As Canadian provinces begin to see their first private licensed cannabis stores, retail chains and dispensaries in the United States have entered a new phase of maturity. These two trends may be prompting major producers to look into getting into the retail market in order to sell product directly to consumers, which could potentially trigger some fresh deal action this year.
For larger growers, the benefits to this vertical integration are obvious. Besides cost savings and convenience, a producer would be able to exercise more quality control and a better understanding of market conditions. This is not possible in all jurisdictions, of course, as provincial governments in Nova Scotia and Quebec run their own retail stores, making this type of integration impossible.
This trend already started last year. Major Canadian cannabis producer Aurora Cannabis (TSX:ACB) pursued some deals in 2018 that could allow it to be more vertically integrated. As hemp products are not as restricted in their distribution and retail, Aurora recently acquired a majority stake in Hempco Food and Fiber (TSXV:HEMP). Aurora also owns a 20% interest in Liquor Stores NA, which is currently focused on growing a network of retail cannabis stores in Western Canada. In fact, Charlotte’s Web Holdings Inc. (CSE:CWEB) has taken advantage of looser hemp regulations by both producing and selling hemp-based CBD products for years, with over 3,000 retail locations in the United States. And in June, High Hampton Holdings (CSE:HC) acquired 420 Reality, LLC, allowing it to expand its distribution network in California.
At the moment, MedMen Enterprises Inc. (CSE:MMEN) (OTCQX:MMNFF) and Green Growth Brands (CSE:GGB) (OTCQB:GGBXF) seem to be ahead of this curve. As vertically integrated producers, they bring a new, polished approach to cannabis retail, while adding a dash of marketing know-how that’s so far been lacking in the industry. At the moment, retail stores and dispensaries are run like mom and pop operations. Because the industry is new, staff tend to be poorly trained and service inconsistent, while retail presentations are less than slick.
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Companies like MedMen Enterprises Inc., which currently operates 15 medical and recreational dispensaries in California, Nevada, and New York are now looking to revamp that image. For example, MedMen’s cannabis dispensary in West Hollywood has been described as a cross between an Apple store and a ski lodge. These companies are trying to shake the rundown, seedy image of pot dispensaries with a bright, open-air atmosphere and friendly knowledgeable staff. With a wealth of product selections on display, including edibles, creams, and drinks, these chains are trying to position themselves as a lifestyle, appealing to trendy, Trader Joe's-loving millennials who are into craft beer and love to experiment with new flavor profiles.
Other growers with leading retail chains include Green Thumb Industries Inc. (CSE:GTII), which operates its RISE stores in 71 locations across Nevada, Florida, Maryland, Massachusetts, Ohio, and Pennsylvania; and Curaleaf Holdings Inc. (CSE:CURA), which operates 42 dispensaries in 12 states.
Green Growth is another company tapping the millennial market with lifestyle selections. Late last month, Green Growth Brands opened two more of their Seventh Sense CBD mall shops in Indiana and Tennessee, with plans to launch hundreds of CBD stores through the US. Like MedMen’s stores, its The+Source locations have also been described as "the Apple Store” of marijuana dispensaries, featuring minimalist displays and cannabis education classes.
And aside from its takeover bid for Aphria Inc. (TSX:APHA), rumors have been swirling that GGB could be looking to buy more retail chains, with Liberty Health (CSE:LHS) being a prime candidate. Liberty Health Sciences filed an application to open up its 11th dispensary in Florida, and plans to be one of the largest cultivators in the Sunshine State. This exposure to the Florida retail market would definitely entice suitors like MedMen and Green Growth.
Featured image: DepositPhotos © Fotofabrika
