The Unique Advantages, and Challenges, of Multi-State Operators
June 12th, 2019
App, Exclusive, News, Top Story
As the cannabis industry continues to mature, an increasing number of companies are choosing to become multi-state operators, with assets and operations in a number of US legal markets. Most have achieved this through the acquisition of companies with existing assets and licenses in target states, which most often become regional subsidiaries, allowing companies to quickly gain control over cultivation and processing facilities, licensing, and often retail operations and distribution agreements, increasing capacity and augmenting their vertical integration, one of the key benefits of multi-state operations.
Multi-state operators bring to new markets valuable experience, standard operating procedures, and best practices, as well as shared branding, equipment, expertise, and intellectual property, not to mention a track record of navigating and complying with complex and varied regulatory environments – which means a lot to the people granting state and local licenses. As new markets continue to emerge, multi-state operators who’ve successfully expanded can build on the lessons learned elsewhere and more easily transition into them.
This all comes at a cost, of course, but if done correctly, it can result in huge payoffs.
MSO’s Reflect Changing Legal Landscape
Cannabis is, of course, still illegal under federal law, but attitudes are quickly changing; most Americans now support legalization and even a majority of Republicans (traditionally the most hostile to legalization efforts) now favour full federal legalization.
As of last year’s midterm elections, 33 states have legalized cannabis for medical purposes, while ten of them and the District of Columbia have legalized cannabis for recreational adult use. In December, the 2018 Farm Bill was also signed into law, legalizing hemp and the production of hemp-derived CBD, enabling operations in states where other cannabis operations are still illegal. Prior to the legislation, the US was the only industrialized nation with a ban on hemp, placing hemp-dependent US companies at a distinct disadvantage.
Halo Expanding National Footprint, Product Offering
Halo Labs Inc. (NEO: HALO, OTCQX: AGEEF, Germany: A9KN) is a successful multi-state operator with assets and operations in Oregon, Nevada, and California, the world’s largest single cannabis market. The company manufactures cannabis oils and concentrates, the fastest-growing segment of the industry, and operates eight distinct product brands of extract-based products.
In California, Halo is operating an initial 1,600 square foot facility in Southern California with expectations to begin operations in a second 7,800 square foot facility which is already licensed and is currently finalizing approval for buildout. Halo also has several large contracts including a $2 million per month supply agreement with Falcon International Corp. and a $1 million per month agreement with ikanik Farms, establishing the company early on as a leader in extraction in California.
In Oregon, where the company is based, it controls six acres of outdoor cultivation and a 19,200 sq. ft. manufacturing facility, and its revenues have risen as a result of the introduction DabTabs – a proprietary vaping technology in which ceramic discs store a dose of cannabis oil, providing a solution to the mess often involved in vaping concentrates – as well as a full line of edibles. Halo already boasts over 20% of the state’s highly-competitive wholesale concentrates market, and has begun a shift to a product mix comprised of higher margin items.
In Nevada, the company controls state licenses as well as an 8,000 sq. ft. processing facility near the Las Vegas airport, with plans to develop larger grow operations, and the rollout of DabTabs is expected to increase its dispensary penetration. The company announced in February that MedMen will distribute DabTabs in all of its Nevada and California dispensaries.
Most recently, the company announced a partnership with High Tide Inc. to distribute Halo branded products through High Tide’s distribution channels into the United States, Canada and Europe. The partnership will initially entail distribution of do-it-yourself DabTabs kits where consumers can prefill their products with measured doses of cannabis.
Halo Labs CEO, Kiran Sidhu said, “I am truly excited about our new partnerships that will strengthen Halo’s presence within the United States and expand its reach into Canada and Europe. This introduction to international markets through High Tide is laying the groundwork for the company to obtain access to the world, while providing Halo branded products directly to the consumer. With Halo being the product producer and High Tide being the hardware provider, the potential is endless.”
Cansortium a Steadily-Expanding MSO
A strategic first-mover in regulated markets with high barriers to entry, including Florida, Texas, Pennsylvania and Puerto Rico, Miami-based Cansortium (CSE: TIUM) is a multi-state operator that aims to redefine the standard for the medical cannabis industry, a multi-state cultivator, processor, formulator and premium retailer of medical cannabis.
The company owns one of 14 operating licenses in Florida – which has the fastest growing medical cannabis patient population in the US – and operates nine Florida dispensaries with an additional 14 in active development and seven more planned. It also owns a 31,000 sq. ft, GMP-certified greenhouse cultivation and 9,000 sq ft processing facility, located in Winter Garden with up to an additional 187,000 sq. ft of cultivation space being added this year. Cansortium’s successful Florida operations serve as a model for expansion into other key markets.
In Texas, Cansortium controls one of only three operating licenses granted, and was the first to receive a medical marijuana license from the state. It operates a 1300 sq ft cultivation and 650 sq ft processing facility, with state-wide delivery services and the potential for an additional 400,000 sq. ft of cultivation space as demand increases.
The company’s currently operating in Pennsylvania under a Dispensary License in Region 3 with one dispensary open and two more set to open by the end of the year.
Michigan currently has 300,000 registered medical marijuana patients, and a Cansortium affiliate has received pre-application status for 12 Class C cultivation licenses and a processing license, and is pending pre-qualification approval for a dispensary license, with three initial locations planned. Michigan regulations allow dispensary license holders to open an unlimited number of dispensary locations.
Cansortium’s multi-state and international expansion will be driven by Fluent Cannabis Care, which replaces the Knox Medical brand, under which it currently operates cultivation, processing, and dispensary facilities in Florida, Texas, Pennsylvania, and Puerto Rico.
About the rebranding, Cansortium Founder & CEO Jose J. Hidalgo said, “Launching the Fluent Cannabis Care brand is a significant step in our mission to redefine the medical cannabis experience for customers in Florida, throughout the United States, and across the globe. Our society is becoming fluent in cannabis, learning and gaining a deeper understanding of cannabis’ potential positive impacts on human health and wellness. Fluent reflects our foundational commitment to science, quality, and customer care, and the evolution of the Company into a global cannabis leader with operations that cross borders, languages and cultures.”
Investors may want to take a closer look at multi state operators Halo Labs Inc. (NEO: HALO, OTC: AGEEF) & Cansortium (CSE: TIUM), as they are well positioned to capitalize on expanding legal markets and favorable regulations in additional states over the coming years.
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