Keeping It Tight: Value vape and flower brand Old Pal is scaling across geographies quickly in an industry known for high geographic hurdles by embracing a no-license model. After launching in 2018, Old Pal has grown to become the largest flower brand by volume in California and spans over 350 stores in California, Nevada, and Washington, with Florida and Michigan forthcoming. Old Pal’s asset-light model entails 10 manufacturing partnerships and sourcing from over 100 cultivators, avoiding the substantial investment otherwise required to grow across state lines.
Why It Matters: It’s both sorta standard, but also… sorta interesting. If brands are growing into new states, licensing and partnerships are pretty much the only way to break in, unless they want to go full MSO. What’s different: most brands have historically stood up their own operations in at least one state to ensure the product quality and consistency that, you know, actually enables you to build a brand. It’s impressive that Old Pal has successfully sidestepped that, all while focusing on the value segment. This works well in states like California and Nevada, where companies like Kiva Sales and Service, Flower One, and Growpacker are part of a multi-layered supply chain. But for more limited license states like Illinois? Those partnerships are harder to structure when, say, six companies control 75%+ of cultivation and can push their product in their own dispensaries. The no license expansion model is, in many ways, the inverse of what many MSOs are building - but, when incentives align, it’s not impossible for opposites to attract…
Deals Aren’t Dead, Pt. 10: The long-awaited mega-deal between Curaleaf and Grassroots took a step forward towards completion, as the two parties amended their original $875 million deal. The new deal removes the $75 million in cash consideration, and instead adds additional shares as compensation. Together, the two will represent 23 states, over 135 dispensary licenses, 88 operational dispensary locations, over 30 processing facilities and 22 cultivation sites, after selling off assets in Illinois, Maryland, and Ohio to comply with local limitations on license ownership.
Why It Matters: After the substantial delay on this one while so many huge mergers and deals have fallen through, I’ll be the first to admit: I thought this one was a goner. But (as we mentioned literally one blurb ago), despite recent retrenchment, MSOs are still betting that scale will be the winning factor in success to come. So… does this mean the canna-bull market is back?
Hemp On: More states are starting to allow dispensaries to sell hemp-derived CBD, creating more competition for marjuana producers in some product categories. Previously, many states banned CBD products from being sold in dispensaries if sourced from a cannabis plant with THC less than 0.3%. But a growing tide of nearly a dozen states are opening up the rules on their supply chain in a variety of ways. Some producers are less than pleased, as hemp derived CBD avoids the regulatory hoops of seed-to-sale tracking, and is taxed at a fraction of the rate of marijuana.
Why It Matters: Ultimately, I find it hard to imagine this development being that much of a bad thing in the long-run. There’s really not that much of a reason that hemp biomass (which is, you know, grown to be high in CBD) shouldn’t be used for CBD products, regardless where they’re sold. And, remember, if CBD is a lawless Wild West of shady products and unclear rules, THC is like Singapore - incredibly strict rules to the point of overly burdensome. An intermingling of supply chains might force the regulatory apparatuses towards one another, too, to the benefit of both.