COTTAGE GROVE, Minn. — It took three years and more than $12 million in losses, but Leafline Labs is poised to turn a profit.
“I’m proud to say 2019 will be a profitable year,” CEO Bill Parker said. “We’re working through the numbers right now.”
The medical marijuana company lost $1.8 million in 2018 — a decided improvement over its $5.3 million loss the previous year. Such are the perils of being one of the first certified medical cannabis companies in the state.
Next, they could add a greenhouse to their medical marijuana cultivation and processing center in Cottage Grove Business Park. That could mean new jobs. But a few things have to happen first.
Last month, APPRO Development, acting for Leafline, asked the Cottage Grove Planning Commission to amend its existing conditional use permit for the site. Plans call for a 134,000 square-foot attached greenhouse, which would be encircled by a new access road.
“The reason for the greenhouse permit is we’re limited to how much canopy space, how many plants we can grow,” Parker said. “We’re running out of canopy space.”
That’s not the only reason.
Leafline, which opened in 2015, is one of two state-certified companies licensed to grow, harvest and manufacture medicinal marijuana in pill, oil, topical and liquid form. It shares the market with Minnesota Medical Solutions in Otsego. Patients buy the prescription-only drugs at designated off-site dispensaries.
Executives at the two companies hope to convince state lawmakers to allow the sale of marijuana in smokable, whole flower form. The issue is expected to be taken up in the 2020 legislative session. Should legislation pass, Leafline wants to be ready to break ground.
“We’re heading into session soon,” Parker said. “There’s a lot of attention on raw flowers. If raw flower is added to the Minnesota program, we’re able to act upon this permit as quickly as possible ... because of the lead time to grow plants. We need as much lead time as possible to meet that demand.”
Medical marijuana in flower form would be much less expensive to produce, Parker said.
“There’s less touch points. Minnesota is an extract-only state. Every formulation has to be extracted, formulated and packaged. That increases the cost of the product.”
Medical Cannabis Program
In July 2015, eight patients enrolled in the first week of the Medical Cannabis Program. Now, more than 18,000 patients in Minnesota use medical cannabis to treat cancer-related nausea, seizures, epilepsy, multiple sclerosis and ALS. Other conditions were approved, including intractable pain, post traumatic stress disorder and autism spectrum disorder.
The increased demand meant that some more red ink was spilled when Leafline and MinnMed borrowed money to expand their footprint in 2018. That debt contributed to their respective losses that year, including a $610,450 loss for MinnMed. They posted a $67,412 profit in 2017.
Affordability is still the biggest concern for patients, Parker said. Insurance doesn't cover medical cannabis.
Legalizing marijuana flower is expected to be a hard sell for some lawmakers. Critics cite two problems: how much would a doctor prescribe to each patient, and how would law enforcement spot the difference between medical-grade flower and garden-variety ganja?
But state Sen. Karla Bigham, DFL-Cottage Grove, said there’s a way to work it out.
“It's very expensive to process into the cartridges and the oils for Leafline,” she said. “ It’s making the program expensive. When they’re a business and they’re saying their customers would prefer raw flowers, and they can’t because the state is prohibiting it, that shouldn’t be the government's decision. That should be Leafline’s decision.”
By the way, Leafline’s first profit will largely be symbolic, Parker said.
“We will have a tax liability that exceeds that profit,” he said.
Marijuana is classified as a Schedule I drug by the U.S. Drug Enforcement Administration. Under the federal tax code, Leafline is not eligible to deduct rent, utilities, insurance or maintenance on their federal taxes.
“We’re considered an illegal business,” Parker said.
A possible expansion was built into Leafline's original plan, city administrator Jennifer Levitt said.
"City Council approved that large footprint in 2014 and they only constructed a portion of it," she said.