When Staying Small Isn’t an Option: The Why & How of Opening Cannabis Locations in New States

When Staying Small Isn’t an Option-01

Opening your first location in a new state, province, or country in the cannabis industry can be tough. Many areas (sometimes even down to the city level) have their own unique rules, including possession limits, track-and-trace requirements, record-keeping requirements, and taxes, and their own unique licensing process.

Even federal legalization in the US isn’t expected to change this patchwork of laws, since federal legalization is expected to keep existing state laws in place, just as in Canada even though it’s legal at the federal level each province has its own laws and licensing process.

That’s on top of the fact that opening up any kind of business in a new territory can be tough. You may not know the area and the people that well. Customers in Missouri and Oklahoma probably have different expectations than those in Oregon and California, for example.

As a leading cannabis IT services company with experience on both sides of the US-Canada border, though we support all types and sizes of cannabis businesses, one of our specialties is helping multi-location cannabis companies standardize and streamline their tech and expand to new facilities with ease while complying with all local regulations. Based on our experience, here’s our high-level advice on how to expand into new states, provinces, and countries.

In 2021, You Have to Expand into New Markets to Keep Up & Stay Alive

If you’re looking to eventually become one of the top players in the cannabis industry, you need to move quickly, for all the following reasons:

Markets Are Getting Saturated

Markets like Colorado, California, Arizona, Florida, and Oklahoma are already pretty saturated, or they’re restricted from further growth by local licensing restrictions that may not change anytime soon. They have a high dispensary to population ratio, have a lot of established players, and/or are dominated by MSOs already.

Markets that aren’t saturated are quickly becoming so – just look at the crazy pace of the expansion in areas like Illinois and Ontario, Canada.

As a result, if you’re located in one of these states or provinces, your best bet to expand is to look into opening a location in another, less saturated area.

You may also want to consider buying into more protected markets like Arizona, New Mexico, or certain cities in California where strict licensing caps exist, or perhaps more mature markets like Colorado or Washington where the weakest competitors have already been weeded out.

The Industry Is Consolidating

After a relatively quiet 2020, consolidation in the cannabis industry has picked up again in 2021. As the year began, Jazz Pharmaceuticals acquired GW Pharmaceuticals – maker of Epidiolex – for $7.2 billion. Verano Holdings and TerraVida Holistic Centers have already merged. Indus Holdings Inc. completed their acquisition of Lowell Herb Co. and Zennabis Holdings was acquired by HEXO Corp.

On top of that, many of the industry’s biggest companies continue to attract huge funding, especially via the financial vehicle de jour, Special Purpose Acquisition Companies (SPACs).

Some of the biggest cannabis businesses in this region include the following:

NameMarket Value (in USD)EmployeesCountry
Canopy Growth Corporation9.17 billion4,434USA
Curaleaf Holdings7.921 billion3,000Canada
Trulieve Cannabis3.71 billion4,700USA
Cresco Labs2.13 billion1,700USA

So if you want to eventually grow into one of the largest cannabis businesses in the world, realize that the bar is set pretty high right now and is only getting higher.

To be able to compete with companies like these, you likely can’t just stick to one state or province – the market just isn’t big enough, unless you can somehow corner a large chuck of the market in a large state like Trulieve has in Florida.

And even if you aren’t interested in competing directly with these MSOs, they’re probably interested in competing with you – moving in on your market and using their funding reserves and economies of scale to undercut you on price until you’re forced to sell out to them.

(And even if your goal is to be acquired, better to negotiate your price from a position of strength.)

Massive New Markets Are Opening Soon

Big new markets are expected to open or expand between now and 2025, including New York, New Jersey, and Virginia, with other states in the Northeast US expected to follow. Federal legalization seems like it’s just around the corner.

In April 2021, Chuck Schumer, Senate Majority Leader, a strong supporter of marijuana legalization, stated that they are ready to move ahead in making several amendments to federal laws, which prohibit the production, sale, and use of cannabis products. It’s now or never to get first-mover’s advantage in these markets.

States and Cities Aren’t Doing a Great Job of Enabling the Little Guy

Pro-legalization politicians usually talk big about empowering small businesses and setting up social equity programs in the run up to their programs, but then established MSOs and medium-to-large chains end up dominating the market anyway.

Usually the more regulated the market, the more it favors larger cannabis companies that can hire all the lawyers they need and hold on to expensive real estate throughout the licensing process.

Courts have struck down many state residency requirements for cannabis license holders, and it wouldn’t surprise us if larger cannabis companies were finding ways around these laws anyway, structuring them so they were in a local executive’s name but still run as part of an MSO.

So despite whatever politicians say, don’t expect them to protect you from Big Cannabis.

Our Advice on Expanding Into New States

Check the State/Province Laws (and What to Look For)

Is cannabis even legal there yet? Are they currently accepting license applications? If not now, when? Do they allow people from out of state to get a license?

What are the vertical integration requirements there? It might be a problem if they require you to be vertically integrated and you’re only experienced in one vertical like retail or cultivation, or you’re vertically integrated and not sure how to work profitably in coordination with other suppliers and vendors.

These are the type of things you need to find out. If you don’t have a lawyer or compliance officer that can help you this early in the process, a Google search should give you enough information to at least get started.

We have a few guides on opening dispensaries in various US states, including New Jersey, Arizona, and Montana. Weedmaps and Cova also have good, quick guides about the cannabis laws in each state and have details that are relevant to businesses, and Wikipedia is a good resource to a get a quick sense of the history of cannabis laws in each state.

If you’re looking to do a deep dive, some states, provinces, and cities also have helpful resources about laws and the licensing process, so look for .gov links. Some of these sites can be more helpful than others; we’ve found some government sites to be outdated, vague, or needlessly complicated. Have a read through the state’s cannabis laws and regulations if you have the time.

Review the Competition & the Market, & Find a Location

Look for opportunities and ways to differentiate yourself. Measure the risk/reward. Find the situation that puts you in the best possible situation to succeed. Just because licenses are available doesn’t necessarily mean you can run a profitable business there.

Who are your competitors in the new location – other MSOs, or local chains or mom-and-pop stores? Is there an area of the state, province, or city that seems underserved, based on the population to dispensary ratio?

Check out the menus of the competition if they have an online inventory – what are they stocking? Are they focused on a particular form of cannabis, and is that because that type is popular in the area or maybe they just don’t have good suppliers?

If you’re a dispensary, check out their interiors – are they upscale or does it look sort of run-down? If they look upscale maybe you can undercut them on price, and if they look run-down maybe you can make a quality/luxury play.

Learn from Others’ Mistakes and Successes

This could involve simply doing your research or reaching out to your contacts or consultants that are familiar with the market in question. Look at cannabis companies that have succeeded or failed in the area and find out what you can about how they did it.

If the market is completely new, then learn from what companies have done in areas with similar laws, demographics, and other conditions. For example, if more states in the American South start legalizing cannabis, it would make sense to look at companies in states like Missouri and Oklahoma to see what worked there.

Don’t bother making the same mistakes or wasting time cracking the code of a new market when it’s already been done for you.

Bring In the Lawyers

Chances are you’re probably going to have to bring in the suits at some point to make sure all your bases are covered and you fill out all the necessary forms correctly. Look for lawyers with experience in the cannabis industry. Even the laws are similar between areas they might be enforced differently, so try to find someone with local experience.

Consider Buying In

If the market is already saturated or there aren’t any licenses available, or if time-to-market is more important to you than cost, it may make sense just to buy in to the market. There are cannabis businesses and properties up for sale on sites like 420property.com and mpls.com.

Buying in has the added benefits of providing you with an already-established market and branding presence, and not having to build up your own local network of suppliers or hiring and training new employees from scratch. You’re paying for this in the purchase price, of course, and the process of evaluating, auditing, purchasing, integrating, and re-branding other businesses isn’t easy or cheap and will involve plenty of lawyerin’ monkey business.

Find Your People

You need experienced, talented people to help you run your operations in the new location. Find them where you can. This may involve a traditional candidate search, recruiting from other companies in the area, or transferring current employees to the new locations.

We know several examples of companies taking really talented managers, assistant managers, and budtenders in one area and turning them into store managers in other states or provinces.

Make sure your hiring practices follow the local laws. Some areas require you to hire a certain percentage of people that are long-term residents in the area or recruit from job placement programs for low income people.

Get Your House in Order First Before Trying to Expand

Take a step back and evaluate your current business. What are you doing that’s wrong, and what could you be doing better? Make things as efficient, streamlined, and standardized as possible. Fix the problems with your current locations if you can, or at least don’t repeat the same mistakes at your new locations.

Operations – How can you increase efficiency and production and minimize costs? If you’re a cultivator, look into ways to maximize yields and speed up processing and distribution. If you’re a retailer, look into redesigning your stores to match current retail design trends and maximize visitor conversions.

Talent management – Could your current employees be better trained in some way, or better incentivized to bring more to the company in productivity and enthusiasm?

Security & Compliance – Have you dealt with inventory loss problems or been dinged for compliance violations? What can you do to prevent these from happening at new locations?

IT/Tech

We have a little more to say here than in other areas since cannabis IT is our area of expertise.

You should make your IT as secure, standardized, easy-to-manage, and problem-free as possible. Many cannabis companies put little thought into their IT, assembling it as they go and never planning anything.

This ends up hurting them as they end up dealing with constant tech problems and expose themselves to major incidents like security breaches, extended tech outages, and compliance violations, which are not only costly but can make attracting investors and obtaining licenses more difficult.

Examples of things you should do to ensure you have a professional-grade IT:

  • Implementing a network-level firewall appliance
  • Practicing network segmentation
  • Using professional-grade Wireless Access Points
  • Using MDM to manage your tablets
  • Managing and securing all your PCs
  • Buying recommended hardware from top brands like Zebra, Star Micronics, Elo, and Compulocks
  • Getting someone to manage and support your IT 24/7 via either an internal hire or outsourcing to a services company like Cure8

You’ll Need Money. Lots of It.

To expand, you’re going to need money, and lots of it, especially if you want to keep pace with the big dogs and be opening multiple new locations in multiple different areas at once. If you’re buying in, many established cannabis businesses cost at least several million dollars these days.

Follow the advice in the previous section to increase the odds of getting funding. The cannabis industry isn’t the Wild West anymore so you need to show both operational maturity and the drive, commitment, and vision to grow and deliver the ROI investors are looking for.

How Cure8 Can Help

As mentioned, we’ve helped a lot of cannabis companies to plan and set up their tech (including POS and ERP systems, surveillance systems, networks, and back office IT) in new areas throughout the US and Canada.

Our unique experience and knowledge of cannabis markets on both sides of the border, as well as our ability to scale up and open a large number of new facilities rapidly for retailers, cultivators, manufacturers, and distributors, means we’re an ideal partner for businesses trying to break in to either country, especially the large publicly traded Canadian cannabis companies that are looking to move into the US.

Let us know if you need any help.

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