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Commercial Real Estate
Business Observer Wednesday, Apr. 20, 2022 7 months ago

Billion-dollar industry blooms as acceptance for marijuana becomes widespread

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As the marijuana industry and its connected sectors gains acceptance, it creates real estate and other challenges.
by: Louis Llovio Commercial Real Estate Editor

In the not-too-distant path, Keith Browning would have found himself in a whole lot of trouble because of his profession.

The cops would have come calling. Jail wouldn’t have been out of the question. Social ostracization would have been likely. His face would have wound up in the papers — and not in a story like this one.

See, Browning is in the cannabis business and until a vast societal change in the past 10 years, that was a profession very frowned upon by polite society.

So frowned on, in fact, Browning, a successful executive with a significant background in finance, worried about what his 85-year-old parents would say when they found out he was getting into the marijuana industry. “I think that was the only hesitation.”

A few years later, they are fine with it. And Browning now finds himself running a company in one of the fastest growing and most lucrative industries in Florida.

Browning is co-founder and CEO of Tampa-based Method Testing Labs. The company specializes in testing hemp and cannabis products at or headed to dispensaries to assure the products meet strict state requirements. The lab conducts seven panels in all, including testing for metals, heavy metals, pesticides and residual solvents.

The company works with the producers, who in Florida are the ones that grow, manufacture and put the products into the dispensaries — retail stores.  

When complete, the dispensaries get a certificate of compliance assuring customers the product is safe.

“You know the old days, of the gold rush? You’ve got somebody out there who’s getting the gold. We’re the picks and shovels behind it,” he says. “We’re like that kind of support to the industry. In our case, it’s really instruments that do it.”

 

Pot of gold

As you drive around the region, the once unthinkable has happened. The selling, dispensing and testing of marijuana products have overtaken shopping centers and moved into space previously occupied by restaurants and retailers.

"Back a few years ago, you know, there was kind of a stigma. ‘Oh, you do marijuana?’ Like you’re a black market person, right?" — Keith Browning, co-founder of Method Testing Labs

And it’s not just in seedy centers either. On Tampa’s main commercial thoroughfare, North Dale Mabry Highway, there are three dispensaries within sight of one another just north of Waters Avenue, a stone’s throw from the gateway to one of the city’s most populated suburban neighborhoods, Carrollwood.

According to the MJBIZ Factbook, an industry publication, retail sales of cannabis in the U.S. this year will pass $33 billion and will exceed $52 billion by the end of 2026 as more states begin to allow the sale of recreational and medical use marijuana.

The publication expects 2022 sales in Florida, which only allows marijuana medicinally, to fall somewhere between $1.3 billion and $1.5 billion.

“While federal legalization flounders in Washington D.C., the American cannabis industry’s economic impact could near $100 billion by end of 2022 and nearly $158 billion by 2026,” says Jenel Stelton-Holtmeier, who edits the factbook. She adds that "more than three-quarters — 77% — of the U.S. population resides in a state with some form of legalized cannabis.”

There have been moves to legalize recreational marijuana in Florida and a federal decriminalization push, but so far nothing has changed. (Florida legalized medical marijuana in 2016.)

 

Pipe dreams

Browning knows a thing or two about the limitations brought on by the federal government.

Despite the growing number of states allowing marijuana to be used medically and or recreationally, it is still a federal crime. Because of that Method — and others in the industry — can’t use national banks for transactions or for their businesses. Doing so could open them up to getting their funds seized or, perhaps, criminal charges.

This means that when Method opens a new testing site in Massachusetts soon, that operation will have to be self-funded. Money from Florida can’t be used to pay for services, shore up shortages or help offset costs. The company is considering moving into two other states and will have to take these limitations into consideration.

Another issue that presents itself is the use of U.S. mail. Because the materials Method tests have to come directly from the companies selling them, the company has three cars that depart from Tampa six days a week in order to make pickups and deliveries. To meet state laws, two people have to be in each car. Mail and other services aren’t an option because they cross state lines.

That pick up and delivery system is one of the biggest reason Method chose Tampa as its home base. The city is central to the entire state and all the central points are within a day’s drive.

But one of the most interesting examples of how the federal government affects Method is the company’s new 7,300-square-foot lab opening in Brandon later this year.

The facility is considerably larger than the 2,800 square feet lab near Tampa’s port and will also allow the company to grow from 20 to 50 employees.

Browning, though, would have preferred to stay where he is.

While there was no problem getting a commercial real estate broker to help Method find the space and the company had no issues with landlords renting to it, the federal government is the one that got in the way.

“The reason why we’re not expanding in our current facility is because the landlords sold their property to a company that has federal grants, so they can't have cannabis companies in here,” Browning say. Method, because it was grandfathered in could have stayed, but it wouldn’t have been allowed to expand.

The problem is if Method had been allowed to expand in its current space, the company that bought the property would have lost its federal grants. “It’s not like the (new) landlord didn’t want to do it. They wanted to, it’s just that that’s how the federal government has set it up.”

 

Joint effort

Before getting into the cannabis business, Browning spent years managing, consulting and operating a number of companies. After leaving his position as managing director at Alvarez and Marsal, a professional services firm, he moved to Parallel Brands, a cannabis company in about 2016.

Browning says, other than his parent’s initial hesitation, the decision to get into the industry was a simple one. That’s because he believed in the positive health effects of cannabis and how it helps people. And he believed it had a place in the medical field.

“I was not hesitant from that perspective,” he says. “But back a few years ago, you know, there was kind of a stigma. ‘Oh, you do marijuana?’ Like you’re a black market person, right? But no, I never had a hesitation, I think it was more of how can I help run a business and build a business for someone. And that's how I look at this.”

“Same thing here,” he says of Method. “How can I give good customer service? How can I help (with) good science? How can I be a good steward to the state to ensure the safety of the product? And kind of where I come from.”

It was at Parallel that he met Rob Radke, whom he would later co-found Method with.

The two were executives with the company, Browning running the supply chain and Radke working on mergers and acquisitions before moving to manufacturing, production and product management. In their roles, they found labs were expensive and slow. And, more importantly, they couldn’t count on the results.

“We were paying a lot of money, we couldn’t get it turned around and we couldn’t rely on the results. So, Rob and I basically said, ‘Hey, why don't we start our own lab in the state of Florida,” Browning says.  They began raising money in 2019 and in 2020 and then built the facility in Tampa, hired scientists.

Browning says they raised $1 million in their first round of fundraising but won’t disclose how much they’ve raised since. He also declines to disclose revenue data. 

As for his parents, Browning says they’ve come around and what helped changed their minds were some of the ointments that helped with arthritis. They still have questions, though, and when he visits, he expects his mother to ask about the business for a half hour.

But, when you think how Florida’s laws worked just a few short years back, it’s hard to argue that being questioned by your mom for 30 minutes beats being questioned by the authorities.

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