THE GREEN RUSHRECREATIONAL CANNABIS INDUSTRY

USC Marshall School of Business Professor Victor Bennett22 April 2014

I. IntroductionII. Industry Definition & Overview

III. Five ForcesIV. Business Unit Analysis: Green Temple

V. RecommendationVI. Conclusion

AGENDA

First legal sale of recreational cannabis in United States

on New Years Day 2014

THE GREEN RUSHAmendment 64 passes in November 2012

“Money does grow on trees. It’s called the Cannabis plant.”

THE INDUSTRY

What will change?Recreational production and sale of cannabis in Colorado

DOOBIE-DO’S

A SHIFTING INDUSTRYMEDICAL RECREATIONALNo cross-selling

NON- PROFITCertificate of OccupancyPhysician recommendation requiredNo additional taxes

FOR PROFITSeparate recreational license

15% excise+10% state+ regional tax

LIMITED SUPPLY FOR HIGH DEMAND

PRICE FLUCTUATIONS

Stabilize to further favorable conditions holds promise of growth

THE FIVE FORCES

THREAT OF ENTRY

GOVERNMENT REGULATIONS:Random background checks

Application feesLicensing (Certificate of Occupancy)

DepositsTotal:$500,000

MEDIUM

SUPPLIER POWER

Each dispensary is allotted to grow six plants per registered patient

Many growers in saturated market

Threat of backward integration

No specialized labor skills required

Until recently, banks were hesitant to finance

due to illegality risks

MEDIUM - LOW

BUYER POWER

Anyone 21 years or older is allowed to purchase recreational cannabis Demand is high with limited supplyPrices in beginning of year sales were nearly 2X price of medical cannabis Low switching costs for buyers

MEDIUM

PRICE RIVALRY

Limited price competition in emerging market with many undifferentiated players

Priority of dispensaries is to meet the demand

Price cap influenced by the black market

MEDIUM

SUBSTITUTES & COMPLEMENTS

Alcohol & Tobacco:

Not the same “satisfaction” Differentiation in quality

Co-consumption of substances

LOW

GREEN TEMPLEMedical dispensary in Echo Park

VALUE PROPOSITION High quality product selections & excellent customer service

CUSTOMER PROFILE Patients with medical needs

& young “pot heads”

Weed maps rating : 4.8 out of 5 rating

A LACK OF COMPETITIVE ADVANTAGESHOW DO YOU DIFFERENTIATE?

Quality of strains Art of customer service

A LACK OF COMPETITIVE ADVANTAGES...but unable to charge higher premium prices

TOP SHELF PRICE COMPARISON

Charlie Sheen

Indica Hybrid

Green Temple

$40

MedCity (High end)

$45-60

RECOMMENDATIONDO NOT ENTER COLORADO & STAY IN LOS ANGELES

STRATEGY: GROWTH & DIFFERENTIATION

Develop trust & stronger relationships with vendors + partnersMaintain loyal patients with great customer service + community building Build warehouse and vertically integrate growing operations to minimize costs and offer higher quality in private strains

KNOWLEDGE IS POWER

California MCLR 2014 Marijuana Control, Legalization & Revenue Act

PROPOSITION D

General Ballot elections November 2016

Constant state of flux...

Smoke On!

Thank you for s̶m ̶o ̶k ̶i ̶n ̶g ̶ listening.