MSOs and Hemp: Should I Stay or Should I Go?

Among their many concerns one question weighs heavily on the minds of several medium to large MSOs right now:  

Do we jump into the rapidly-growing hemp-based THC product market?  

Cannabis and hemp-derived THC will eventually be subject to the same regulations. The issue is when and what those rules will be.  

In the meantime, the economic stakes are high (pardon the pun). The size of the intoxicating hemp market could well exceed $28B according to Whitney Economics, and that number includes the cannibalization of existing cannabis edibles and flower sales. 

Some major players like Curaleaf, Jeeter and Cookies have already taken the hemp plunge.  Other heavyweights such as Glass House, GTI and a few who will remain anonymous are pondering the move (or are poised to enter).  

Is this the right move for many cannabis firms?  There are legitimate offensive and defensive reasons to do so – and many reasons to take a pass right now. 

And if MSOs decide to enter the space, what is the best strategy? 

Hopefully, senior leaders and their Boards will be asking some hard, critical questions like the 5 below: For the record I am NOT commenting on the analytics and decisions of the aforementioned companies.

1. Is entry accretive from a profit and revenue perspective?

Yes, you might get an initial bump but what happens when entrants (including non-cannabis operators) pile in?

2. Can you win over the long run?  

Competition will be fierce and prices will inevitably decline.  You will struggle as a ‘me-too’ player without real brand differentiation, a strong value proposition and scale.

3. What is the impact of yet another project and business on your operational complexity, capital allocation and strategic goals?  

Addition without strategic subtraction is usually not a winning formula.

4. Have you explored potential market and financial outcomes based on different regulatory scenarios?

‘Nuff said.

5. What is your 360-degree risk profile?

Beyond project risk, what is the impact on your corporate brand and cannabis advocacy efforts?

Of course, the strategic calculus will vary by company, and that means it might be a smart decision for some - ceteris paribus - and a dumb choice for others. 

All players should be mindful of some hard-fought cannabis lessons:

> Smart, agile and steady is the way to win in these types of markets; 

> Betting too early or too big without regulatory certainty is dangerous;

> Groupthink in analytics and decision making should be avoided at all costs;

> Best to market beats first or early to market every time.

For MSOs the hemp-derived THC market may well be a Faustian Bargain:  

growth and protecting your franchise is critical but at what price (including opportunity cost) and risk? 

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