’s more because they’re medical patients and certain patients over time we’re spending upwards of half a million dollars in four months buying medical marijuana. Which of course begs the question of what are you doing with all this weed?

How to Make Money (NOT)

Phil Martin:
And of course the answer to that is driving it to Texas and selling it for five, six times as much as they bought it for in Denver. And so basically we went through the whole process of Denver revoke their licenses. And I had to testify to all the data analysis and the data that was created through that at that hearing. And then there was also a criminal investigation and I was sworn in as a grand jury investigator and basically repeated the whole thing for the grand jury. Letting them know exactly how big Sweet leaf operations were and how much of it was just from looped activity rather than normal sales. And that grand jury ended up basically in a plea bargain with the owners who accepted certain organized crime violations and spent a year in prison each.

MaryJane:
Okay. Now let me ask you about the economics of this because I’m not sure I understand the economics. First of all-

Phil Martin:
Right.

MaryJane:
The Sweet leaf company was getting their weed through a legal channel I guess.

Phil Martin:
Yup. Yeah, yeah. Through their license. Yup.

MaryJane:
They were vertically integrated or they had sellers coming in and selling it to them or something. So they were paying taxes on what they received and they were paying taxes and licensing fees on their operation and then they were paying taxes or they were collecting taxes on what they sold, I assume? Yes?

Phil Martin:
Yep. That is correct.

MaryJane:
So I assume that whatever they sold, any ounce that they sold was probably, I don’t know, three, four or five times more expensive than the ounce of the same weed that you could get on the street from somebody who’s not licensed. Would that be correct or is that wrong?

Phil Martin:
No, not in Colorado. And most of them mature. We’re six years in now in Colorado for adult use. But in the more mature markets, the price at a retail, it can go below the illicit market price. And that’s when the illicit market really does go away. And here in Colorado, it would be difficult to find someone to sell you weed in the illicit market because they would either just give it to you or they would tell you to go to the store essentially, right? Because-

MaryJane:
Really?

Home Growing Costs vs. Store Bought Costs

Phil Martin:
Yeah, yeah. Because in 2018, after taxes, you could buy an ounce at the store for less than a hundred bucks. Some places were down to like $75 or $80 for an ounce as a consumer. As a recreational consumer after taxes. So it’s not quite easy to find too many home growers that can provide an ounce at that price. There may be some, sure. But it’s pretty low. It’s pretty cheap. It’s certainly a lot cheaper than I was ever able to buy it in the various places I’ve lived over the years.

MaryJane:
Okay. So one of the things that I heard at MJ biz con again and again and again was, well, we’ve got to get rid of all these elicit dealers because they’re ruining our business. They’re undercutting our prices and so forth.

Phil Martin:
Right.

MaryJane:
It sounds like Colorado has solved that problem. How did that happen?

Phil Martin:
Yeah. One, I would say the biggest factor in that is time and probably a lot of those people that you’re hearing saying that we’re in California where there is known to be still a very large… It’s probably two to three times larger than the licensed market, the illicit market and unfortunately the authorities in California also created a tax structure that was not particularly nice for the licensed businesses and of course the illicit market doesn’t have to pay taxes on anything. So it’s pretty easy for them to undercut it. In Colorado though, we started with basically no limits on the number of licensees that the state would license. So there was a huge influx of people growing and just growing because hey, they always wanted to do this and now they can do it legally and they have 150 grand from an investor or something and they come in and grow.

Phil Martin:
Because of that, there was always as much or more supply than the market demanded. And so there continued to be more and more cultivators growing more and more weed and the price of an ounce at market dropped from roughly like $300 to $75-$80 and that’s after taxes. And so it really was… It was an economic thing across a space of six years. The allowance for unlimited number of cultivations made sure that the price at the cash register was always falling. It’s actually kind of gone up again now. We’ve kind of reached a set… Kind of a mature saturation and there was a wave about a year ago of cultivations going out of business because the price at wholesale was just too cheap. They couldn’t run their business. But it’s kind of come back up now and we have killed off the illicit market through that. Also, you can grow six plants at home in Colorado just as a normal citizen. So if you want to grow your own, you’re more than welcome to do that as well.

MaryJane:
Okay. Now, I guess that really answers all my questions except one. And that is-

Phil Martin:
Sure.

The Future of Cannabizness

MaryJane:
What do you see for the future of cannabis and particularly cannabis established companies that are small and trying to grow. What do you see for that?

Phil Martin:
So one of the… What I really truly see is the federalism that has been going on where the feds really kind of just let the states do it however the states want to do it. I think that’s going to continue for at least another five years. And what that means is that every person that wants to kind of give their self a go at legalized growing, small businesses like you’re describing, you’re going to have your chance and your state is going to build the rules around that. For instance, today a bill passed in Alabama of all places for a medical marijuana program. And this was only one half of the house. It still a long ways to go. But one of the parts of the bill was that it would not allow smoking or vaping of marijuana nor edibles.

Phil Martin:
So it had to be in like a pill form, right? So this creates differences, right? Because you’re still going to have to grow the marijuana the same way. It’s just more manufacturing processes before it gets to the cash register. But understanding how your state is coming at it is really the very first key to understanding what you can do and also getting involved to make sure that… For instance, in Ohio a couple of years ago, they tried to pass something but the regime was going to make basically three huge canvas businesses that had all of Ohio and so the people actually voted against it because they’re like, “We want legalization but not that way.” Which I applaud them because the best way for cannabis is really truly the free market. It’s licensed and everything, but as many licenses as they want to give out.

Phil Martin:
Unfortunately, like Missouri with their medical program, they’ve limited the number of licenses. Which is going to create a massive lack of marijuana at some point because there’s not enough people growing it for the demand because the demand will go up way faster than they’ve ever thought it would.

MaryJane:
Yeah.

Phil Martin:
So it really depends on the state. In each different state, I could tell you there’s different ways of going about it. Everything from the personal at-home grow. Once you have some sort of medical registration to a licensed medical, to a licensed adult use or recreational facility.

MaryJane:
Well, okay Phil, I know that you’ve got to bail out and take care of your kids. Thank you so much for your time. And that was a fascinating story and a lot of information. I hope that we get some people that will come and call you and say, “Hey Phil, set me up.”

Phil Martin:
Yeah, no, absolutely.

MaryJane:
Because I think you’re the guy that knows how to do it.

Phil Martin:
I appreciate that. I’ve been at it now for some years, so I appreciate that. And again, it’s Copaceticstrategies.com and hopefully, whoever has a question, I’m happy to answer their question. If you just have a question as well.

MaryJane:
All right, thank you.

Phil Martin:
All right, thank you very much MaryJane.