Cannabis operation backs out of plan to build new store in Sioux Falls

Published: Sep. 27, 2023 at 7:31 PM CDT
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SIOUX FALLS, S.D. (Dakota News Now) — It’s been over a year since the first non-tribal medical marijuana dispensary opened in South Dakota, and now there are 94 across the state.

The city of Sioux Falls issued five licenses for medical cannabis — which were all obtained in a lottery drawing in 2021 — but Minnehaha County allowed for just one license, also via lottery.

Now, the business license is available again after the original business that won that lottery has forfeited the license and decided to not go through with its facility development plans on the far eastern side of Sioux Falls.

Genesis Farms LLC planned on remodeling the old (and now closed) location of Alibi Bar and Grill at 7605 East Arrowhead Parkway and turning it into a dispensary. One of the company’s founders and owners, Justin Johnson, owns the building. A new Alibi has been constructed about a quarter-mile away.

In his letter informing Minnehaha County Commissioners on Sept. 15, Chief Operating Officer Emmett Reistroffer cited “circumstances beyond our control, such as the adjacent highway redesign, engineer and contractor delays/lack of availability, and potential annexation into the City of Sioux Falls” as reasons Genesis Farms would be “unable to proceed with buildout and thus not able to become operational.”

“Anybody who knows that building that we were looking at knows there’s a lot of work that has to be done,” Reistroffer told Dakota News Now on Wednesday.

“I’ve seen work get done at a lot of other places, but you can ask anyone who’s developing and working on other projects right now that it is really hard to get contractors lined up and available. We ultimately had to work on other projects this last year, and I regret that we couldn’t move forward in Minnehaha County, but at the end of the day, I think it allows us to stay fully focused on our mission at other locations.”

Genesis Farms has eight dispensaries across the state. Three are in construction and are “about to open” in Pierre, Mitchell, and Huron. Five are already up and running — Rapid City, Aberdeen, Yankton, and a store near the I-229 Minnesota exit in Sioux Falls.

That location came about via Genesis Farms being one of the five winners in the City of Sioux Falls license lottery in December 2021.

Reistroffer said Genesis owners poured $150,000 into the Arrowhead project, including a $100,000 permit fee to Minnehaha County, and they won’t see any of it back.

”There’s a huge risk with going into the industry,” Reistroffer said. “This is not a profitable business, despite what some people think.”

That’s exactly why Unity Rd. cannabis dispensary co-owner B.J. Olson has “zero” interest in throwing his operation’s hat in the ring for the now-available Minnehaha County license.

“There’s definitely not the money everybody thinks there is in the medical marijuana market,” Olson said. “I just truly don’t feel that the need is really there for another dispensary. It’s a very large investment, and, really, right now, given the market with the number of patients and number of dispensaries, the economics don’t add up at all.”

That, both Olson and Reistroffer said, is because of the lack of available customers. Recreational marijuana is not legal in South Dakota, so only medical cannabis dispensaries exist.

To even be allowed into medical cannabis dispensaries, let alone purchase products, potential customers must have a medical practitioner examine their need for the medicine, then be approved by the state. Reistroffer said that there are nearly 12,000 approved patients in South Dakota while an “upward of 50,000 have various medical needs” that would make them eligible.

Olson estimated the odds are currently 1 in 15 for anyone who applies for their medical cannabis license. His deductive reasoning for such a low rate is the three major healthcare systems in South Dakota — Sanford Health, Avera, and Monument — err on the conservative side in instructing their physicians on the baselines for approving a patient’s medical cannabis application.

With limited customers comes limited chances of profit. So, why even try to open a dispensary in the first place? Besides helping patients stay alive and improve their quality of life, it’s the same reason Unity and others took a stab at the industry when licenses became available two years ago — because it appeared the company would be selling recreational marijuana after South Dakota voters in 2020 approved it.

But with the backing of Gov. Kristi Noem, the state’s Supreme Court later reversed that approval. That didn’t stop potential dispensary owners from lining up to fork over the required money just to enter lotteries for medical licenses. That’s because they were banking on South Dakota voters to once again approve a recreational marijuana bill in November 2022.

Partly under that premise, Unity Rd. became the first non-tribal medical cannabis dispensary to open in the summer of 2022. A few months later, the recreational cannabis bill was defeated in the November election. After hiring 10 employees lately, Olson has had to cut back to six.

“We don’t have the number of staff that we used to,” Olson said. “We got everything down to a bare minimum just to make it right now.”

So, going after the Minnehaha County dispensary license, Olson said, is “a very large investment for, really, kind of wishful thinking — not knowing what’s going to happen coming up next November (of 2024).”

Olson expects another recreational cannabis amendment to be on that ballot. If voters approve and the state doesn’t strike it down, Olson said it would be a “game-changer” financially for Unity Rd. and all other dispensaries, with a much larger base of potential customers.

For now, he feels fortunate his business can keep its head above water because it is located just in the Sioux Falls metropolitan area, which has a population base of over 281,000. But he thinks dispensaries in smaller communities are going to find difficulty surviving.

“Honestly, there will probably be some stores that might not even make it to the recreational vote,” Olson said. “The lack of patients, the lack of product, the high cost of entry that it costs people to get into the market. People are struggling, and it’s not as good as everyone thinks it is.”

In the meantime, both Olson and Reistroffer said part of what keeps their operations going is the stakeholders’ ability to help people with dire medical needs who are eligible for the medicine.

“We’re really in this because we’re passionate about it, because we are patients,” said Reistroffer. “Most of our employees are patients, so we just want to keep helping patients, and that’s what we’re trying to do.”

The next Minnehaha County Commissioners meeting will be this upcoming Tuesday, and it will be there that the county’s auditor will explain the application process for those who will be seeking the all-of-sudden, newly available, one medical marijuana dispensary license in the county.