MSOs: The New Growth Formula - Part 2

Last week, I wrote about how the seeds of MSO failure are baked into their new market growth plans.   As a recap, when companies race to expand into markets they add significant amounts of complexity, which hinders operational agility & flexibility, devours capital and most of all layers on cost – much of it hidden. More markets exponentially worsen operational problems as keeping your operations lean and mean take a back seat to revenue growth and aping competitors.

There is an another, more pernicious risk.  When Interstate Commerce comes to pass, disparate MSO operating models will be vulnerable to alcohol, pharma or CPG players who will be able to leverage national, high performance supply chains.  

The solution is not to put the brakes on growth.  Many firms have no choice but to grow if they want to protect their franchise or rebuild their share price.  

Instead, the right approach is to drop templated approaches and move to tailored, asset-light market entry strategies that retain optionality.  

I work with a leading cannabis thinker, Jay McMillan, on helping MSOs expand prudently. Below is our abridged 4 step growth formula:

1) You can’t win everywhere so make choices.  Its crucial to prioritize new markets (NY vs NJ vs IL vs MO vs OH vs TX vs FL etc) based on time to revenue & profit, your ability to win and their regulatory nuances.

2) New markets require innovative, lessons-based strategies that are better than outspending rivals and cookie cutter tactics which focus on retail layout, production footprint or location.  Automatically investing scarce, expensive capital and time is no longer judicious when your financial performance (what counts today) is measured on a quarter by quarter basis.

3) Enter new markets with an asset-lite, partnership-based business model. For example, you could partner with processors and distributors to commercialize your brands, while remaining compliant with regulations.

These tightly managed alliances can be structured in such a way that they allow for the optionality of a future acquisition upon the achievement of certain metrics (revenue or profit goals for the market) or events like regulatory change. Protection from competition can be afforded via ROFRs (‘right of first refusals’) along with other constraints.

4) Consider any investment or acquisition of assets in light of your firm’s vision, cost structure and corporate positioning.  All strategic decisions should consider current & future market realities and how production, distribution and brand-building can be impacted by regulatory changes.

#MSO #growth #newmarketentry #strategy #assetlite #outsourcing