Denver marijuana enterprise homeowners embrace the problem of public enterprise and massive cash
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“The names may not change, but ownership could be completely different.”
This is what the owner of one of Colorado’s largest pharmacy chains for the state’s cannabis industry predicted after funding rules were enacted that allow public companies and other foreign investors to own cannabis companies here. The new law, which came into effect on November 1, has already resulted in over 55 announced pharmacy purchases and business takeovers in infusion products between just two groups of cannabis owners.
Green Dragon co-owner Alex Levine isn’t worried about losing his seat at the table, however. In fact, he sees his experience in Colorado as an advantage, and others who have owned cannabis companies in the state for some time share this sentiment. While Colorado has just opened up to someone else’s property – something most states with recreational cannabis industries have already allowed – it was the first state to legalize retail cannabis stores and is widely recognized as the world’s most mature marijuana market. even if most of the rest of the world was ruled out until now.
“Colorado really has the most experienced operators in the country. Even if there are players who have good capital and raise money, they are not necessarily experienced operators,” says Levine. “It will be interesting to see how they do in Colorado. The margins are really tight here.”
While more outside money is bound to flow in Colorado, the recently announced pharmacy deals have some strong local ties. Medicine Man Technologies, a Denver-based ownership group that helped draft new owner approval law, is as local as a cannabis company can be. The company’s CEO, Andy Williams, founded one of Denver’s early medical marijuana pharmacies, Medicine Man, which is now a chain store in the metropolitan area. But Medicine Man Technologies is about to own way more than a handful of pharmacies.
In less than a year, the Denver-based public cannabis company has agreed to buy more than thirty pharmacies across Colorado. Recently announced deals, most of which are pending, include agreements to purchase all three Colorado Harvest Company pharmacies, five Starbuds locations across the state, and the six pharmacies of the Roots RX mountain pharmacy chain. Medicine Man Technologies also plans to purchase over ten additional stores through the acquisition of southern Colorado chains Mesa Organics and Strawberry Fields. The company doesn’t stop there and has announced agreements to acquire two brands of hashish from Colorado, as well as one of the largest outdoor cannabis growers in the country and Medically Correct, the parent company of Incredibles Edibles.
Another big pharmacy buyer is not based in Colorado, but keeps Coloradans nearby. On November 5, The Green Solution, one of the state’s two largest pharmacy chains, announced that it had agreed to join the publicly traded company Columbia Care Inc., a Canada-registered cannabis operator with licenses in more than a dozen US states. The deal requires The Green Solution founders to stay on board while the brand pushes for expansion outside of the state.
“I think it’s really exciting for the Columbia Care side to really use what The Green Solution has built here to open up our other markets across the country. In a way, it exports a lot of know-how across the country, ”explains Nicholas Vita, CEO of Columbia Care.
Founded in 2010 by the Spiedell family, The Green Solution has not only grown into one of the largest cannabis brands in the state, but also developed an in-house line of edibles, concentrates, and vaporizer products. But even Colorado’s pot giants are tiny potatoes compared to Wall Street wallets.
“Kyle and I come from humble beginnings and have built the company for over a decade,” said Eric Spiedell, who is co-president of the company with Kyle. “We felt we were missing one thing was financial market acumen, and we felt we would be better placed to work with a team with that ability.”
If this is what the founders of one of Colorado’s largest cannabis brands think, will owners of much smaller cannabis companies follow the same path? “I definitely think at this point. The rules were made or created for this occasion,” says Kyle Spiedell. “Colorado was a little behind when we didn’t pass the law four or five years ago like the rest of the country did.”
As the Spiedells point out, many cannabis business owners with operations much smaller than the Green Solution have been waiting for a chance to sell to people with much deeper pockets and get a financial reward for all of their hard work. Fluctuations in wholesale cannabis prices, strict corporate taxes and audits, and the lack of federal tax breaks have thinned pharmacies’ profit margins. Proponents of the new cannabis investment rules argue that bringing more investors into the state has given these small business owners a chance to come out with a profit.
Levine and other local pharmacy owners see the same factors at increased risk for potential buyers, which means that a certain amount of Silicon Valley-like hubris might be required to attempt to break into Colorado’s cannabis market. John Andrle, who co-owns L’Eagle pharmacy in Denver with wife Amy, believes a pharmacy’s profit margins are closer to a restaurant’s than a tech company’s – but the funding he’s seen shows that investors think differently, he adds.
“It’s easy to round up money, but there are so many other advantages in the tech or gig economy because there is always data with those things that you can sell to other companies,” says Andrle. “Lyft and Uber can take the data from where you drive and sell that data to someone else for a lot of money.”
L’Eagle, a standalone drugstore in Denver.
Andrle currently sees more failures than success stories in Big Cannabis, and points to the continued declining sales of MedMen, a publicly traded company and one of the largest and most notable cannabis retailers in the country. With so many new regulations, Andrle currently prefers a slower growth path.
“I bet some bankers look at Amy and I and think if we can do it they’ll kill us with all their money and resources,” he says. “But there are all sorts of examples of these models going out of business in two years.”
According to Marijuana Business Daily, MedMen reported consecutive net losses of more than $ 63 million in fiscal year two and three, as well as multiple lawsuits and a target put on its back by the creators of South Park. “How many millions did MedMen lose in the last quarter?” asks Andrle. “You have to make some income at some point. You can’t just keep losing.”
And if you lose, you can’t get the huge amounts of cash that local businesses are currently asking for. The reported price of $ 140 million for Green Solution’s 23 pharmacy licenses, numerous infused product brands, and double-digit growth facilities was just $ 15 million in cash and $ 110 million in Columbia Care stock (trading at approximately $ 7 $ Per share in May (currently less than $ 3 per share) and an additional $ 15 million in senior loan.
Medicine Man Technologies has bought brands of cannabis in similar circumstances, with compensation based on the majority of MMT shares (which is also currently around $ 3 per share) while keeping the brands’ respective founders as executives under the Medicine Man umbrella . The moves could pay off as Columbia Care and Medicine Man Technologies grow into cannabis giants, but Andrle notes that they also have low guarantees compared to mergers in other industries.
Still, these new players have significantly more backing than Colorado’s current stock of pharmacy owners. And with other new laws allowing upcoming cannabis-use lounges with retail sales as well as pharmacy deliveries, Andrle predicts that local pharmacies that are already having problems will likely be weeded out.
“I think if we weren’t so prominent and established I would be really worried. But if I had a dime every time someone moved here from New York to start a cannabis company … ”he says. “I’ve been competing against people with infinite cash for the last ten years and we’ve always found ways to compete. But to be honest, not everyone will be in business in two years.”
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Thomas Mitchell has been a cannabis-related writer for Westword since 2014, covering sports, real estate, and general news for publications such as the Arizona Republic, Inman, and Fox Sports. He is currently the cannabis editor for westword.com.