Canna-biz CEO: It’s Not Easy Selling Green

“It’s a very, very capital-intensive business that’s not without risk,” New Haven’s newest legal pot dealer, INSA CEO Peter Gallagher, said about his 500-employee company’s line of work. 

There’s the challenge of finding lenders and lawyers and accountants willing to hire out their services in such a hazy market. There’s the prohibition on ferrying legal product across state lines. There’s the ban on billboard and TV advertising. There’s the reliance on cash and debit cards for retail transactions because of credit card companies’ continued aversion to the sector. 

And then there’s Section 280E of the federal tax code.

Gallagher ticked through those myriad cannabis industry checks on profit during a recent interview with the Independent at INSA’s newly opened adult-use cannabis dispensary at 222 Sargent Dr.

HIs explanations offered a view from the top of a booming regional canna-business — fresh at the start of its entry into New Haven’s market — about what it’s like to grow and grow and grow a company that sells a product that is legal in 24 states and Washington, D.C., but remains an illegal, Schedule I controlled substance at the federal level.

“People still have a negative connotation with cannabis,” he said, with the assumption that even legal recreational outlets are ​“shabby warehouses” selling suspect product. Not so, he said, gesturing around INSA’s brightly lit, glass-display-case filled venue, which feels more like an Apple shop than a head shop. ​“It’s an industrial operation.”

The Springfield, Mass.-based INSA has been selling pre-rolls and cannabis flower and edibles and an array of other legal marijuana products out of Long Wharf Theatre’s former home at 222 Sargent Dr. since May 30. It’s the second licensed recreational cannabis dispensary to open its doors in New Haven since statewide legalization three years ago. (Long Wharf Theatre, meanwhile, is now itinerant as of 2022, and continues to put on plays across the city.)

INSA already sells recreational and medical cannabis, depending on the state, in Massachusetts, Ohio, Pennsylvania, and Florida. It opened a Hartford dispensary in April, and is planning on building out a cannabis growing operation in Connecticut’s capital city so that it can sell its own product in the Nutmeg State and not have to rely on third-party, state-approved sources.

Gallagher, 43, co-founded the company in 2013, and continues to lead it out of its Western Massachusetts corporate home. He declined to say how much money INSA makes each year, in a nationwide adult-use cannabis market valued in the tens of billions of dollars and only getting bigger. ​“We’re a private company” and don’t publicly disclose that type of company financial info, he said.

He did say INSA employs around 500 people across its five different states of operation, and continues to grow.

Gallagher had plenty to say about the legal cannabis industry as a ​“major economic driver” that boosts government tax revenue, creates jobs, and offers a ​“safe, tested product” counter to cannabis that continues to be sold on the black market. But much of the Independent’s interview with the INSA CEO circled back to the business challenges unique to working in the world of a product that is illegal at the federal level while legal in some, and increasingly most, states. 

Gallagher pointed to those hurdles when pressed about whether or not legal adult-use pot is just a cash grab for large companies like INSA, run by CEOs with years of experience working in the finance sector like Gallagher, that can get tremendously rich at the expense of the health of the customers and communities they serve.

Gallagher argued that cannabis dispensaries like INSA’s actually benefit the neighborhoods they open in, bringing commerce and security to previously empty or blighted buildings. He recognized that consuming recreational marijuana comes with risks, as is the case with all adult-use products. It can be sold and used responsibly, he said, with the help of a well-regulated market. 

And, he said again and again, securing a coveted state license to sell cannabis is not akin to winning the lottery. It takes quite a bit of work and planning and capital investment — and figuring out how to navigate a warren of state rules and federal prohibitions.

Take Section 280E of the federal tax code, for example.

That section prohibits companies that deal in Schedule I or II controlled substances from deducting business operating expenses from their gross income for tax purposes.

That means that his cannabis company, which can legally operate under state law in Connecticut, cannot deduct, say, the rent it pays for the dispensary space at 222 Sargent Dr. from its federally taxable income. 

“You end up with effective tax rates that are through the roof,” he said. (That roadblock, meanwhile, may be cleared soon, as the Biden administration seeks to reclassify marijuana from a Schedule I to a Schedule III controlled substance.)

Traditional banks seldom to never issue loans to cannabis companies because, again, it remains federally illegal. So cannabis companies often rely on lenders ​“offering debt in the mid-teens to 20 percent, short terms, personal guarantees.”

“That’s crazy,” he said, and significantly raises the risk and capital required to try to make a business like this work.

“We can’t work with many of the national banks. We don’t accept credit cards” because those companies still have too much trepidation about working in a space where the product remains federally illegal. 

INSA can’t sell Massachusetts-grown cannabis in Connecticut, thanks to interstate commerce bans, even though both states have legalized recreational use. It also can’t ​“balance inventory” by driving excess product from, say, its Hartford location to its New Haven location, without a required state transport license. 

Connecticut also prohibits cannabis companies from using billboards for anything other than wayfinding. And forget about buying advertisements on TV or radio. He said it relies on word of mouth, and good PR.

INSA also can’t display sample product in its shop, thus leading to largely empty glass cases throughout the Long Wharf venue, while all of the actual cannabis sits in a bank-style vault open to employees only.

“This isn’t the lottery ticket that everyone thought it was,” Gallagher said about selling legal weed.

“It’s important to have a collaborative relationship with industry,” he said when asked about what message he’d send to state legislators and regulators overseeing Connecticut’s still-nascent adult-use cannabis market. He said there aren’t as many restrictions in Massachusetts as in Connecticut, leading to more supply — and lower retail prices — in the former than in the latter.

Gallagher pitched a Saturday, June 22 official grand opening for INSA’s Long Wharf site that will see the dispensary selling “$20 eights,” or an eighth of an ounce of cannabis. That much product usually sells for around $50 in INSA’s Connecticut stores, he said.

This reporter closed out the interview by asking Gallagher if he himself, at the top of the INSA corporate ladder, smokes pot and consumes cannabis edibles.

He said he does — it helps him relax. 

He paused, and smiled, reflecting on saying publicly that he smokes cannabis.

“Make sure my mom doesn’t read that.”