Cannabis Industry: Vertically Integrated

Hunter Neubauer and Avid Hadar – Photo: Tor Hanson

Originally published in Bend Business and Lifestyle Magazine – 2017

BBLCover2017Central Oregon’s marijuana industry is in full bloom. The measure to legalize pot in Oregon three years ago has made pot shops a part of the retail landscape in downtown Bend and surrounding cities. And Oregrown is the first retail marijuana outlet on Bend’s storied Wall Street.

Chicago transplants and childhood friends Aviv Hadar and Hunter Neubauer are co-owners of Oregrown. In keeping with Oregon’s craft ethos, the two founders proudly highlight the company’s adherence to the farm-to-table movement. Their organic products are grown locally only miles from the downtown Bend shop.

“It’s a part of who we are, said Neubauer. “We are a vertically integrated company. We make sure that our craft approach is consistent with the farm-to-table craft structure and mentality — everything from the way that we produce and process cannabis to the retail experience.”

The cannabis industry has a bright future, at least if you look at the numbers. Market research firm Arcview, expects the U.S. market for recreational and medicinal marijuana to hit $22 billion within the next four years. It’s a substantial uptick from $7 billion in 2016.

The voters’ decision to legalize recreational marijuana in Oregon has moved the pot industry from the dark alleys into store fronts on main streets. Oregrown is one of more than a dozen licensed pot shops in Bend’s bustling marijuana retail market.

Neubauer advocated for the legalization of marijuana long before the voters had their say. He was involved in much of the footwork before Measure 91 was finally approved.

“I spent hundreds of hours [working on the proposed legislation],” said Neubauer. “It was stressful but a lot of fun.”

The burgeoning pot industry in Central Oregon has had its share of challenges since the legalization of marijuana in 2014. The main issue is the uneasy truce between the federal government and the state’s right to self-governing. Marijuana is still classified as an illegal substance, according to the Department of Justice. The situation makes for interesting talking points. As an example, pot shops cannot open an account with just any bank in Oregon.

“There is no traditional banking available to us,” said Neubauer. Since pot sales is considered illegal, banks are not allowed to accept “drug money.” “We can only do business with certain state banks or credit unions that have decided to work with the marijuana industry,” said Neubauer. “We have to take our bank deposits to Salem.” However, when it comes to paying federal, state, and city taxes, there are no restrictions.

Neubauer admits that the cannabis industry faces an unreasonable tax burden. Recently the legislators in Oregon lowered the tax rate from 25% to 17%. At the same time, they allowed Oregon cities to tack on a local 3% tax on gross sales. Bend said yes to the additional tax revenue.

“It was still huge! Five percent is a lot,” said Neubauer. “But the industry is still overtaxed compared to many other industries, like the brewery down the street.”

Neubauer believes the exorbitant tax structure is partly brought on by the stigma associated with the industry. But Neubauer points to the fact that Oregon’s cannabis industry has been here for a long time.

“It’s just been underground. Oregon has a rich cannabis culture, but there hasn’t been a light shone on it until now. It’s new but at the same time it is not. We will continue to lobby for fair taxation and better banking solutions.”

Oregrown’s Hadar and Neubauer are talking about hiring great people, paying their employees living wages, and growing local products. Before Measure 91, that discussion would have been impossible.

The downtown Bend, Wall Street dispensary is only a portion of their commitment to the industry. The other part of the equation is an 84-acre pot growing operation outside of Bend. One of the arguments for legalizing marijuana, was the positive impact of job creation.

“The Marijuana Policy Group recently published an economic study about the cannabis industry’s impact on Colorado,” said Neubauer. “It supports everything that we have been theorizing about: 18,000 new jobs, $975 million sales in 2015, and $2.3 billion in related industries, for example tourism.”

Oregrown is a micro-cosmos when it comes to job creation in Central Oregon. Between the downtown retail store and the farm in Tumalo, the company currently has between 25-30 employees.

Neubauer and Hadar has plowed every penny from the business into the growing. According to Neubauer, Central Oregon has the perfect permaculture for growing cannabis.

“We have a dry climate, lots of sun, great water and air quality, and lower energy costs. It makes sense to be vertically integrated – essentially located in one place where you grow, process, distribute, and sell your products retail. That is a good business design,” said Neubauer.

The two Bend business owners are in it for the long run. Oregrown is not only a member of the Bend Chamber but also partnering with the Chamber’s Young Professionals Network (YPN) events.

“It’s amazing that you can have a store front in downtown Bend and that everything is cool,” said Neubauer. “It’s kind of surreal.”