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Silicon Valley Business Journal: Inside All American Cannabis Club, a working San Jose pot shop

Feb 13, 2014
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Inside All American Cannabis Club, a working San Jose pot shop

Medical marijuana collectives and dispensaries walk a fine line. Like any business they have to grow to thrive. Grow too big, however, and the risk of getting shut down increases.

“As long as we have enough people coming in so the doors don’t have to close, we are fine,” said Dave Hodges, owner of All American Cannabis Club. “The more marijuana we provide, the more somebody is going to say we are selling illegal drugs.”

Hodges opened one of San Jose’s first medical cannabis collectives in 2009. Instead of getting shut down and thrown in jail (his original business plan, he says), he opened a second location last year and has become an activist and leading voice in the push to legalize medicinal cannabis both in San Jose and statewide.

Hodges runs two of roughly 80 dispensaries in San Jose, although that number is in flux as the city cracks down on dispensaries near schools and residences. Operating in a legal netherworld presents it own breeds of business challenges. And even with his commitment to marijuana advocacy and running his shops, Hodges acknowledges that his past life as an IT specialist may drag him back into the straight business world.

“I also just found out that I got a patent," Hodges said. "About 10 years ago, in a different world, I wrote a patent that is an automated way to fix any computer. After I legalize pot, I will probably go back to IT.”

Until then, Hodges is on the medical marijuana vanguard, having recently filed an initiative with the city to legalize medical pot. He's hoping to garner enough signatures to put it on this November’s ballot. Statewide, he’s one of the people behind the MCLR Initiative — or Marijuana Control, Legalization and Revenue Act — which would legalize some cultivation and possession.

Hodges said it costs anywhere between $50,000 and $250,000 to open a dispensary, depending on the equipment and location. The city estimates that the average dispensary moves about $60,000 in cannabis and products a month, he added, though he declined to share how his business compares with those numbers.

At All-American, clients must have a medical cannabis recommendation and fill out a contract to get service.

Hodges runs his shops on a collective model that he says allows it to operate free of sales taxes. Some collective members contribute weed to the shops' supply. Others provide donations to help subsidize the collective. Somewhere in that exchange, weed changes hands.

The city of San Jose has challenged Hodges' business model, and he's gone back and forth with the city and the state Board of Equalization to defend his practices.

“The way we see it, there is nothing that we are doing that is a taxable event,” he said. “If you already own it, then we aren’t selling it to you. And if we are not selling it to you, there is no change of ownership. Therefore, it is not for sale and it is not a taxable event with the city of San Jose.”

One of the toughest aspects of starting a less-than-legal business: Finding a location, a bank account, legal advice — or even a security system.

“When I first opened, I talked to what felt like a thousand landlords — really over a hundred — to find the first location,” Hodges said. And when dispensaries do find real estate, Hodges said it’s common for landlords to charge double or triple rent.

To avoid complications, many dispensaries set up management companies, he said, similar to an LLC protecting investors from liability.

Unlike other businesses, All American Cannabis Club isn’t looking for big growth this year. Instead, its founder’s goal is to push through legislation.

“My current focus is trying to fix the law,” he said.

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